Commercial Law Bar Q A Insurance Law 19752019 4f1920 PDF Free

Insurance Law
Bar Exam
Questions and
Answers
1975-2019
Submitted to:
Atty. Timoteo Aquino
Professor
Commercial Law Review
San Beda University – Manila
Submitted by:
4F
AY 2019-2020
BAR Q AND A IN INSURANCE LAW
TABLE OF CONTENTS Page

Number
CONCEPT OF INSURANCE
General Principles
2012…................................................................................................. 9
2012…................................................................................................. 10
Minority of Insured
2012.................................................................................................... 11
CHARACTERISTICS/NATURE OF INSURANCE
Co-Insurance vs. Re-Insurance 12
1994…...............................................................................................
PERFECTION
Cover Note
2009………………………………………………………………………. 13
Contract of Insurance
1980………………………………………………………………………. 15
Perfection of Insurance Contracts
2003………………………………………………………………………. 16
Cognition Theory
2011………………………………………………………………………. 17
2016………………………………………………………………………. 18
DOUBLE INSURANCE
Contract of Indemnity
2008………………………………………………………………………. 19
Double Insurance
2005………………………………………………………………………. 20
2012………………………………………………………………………. 21
2012……………………………………………………………………….
22
2017……………………………………………………………………….
Over Insurance 23
1990………………………………………………………………………. 24
RISK INSURED AGAINST
Effects
2012………………………………………………………………………. 27
MARINE INSURANCE
Marine Peril 28
1977……………………………………………………………………….
Maritime Commerce
1977………………………………………………………………………. 30
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Loss and Abandonment

1982………………………………………………………………………. 32
Implied Warranty of Sea Worthiness
1983………………………………………………………………………. 34
Perils of the sea and Barratry
1986………………………………………………………………………. 35
Proximate Cause; Perils of the Sea
1998………………………………………………………………………. 36
Contribution for General Average and Jettison
1983………………………………………………………………………. 37
Constructive Total Loss
2005………………………………………………………………………. 39
Doctrine of Limited Liability
2011……………………………………………………………………….
40
Deviation; When is it proper
2011………………………………………………………………………. 41
Perils of the Sea; Perils of the Ship
2011……………………………………………………………………….
42
Representation; Test of Materiality
2011………………………………………………………………………. 44
Loss; Constructive Total Loss
2011……………………………………………………………………….
45
Perils of the Ship
2011………………………………………………………………………. 46
Abandonment; Agent
2011……………………………………………………………………….
47
Doctrine of Limited Liability, and Doctrine of Inscrutable Fault
1997………………………………………………………………………. 49
Implied Warranties
2000……………………………………………………………………….
All-Risk Policy 50
2017………………………………………………………………………. 51
Compulsory Motor Vehicle Liability Insurance
1977………………………………………………………………………. 52
1983……………………………………………………………………….
2014………………………………………………………………………. 54
No Fault Indemnity Clause 55
1981………………………………………………………………………. 56
1989……………………………………………………………………….
Theft Clause 57
1981………………………………………………………………………. 58
Authorized driver Clause
1986………………………………………………………………………. 59
1991………………………………………………………………………. 60
2003………………………………………………………………………. 61
Insurer; 3rd Party Liability; Quitclaim
1994……………………………………………………………………….
1996………………………………………………………………………. 62
63
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2000………………………………………………………………………. 64
LIFE INSURANCE
Life Insurance
1995………………………………………………………………………. 65
Beneficiary
1985………………………………………………………………………. 67
1998………………………………………………………………………. 69
2008……………………………………………………………………….
71
2012……………………………………………………………………….
72
Beneficiary; When Forfeited
1981………………………………………………………………………. 74
Accident Insurance
1990……………………………………………………………………….
75
CASUALTY INSURANCE
Third Party Liability; Theft Clause
1981………………………………………………………………………. 76
1988………………………………………………………………………. 77
1981………………………………………………………………………. 78
3rd Party Liability; No Fault Indemnity
1994………………………………………………………………………. 80
FIRE INSURANCE
Kinds of Policies
1975………………………………………………………………………. 81
Insurable Interest in Property Insurance
1982………………………………………………………………………. 82
Warranties
1986………………………………………………………………………. 84
Proximate Cause
1989………………………………………………………………………. 85
INSURABLE INTEREST
1991………………………………………………………………………. 86
2002……………………………………………………………………….. 87
2012………………………………………………………………………. 88
2012…................................................................................................. 89
2014…................................................................................................. 90
2014…................................................................................................. 91
2015………………………………………………………………………… 92
2017…................................................................................................. 93
Property
1977………………………………………………………………………. 95
1979………………………………………………………………………. 97
1984………………………………………………………………………. 98
1987……………………………………………………………………….
100
Change of Interest in the Thing Insured
101
1980……………………………………………………………………….
Insurable Interest of the Mortgagor and Mortgagee
102
1984……………………………………………………………………….
Life
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1987………………………………………………………………………. 104
1988………………………………………………………………………. 105
Life; Parties to an Insurance Contract — Beneficiary
1987………………………………………………………………………. 106
Insurable interest of the Beneficiary in Property and Life Insurance
1997………………………………………………………………………. 107
Property Insurance
1994………………………………………………………………………. 108
2001………………………………………………………………………..
Double Insurance 109
1999……………………………………………………………………….
Insurable Interest; Life vs. Property Insurance 110
2000……………………………………………………………………….. 113
Bank Deposit
2000……………………………………………………………………….. 114
Public Enemy
2000……………………………………………………………………….. 115
2013…................................................................................................. 116
Non-Life Insurance Policy; Fire Insurance
2009……………………………………………………………………….. 118
Building Destroyed by Fire
2010……………………………………………………………………….. 120
Life Insurance
2011…................................................................................................. 122
Beneficiaries; Revocation
2018…................................................................................................. 123
BENEFICIARY
Effects: Irrevocable Beneficiary
125
2005….................................................................................................
Irrevocable Beneficiary
126
2005….................................................................................................
PREMIUM
1978…................................................................................................. 127
2014………………………………………………………………………… 128
Insurance; Return of Premiums
2000………………………………………………………………………… 130
Cash & Carry Basis
2003………………………………………………………………………… 131
Effects of Payment of Premium by Installment
2006………………………………………………………………………… 132
Loss as an immediate cause; Effect of the negligence of the insured
2007………………………………………………………………………… 133
Payment of Premiums
2010………………………………………………………………………… 135
Exception to Cash and Carry Rule: Credit Extension
2013………………………………………………………………………… 136
Exception to Cash and Carry Rule: Agreement that Premium be paid in
Installments and partial payment made at the time of the loss
2015…................................................................................................. 138
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Payment
1976…................................................................................................ 139
RESCISSION OF INSURANCE CONTRACTS
Misrepresentation
1975…................................................................................................ 140
1977…................................................................................................ 141
Concealment; Duty to Communicate
1975…................................................................................................ 142
Concealment; Material Information
1976…................................................................................................ 143
Concealment; Other Insurance Clause
1979…................................................................................................ 144
Concealment
1979…................................................................................................ 145
1989…................................................................................................ 146
2009…................................................................................................ 147
2012…................................................................................................ 148
Concealment; Test of Materiality; Effects of Concealment
1979…................................................................................................
149
Parties to an Insurance Contract; Beneficiary
1981…................................................................................................ 150
Concealment; Incontestability Clause
1983…................................................................................................ 151
1984…................................................................................................ 153
1989…................................................................................................ 154
1991…................................................................................................ 155
1994…................................................................................................ 156
1996…................................................................................................ 157
1997…................................................................................................ 159
1998…................................................................................................ 160
2019…................................................................................................ 161
Concealment; Material Concealment
2001…................................................................................................ 162
Concealment; Test of Materiality
2011…................................................................................................ 163
Other Insurance Clause
2011…................................................................................................ 164
Concealment; Incontestability of Life Insurance
2013…................................................................................................ 165
Parties to the Contract; Representation; Incontestability Clause
2014…................................................................................................ 166
Concealment; Material Information
2016…................................................................................................ 168
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CLAIMS SETTLEMENT AND SUBROGATION

Accident Insurance
1975…................................................................................................ 169
2004…................................................................................................ 170
Bank deposit Insurance; Recovery of Loss
1977…................................................................................................ 171
Right of the insured to change Beneficiary
1978…................................................................................................ 172
Right of Insurer to be subrogated
1978…................................................................................................ 173
Subrogation
1980…................................................................................................ 174
Warranty; Guidelines on Claim Settlement
2014…................................................................................................ 176
Theft Clause
1984…................................................................................................
177
Assignment of Insurance Policy
1991…................................................................................................
178
Total Loss and Constructive Loss
1991…................................................................................................
179
Property Insurance; Prescription of Claims
1996…................................................................................................ 181
Actual Total Loss
1996…................................................................................................ 182
Insurer; Group Insurance; Employer-Policy Holder
2000…................................................................................................ 183
Mutual Insurance Company; Conservator v. Receivership
2006…................................................................................................ 184
Right of Subrogation
2011…................................................................................................ 185
Incontestability Clause
2012…................................................................................................ 186
Topic: Carriage of Goods by Sea Act; Subrogation
2014…................................................................................................ 187
Marine Insurance; Subrogation
2014…................................................................................................ 1888
Loss
2014…................................................................................................ 190
Loss; Notice of Loss
2014…................................................................................................
191
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*YEAR ASSIGNMENTS PER STUDENT …………………………………… 192
4F 2019-2020 8
CONCEPT OF INSURANCE
Topic: General Principles (2012)
An insurance contract is an aleatory contract, which means that -
a. the insurer will pay the insured equivalent to the amount of the premium paid.
b. the obligation of the insurer is to pay depending upon the happening of an
uncertain future event.
c. the insured pays a fixed premium for the duration of the policy period and the
amount of the premiums paid to the insurer is not necessarily the same amount as
what the insured will get upon the happening of an uncertain future event.
d. the obligation of the insurer is to pay depending upon the happening of an event
that is certain to happen.
ANSWER:
b. the obligation of the insurer is to pay depending upon the happening of an uncertain future
event.
4F 2019-2020 9
Topic: General Principles (2012)
An Insurance Contract is a contract of adhesion, which means that in resolving ambiguities in the
provision of the insurance contract, -
a. the general rule is that, the insurance contract is to be interpreted strictly in

accordance with what is written in the contract.
b. are to be construed liberally in favor of the insured and strictly against the insurer
who drafted the insurance policy.
c. are to be construed strictly against the insured and liberally in favor of the insurer.
d. if there is an ambiguity in the insurance contract, this will invalidate the contract.
ANSWER:
b. are to be construed liberally in favor of the insured and strictly against the insurer who drafted
the insurance policy.
4F 2019-2020 10
Topic: Minority of Insured (2012)
X, a minor, contracted an insurance on his own life. Which statement is most accurate?
1. The life insurance policy is void ab initio.

2. The life insurance is valid provided it is with the consent of the beneficiary.
3. The life insurance policy is valid provided the beneficiary is his estate or his
parents, or spouse or child.
4. The life insurance is valid provided the disposition of the proceeds will be subject
to the approval of the legal guardian of the minor.
ANSWER:
Minors cannot enter into insurance contracts. Under the Civil Code, a contract entered into by a
minor and a capacitated person is voidable.
4F 2019-2020 11
CHARACTERISTICS/NATURE OF INSURANCE CONTRACTS
Topic: Insurance; Co-Insurance vs. Re-Insurance (1994)
Distinguish co-insurance from re-insurance.
ANSWER:
In CO-INSURANCE, the insured undertakes to assume the risk to the extent that is not covered
by the insurance, here, the insurer partially insured the property. In case of loss or damage, the
insurer will be liable only for such proportion of the loss or damage as the amount of insurance
bears to the designated percentage of the full value of the property insured. REINSURANCE, on
the other hand, is a contract through which the insurer procures a third person to insure him
against any loss or liability by reason of such original insurance. (Section 97, Insurance Code) In
every reinsurance, the original contract of insurance and the contract of reinsurance are covered
by separate policies.
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PERFECTION
Topic: Perfection; Cover Note (2009)
Antarctica Life Assurance Corporation (ALAC) publicly offered a specially designed insurance
policy covering persons between the ages of 50 to 75 who may be afflicted with serious and
debilitating illnesses. Quirico applied for insurance coverage, stating that he was already 80 years
old. Nonetheless, ALAC approved his application.
Quirico then requested ALAC for the issuance of a cover note while he was trying to raise funds
to pay the insurance premium. ALAC granted the request. Ten days after he received the cover
note, Quirico had a heart seizure and had to be hospitalized. He then filed a claim on the policy.
Did ALAC’s issuance of a cover note result in the perfection of an insurance contract between
Quirico and ALAC? Explain.
ANSWER:
No, ALAC’s issuance of a cover note did not result in the perfection of an insurance contract
between Quirico and ALAC.
Insurance contracts are consensual contracts, which require the meeting of the minds of the party.
Peculiar to insurance contracts is the “Cognition Theory” embodied in Art. 1409 of the Civil Code
which provides that a contract is perfected the moment the offeror learns about the acceptance
of the offer by the offeree. With regard to a cover note, it is intended to be a preliminary contract
of insurance. The purpose of Sec. 52 of the Insurance Code provides that “[c]over notes may be
issued to bind insurance temporarily pending the issuance of the policy.” Persons who wish to be
insured may get protection before the perfection of the insurance contract—notice of approval of
the application—by securing a cover note. The cover note shall be deemed an insurance contract
as contemplated under Sec. 1(1) of the Insurance Code. (Sundiang & Aquino, Reviewer on
Commercial Law (2019), p. 97)
4F 2019-2020 13
Based on the facts, ALAC had already approved the insurance policy of Quirico. Following that
an insurance contract is consensual in nature, the perfection of the insurance contact between
Quirico and ALAC does not flow from the ALAC’s issuance of the cover note but from the
knowledge of Quirico that his insurance policy had been approved.
Hence, the issuance of a cover note by ALAC did not result in the perfection of the contract of
insurance.
4F 2019-2020 14
Topic: Contract of Insurance (1980)
“P” filed an application with an insurance company for a 20-year endowment policy in the amount
of P50,000.00 on the life of his one-year-old daughter, supplying all the essential data in the
application form, but without disclosing that his daughter was a mongoloid child. Upon “P’s”
payment of the annual premium, a binding deposit receipt was issued to “P” by the insurance
agent, subject to processing by the company. The insurance company disapproved the insurance
application stating that the plan applied for was not available for minors below seven years old,
and offered another plan. The insurance agent did not inform “P” of the disapproval nor of the
alternative plan offered, and instead, strongly recommended that the company reconsider and
approve the insurance application.
As fate would have it, “P’s” daughter died. “P” sought payment of the proceeds of the insurance
but the company refused on the grounds that there was concealment of a material fact in the
insurance application form and that it had rejected the application. “P” contended, on the other
hand, that the binding deposit receipt constituted a temporary contract of life insurance.
How would you resolve the issue?
ANSWER:
I would resolve the case in favor of the insurance company.
The SC declared in the case of Great Life Assurance Co. vs CA that the binding deposit receipt
is merely conditional and does not insure outright. Where an agreement is made between the
applicant and the agent, no liability shall attach until the principal (insurance company) approves
the risk. The binding deposit receipt is subordinated to the act of the insurance company in
approving or rejecting the application; thus, in life insurance, a “binding slip” or “binding receipt”
does not insure by itself.
In the present case, when the application was disapproved, before the death of the insured, there
was no perfected contract of insurance in order to make the company liable. Thus, the insurance
company is not liable.
4F 2019-2020 15
Topic: Perfection of Insurance Contracts (2003)
Josie Gatbonton obtained from Warranty Insurance Corporation a comprehensive motor vehicle
insurance to cover her brand new automobile. She paid, and the insurer accepted payment in
check. Before the check could be encashed, Josie was involved in a motor vehicle accident
where her car became a total wreck. She sought payment from the insurer. Could the insurer be
made liable under the insurance coverage?
ANSWER:
No, the insurer cannot be made liable under the insurance coverage.
An insurance contract, being a consensual contract, follows the cognition theory. According to the
Cognition Theory, a contract is perfected the moment the offeror learned about the acceptance
of his offer by the offeree.
In the case at bar, Josie made the offer by submitting an application and check as a payment
thereof. However, the insurer has yet to accept the said offer by approving the application. Here,
the insurer only accepted the payment without any corresponding approval of the policy. Thus, it
cannot be said that the contract of insurance is perfected.
Therefore, the insurer cannot be made liable under the insurance coverage because the contract
of insurance was not perfected.
4F 2019-2020 16
Topic: Perfection; Cognition Theory (2011)
On June 1, 2011, X mailed to Y Insurance, Co. his application for life insurance, with payment for
5 years of premium enclosed in it. On July 21, 2011, the insurance company accepted the
application and mailed, on the same day, its acceptance plus the cover note. It reached X's
residence on August 11, 2011. But, as it happened, on August 4, 2011, X figured in a car accident.
He died a day later. May X's heirs recover on the insurance policy?
A. Yes, since under the Cognition Theory, the insurance contract was perfected upon acceptance
by the insurer of X's application.
B. No, since there is no privity of contract between the insurer and X’s heirs.
C. No, since X had no knowledge of the insurer's acceptance of his application before he died.
D. Yes, since under the Manifestation Theory, the insurance contract was perfected upon
acceptance of the insurer of X's application.
ANSWER:
C. No, since X had no knowledge of the insurer's acceptance of his application before he died.
An insurance contract is a consensual contract and is therefore perfected the moment there is a
meeting of minds with respect to the object and the cause or consideration. What is being followed
in the insurance contract is the Cognition Theory and is contemplated under Article 1319 of the
Civil Code. It provides that acceptance of an offer by letter and mailing it do not bind the offeror
except from the time it came to his knowledge.
In this case, X had no knowledge of the insurer’s acceptance of his application because he died
on August 4 and the application reached his residence on August 11. Hence, the contract was
never perfected and the obligation of the insurer which was supposed to be covered by the
premium did not materialize.
Therefore, mere submission of the application form without the offerors’ knowledge of the
acceptance or approval of the policy does not result in the perfection of the contract of insurance.
4F 2019-2020 17
Topic: Perfection; Cognition Theory (2016)
Jason is the proud owner of a newly-built house worth P5 Million. As a protection against any
possible loss or damage to his house, Jason applied for a fire insurance policy thereon with Shure
Insurance Corporation (Shure) on October 11, 2016 and paid the premium in cash. It took the
company a week to approve Jason’s application. On October 18, 2016, Shure mailed the
approved policy to Jason which the latter received five (5) days later, however, Jason’s house
had been razed by fire which transpired a day before his receipt of the approved policy. Jason
filed a written claim, with Shure under the insurance policy. Shure prays for the denial of the claim
on the ground that the theory of cognition applies to contracts of insurance.
Decide Jason’s claim with reason (5%)
No. An insurance contract is perfected when the assent or consent is manifested by the meeting
of the offer and the acceptance upon the thing and the cause which are to constitute the contract.
Mere offer or proposal is not contemplated. (De Lim v. Sun Life Assurance Co., G.R. No. L-15774,
Nov. 29, 1920). What governs insurance contract is the cognition theory whereby the insurance
contract is perfected only from the time the applicant came to know of the acceptance of the offer
by the insurer.
In this case, the loss occurred a day prior to Jason’s knowledge of the acceptance by Shure of
Jason’s application. There being no perfected insurance contract, Jason is not entitled to recover
from Shure.
4F 2019-2020 18
DOUBLE INSURANCE
Topic: Double Insurance; Contract of Indemnity (2008)
Terrazas de Patio Verde, a condominium building, has a value of P50 Million. The owner insured
the building against fire with three (3) insurance companies for the following amounts:
Northern Insurance Corp. - P20 Million

Southern Insurance Corp. - P30 Million
Eastern Insurance Corp. - P50 Million
I. Is the owner's taking of insurance for the building with three (3) insurers valid? Discuss.
(3%)
II. The building was totally razed by fire. If the owner decides to claim from Eastern Insurance
Corp. only P50 Million, will the claim prosper? Explain. (2%)
ANSWER:
I. Yes, the taking of insurance from the 3 insurers is valid. Section 95 of the Insurance
Code provides that “double insurance exists where the same person is insured by several
insurers separately in respect to the same subject and interest.”  It is not prohibited by law but
it may be prohibited by an “other insurance clause.” What considered as prohibited would be for
the insured to recover more than his interest or value of the property pursuant to principle that a
contract of insurance is a contract of indemnity.
II. Yes, the claim would prosper. Section 96 (a) of The Insurance Code provides that where the
insured is overinsured by double insurance, “the insured, unless the policy otherwise provides,
may claim payment from the insurers in such order as he may select, up to the amount for which
the insurers are severally liable under their respective contracts.” In this case, the owner may
legally claim the entire P50 M from Eastern Insurance, Corp as he has chosen to claim payment
from said insurer, up to the amount insured, in this case P50 million.
4F 2019-2020 19
Topic: Double Insurance (2005)
What is the nature of liability of several insurers in double insurance? Explain.
ANSWER:
Under Section 95 of ICP, Double Insurance exists where the same person is insured by several
insurers separately in respect to the same subject and interest. Under Sec. 96 of the ICP, the
insured, unless the policy otherwise provides, may claim from the insurers in such order as he
may select, up to the amount for which the insurers are severally liable under their respective
contracts. Thus, each insurer is bound, as between himself and other insurers, to contribute
ratably to the loss in proportion to the amount of which he is liable in the contract as stated under
Section 94 of the ICP.
4F 2019-2020 20
X borrowed from CCC Bank. She mortgaged her house and lot in favor of the bank. X insured her
house. The bank also got the house insured.
I. Is this double insurance? Explain your answer. (3%)

II. Is this legally valid? Explain your answer. (3%)
III. In case of damage, can X and CCC Bank separately claim for the insurance proceeds?
(4%)
ANSWER:
I. NO. SEC. 95. A double insurance exists where the same person is insured by several insurers
separately in respect to the same subject and interest.
Double insurance exists where the same person is insured by several insurers separately with
respect to the same subject. Here, the subject of the insurance are difference. Hence, no double
insurance exists.
II. YES SEC. 14. An insurable interest in property may consist in:
“(a) An existing interest;
“(b) An inchoate interest founded on an existing interest; or
“(c) An expectancy, coupled with an existing interest in that out of which the
expectancy arises.
Since they both have different insurable interest. X the borrower-mortgagor, has an insurable
interest in the house being the owner thereof while CCC Bank the lender also has an insurable
interest in the house as mortgagee thereof.
III. YES. If X obtained an open policy then she could claim an amount corresponding to the
extent of the damage based on the value of the house determined as of the date the damage
occurred, but not to exceed the face value of the insurance policy; however if the obtained a
valued policy then she could claim an amount corresponding to the extent of the damage but not
to exceed the amount of the loan it extended to X or so much thereof as remain unpaid.
4F 2019-2020 21
X insured the building she owns with two (2) insurance companies for the same amount. In case
of damage, -
A. X cannot claim from any of the two (2) insurers because with the double
insurance, the insurance coverage becomes automatically void.
B. The two (2) insurers will be solidarily liable to the extent of the loss.
C. The two (2) insurers will be proportionately liable.
D. X can choose who he wants to claim against.
ANSWER:
B. X can choose who he wants to claim against.
SEC. 95. A double insurance exists where the same person is insured by several insurers
separately in respect to the same subject and interest.
SEC. 96. Where the insured in a policy other than life is over insured by double insurance: (a)
The insured, unless the policy otherwise provides, may claim payment from the insurers in
such order as he may select, up to the amount for which the insurers are severally liable under
their respective contracts;
Hence, X may claim from any of the insurers.
4F 2019-2020 22

TRUE OF FALSE: The law on life insurance prohibits double insurance.
ANSWER:
False.
Section 95 of the Insurance Code provides that a double insurance exists where the same person
is insured by several insurers separately in respect to the same subject and interest. Section 96
of the same Code provides for the rules where the insured in a policy other than life is overinsured
by double insurance.
The law on insurance allows double insurance. What is prohibited is over-insurance, which is not
present in life insurance as there is no limit as to the amount of insurance which may be legally
placed upon the life of a person.
Therefore, the law on life insurance does not prohibit double insurance.
4F 2019-2020 23
Topic: Double Insurance; Over Insurance (1990)
a. Suppose that Fortune owns a house valued at P600,000 and insured the same against fire
with three insurance companies as follows:
X------------------------- P400,000
Y------------------------- P200,000
Z------------------------- P600,000
In the absence of any stipulation in the policies from which insurance company or
companies may Fortune recover in case fire should destroy his house completely?
2. If each of the fire insurance policies obtained by Fortune in problem (a) is a valued policy
and the value of his house was fixed in each of the policies at P1 million, how much would
Fortune recover from X if he has already obtained full payment on the insurance policies
issued by Y and Z?
c. If each of the policies obtained by Fortune in problem (a) above is an open policy and it
was immediately determined after the fire that the value of Fortune’s house was P2.4 million, how
much may he collect from X, Y, Z?
d. In problem (a), what is the extent of the liability of the insurance companies among
themselves?
e. Supposing in problem (a) above, Fortune was able to collect from both Y and Z, may he
keep the entire amount he was able to collect from the said two insurance companies?
Explain your answers.
ANSWERS:
(a) Fortune can recover from the insurers in such order as he may select.
Section 94 of the Insurance Code provides that where the insured in a policy other than life is
over insured by double insurance: (a) The insured, unless the policy otherwise provides, may
claim payment from the insurers in such order as he may select, up to the amount for which the
insurers are severally liable under their respective contracts.
4F 2019-2020 24
The insurance policies obtained by Fortune does not have any stipulation regarding the order of
claim that Fortune should follow. In the absence of such stipulation, Section 94 (a) of the
Insurance Code shall apply which provides that he may claim payment in such order as he may
select.
Therefore, Fortune may claim against X, Y and Z in the order that he may select up to the amount
for which the insurers are severally liable under their respective contracts.
(b) Fortune can still recover from X insurance company the balance of the ₽1 million value of his
house, which is ₽200,000.
Section 96 (b) of the Insurance Code provides that where the policy under which the insured
claims is a valued policy, any sum received by him under any other policy shall be deducted from
the value of the policy without regard to the actual value of the subject matter insured.
In this case, Fortune was able to obtain only ₽800,00 from Y and Z. The value of the policy, being
₽1 million, he can still recover the balance of ₽200,00 from X since he may recover up to extent
of his loss.
Therefore, Fortune may recover ₽200,000 from X.
(c) Fortune may collect from X ₽400,000, from Y ₽200,000 and from Z ₽600,000.
Section 96 (c) of the Insurance Code provides that where the policy under which the insured
claims is an unvalued policy, any sum received by him under any policy shall be deducted against
the full insurable value, for any sum received by him under any policy.
In this case, the value of Fortune’s house was ₽2.4 million which is the full insurable value. The
total proceeds of Fortune’s insurance from X, Y and Z are only ₽1.2 million, thus he can collect
the entire amount from each of his insurer. Applying Section 96 (c) of the Insurance Code, the
open policies Fortune obtained from X,Y and Z allows him to recover his total loss up to the
amount of the insurance cover.
Therefore, Fortune may collect from X ₽400,000, from Y ₽200,000 and from Z ₽600,000.
(d) Insurance companies among themselves would be liable in the following amount:
4F 2019-2020 25
X─ ₽200,000; Y─ ₽100,000; Z─ ₽300,000.
Section 96 (e) of the Insurance Code provides that each insurer is bound, as between himself
and other insurers, to contribute ratably to the loss in proportion to the amount for which he is
liable under his contract.
In this case, the value of Fortune’s house of ₽600,000 will be distributed to the insurers ratably
based on the value of the policy obtained by Fortune from them.
X─ 1/12 of ₽600,000 = ₽200,000
Y─ 2/12 of ₽600,000 = ₽100,000
Z─ 6/12 of ₽600,000 = ₽300,000
Therefore, X, Y and Z shall contribute ratably to the loss in proportion to the amount of the policy
obtained from them. Thus, X─ ₽200,000; Y─ ₽100,000; Z─ ₽300,000
(e) No. Fortune cannot keep the excess of ₽600,000 which is the value of his house.
Section 2 (a) of the Insurance Code provides that a contract of insurance is an agreement
whereby one undertakes for a consideration to indemnify another against loss, damage or liability
arising from an unknown or contingent event. Under the principle of indemnity, the insured should
not collect more than the actual cash value of the loss. It is meant to prevent the insured from
profiting from the insurance and reduce moral hazard.
In this case, Fortune obtained a total ₽800,000 from Y and Z when the loss he suffered only
amounts to ₽600,000. Applying the principle of indemnity, Fortune is prohibited from keeping the
₽200,000 in excess of the actual amount he suffered.
Therefore, Fortune must return the ₽200,000 he obtained.
4F 2019-2020 26
RISK INSURED AGAINST
Topic: Excepted Risk; Effects (2012)
X, in January 30, 2009, or two (2) years before reaching the age of 65, insured his life for Php 20
Million. For reason unknown to his family, he took his own life two (2) days after his 65th birthday.
The policy contains no excepted risk. Which statement is most accurate?
A. The insurer will be liable.

B. The insurer will not be liable.
C. The state of sanity of the insured is relevant in cases of suicide in order to
hold the insurer liable.
D. The state of sanity of the insured is irrelevant in cases of suicide in order
to hold the insurer liable.
ANSWER:
A. The insurer will be liable.
Under SEC. 51. A policy of insurance must specify: “(f) The risks insured against;
Here, the insurer did not specify any excepted risk hence the insurer is still liable for the suicide
committed by X and his family may claim from his insurance.
4F 2019-2020 27
MARINE INSURANCE
Topic: Marine Insurance; Marine Peril (1977)
About 8:00 pm of March 20, 1974, X as captain of the MV Christina, received an S.O.S. or
distressed signal by blinkers, from the MV Rosario, owned by Y. Answering the S.O.S. call, X
altered the course of his vessel which was then sailing from Dumaguete City, and headed towards
the beckoning MV Rosario. X found MV Rosario to be in trouble due to engine failure and the loss
of her propeller, for which reason, it was drifting slowly southward from Negros Island towards
Borneo in the open China Sea, at the mercy of a moderate easterly wind. About 8:25 pm on the
same day, the MV Christina succeeded in getting near the MV Rosario—in fact as near as about
7 meters from the latter ship. With the consent and knowledge of the captain and/or master of the
MV Rosario, X caused the MV Rosario to be tied to, or well-secured and connected with tow lines
from the MV Christina. The MV Chrisitna had the MV Rosario in tow and proceeded towards the
direction of Dumaguete City, as evidenced by a written certificate to this effect executed by the
Master, the Chief Engineer, the Chief Officers, and he Second Engineer of the MV Rosario, who
were then on board the ship at the time of the occurrence stated above.
I. Did the service rendered by X to Y constitute “salvage” or “towage”? Why?

II. May X recover from Y compensation for such service? Why?
ANSWER:
I. The service is not deemed salvage, but it is towage. In the case of Erlanger & Galinger v.
Swedish East Asiatic Co., Ltd., (34 Phil. 178 it was held that three elements are necessary
to a valid salvage claim, namely, (1) a marine peril, (2) service voluntarily rendered when
not required as an existing duty or from a special contract, and (3) success in whole or in
part, or that the service rendered contributed to such success.
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The circumstances in this case all show that there was no marine peril, and the vessel was not a
quasi-derelict, as to warrant a valid salvage claim for the towing of the vessel. X’s service to Y
can be considered as a quasi-contract of “towage” because in consenting to X’s offer to tow the
vessel, Y thereby impliedly entered into a juridical relation of “towage” with the owner of the towing
vessel, captained by X. Thus, there was no valid salvage but there was towage.
II. No. As stated by the Supreme Court in the case of Barios v. Carlos A. Go Thong & Co. (7
SCRA 535 ), where the contract created is one of towage, only the owner of the towing
vessel, to the exclusion of the crew of said vessel, may be entitled to compensation.
(Barios v. Carlos A. Go Thong & Co., 7 SCRA 535)
In the case at hand, X is merely the captain of M.V. Christina, which provided towage services for
M.V. Rosario owned by Y. X therefore, not being the owner of the towing vessel, may not recover
compensation from Y for such services.
4F 2019-2020 29
Topic: Marine Insurance; Maritime Commerce (1977)
In the morning of April 2, 1977, the South-bound FS-190 belonging to William Lines, Inc. reached
the waters of the Verde Island Passage. About the same time, the M.S. General Del Pilar, another
interisland vessel owned by the General Shipping, was likewise in the same waters, steaming
northward to Manila. The vessels, coming from the opposite directions and towards each other,
suddenly collided at a certain point of the passage which resulted in the sinking of FS-190,
together with all its cargoes, part of which belonged to Tanya, who was a paying passenger and
Rafael, who was a shipper.
Tanya and Rafael brought an action in court to recover for their losses and for damages arising
from the collision.
I. Were they under obligation to file a maritime protest for a successful maintenance of the
action? Why?
II. Explain a maritime protest.
ANSWER:
I. No, Tanya and Rafael are not under obligation to file maritime protest.
Art. 835 of the Code of Commerce states that “the action for recovery of damages and losses
arising from collisions cannot be admitted without a previous protest or declaration presented by
the captain within 24 hours before the competent authority of the point where the collision took
place, or of the first port of arrival.”
In this case, since Tanya and Rafael were both passengers, they do not have any obligation to
file maritime protest. It should be filed by the captain or master of the vessel, F-190.
Therefore, Tanya and Rafael have no obligation to file maritime protest because a marine protest
is required to be made by the master of the vessel not by the passenger or shipper.
II. According to Black’s Law Dictionary, Maritime Protest is a written statement by the master
of vessel, attested by a proper judicial officer or a notary, to the effect that damage suffered
4F 2019-2020 30
by the ship or her voyage was caused by storms or other perils of the sea, without any
negligence or misconduct on his part.
4F 2019-2020 31
Topic: Marine Insurance; Loss and Abandonment (1982)
An inter-island vessel, insured for P2 M against “total and constructive total loss,” sank in 150 ft
of water one mile off Paranaque during a typhoon. After the typhoon, the ship owner gave written
notice of abandonment of his interest in the entire sunken ship to the insurance company.
Refusing to accept the offer of abandonment, the insurer hired salvors to refloat the vessel at a
total cost of P40,000. Because the refloated vessel needed repairs, the insurer issued invitations
to bid for repairs. Several firms submitted separate sealed bids ranging from P1.2 M to P1.3 M
for the complete refurbishing and/or restoration of the vessel to its original condition. On the basis
of the following facts, the insurance company rejected the claim of the ship owner for payment of
total loss on the ground that there was no constructive total loss.
I. Was the notice of abandonment given by the owner properly made? Reason.
II. Is the position of the insurance company as to the absence of constructive total loss well
taken? Reason.
III. Assuming that the ship owner failed to give the proper notice of abandonment, may he still
recover from the insurer? If so, what amount can he recover? Why?
ANSWER:
I. No, the notice of abandonment is not properly made as there is no existence of

constructive total loss that is determined.
Section 141 of the Insurance Code provides that a person insured by a contract of marine
insurance may abandon the thing insured, or any particular portion thereof separately valued by
the policy, or otherwise separately insured, and recover for a total loss thereof, when the cause
of the loss is a peril insured against if more than three-fourths (3/4) thereof in value is actually
lost, or would have to be expended to recover it from the peril.
While a constructive total loss is one which gives a person a right to abandon under said section,
the extent of the loss of the vessel must be first determined as to whether it is more than three-
fourths (3/4) of its value or not. Further, the existence of “constructive total loss” is one of the
requisites of a valid abandonment which in this case is not complied with.
Hence, the notice of abandonment is not valid for the existence of constructive total loss of the
vessel had not yet been determined.
4F 2019-2020 32
II. Yes, the position of the insurance company as to the absence of constructive total loss is
well taken.
The Insurance Code provides that a constructive total loss is one which gives a right to a person
insured a right to abandon if the loss or damage is more than three-fourths (3/4) of its value.
The sum total of the damage to the vessel was only P1,340,000.00 for P40,000.00 of which was
for the payment of salvors, and the remaining P1,300,000.00 for the restoration of the vessel to
its original condition. Thus, the amount is not more than three-fourths (3/4) of the value of the
vessel which is P2 million.
Hence, the absence of constructive total loss is well taken for the amount of damage or loss was
less than three-fourths of the value of the vessel.
III. Yes, generally, the shipowner may still recover from the insurer his actual loss.
Section 157 of the Insurance Code provided that if a person insured omits to abandon, he may
nevertheless recover his actual loss.
In this case, the amount of the actual loss is P1,340,000.00 which is now only partial loss. But
since the said amount was already spent by the insurer on the vessel, the insurer is no longer
liable to the shipowner, except to deliver the vessel.
Thus, the shipowner is entitled to the delivery of the vessel in lieu of the recovery of his actual
loss.
4F 2019-2020 33
Topic: Marine Insurance; Implied Warranty of Sea Worthiness (1983)
A shipped 100 pieces of plywood from Davao City to Manila. He took a marine insurance policy
to insure the shipment against loss or damage due to “perils of the sea, barratry, fir, jettison,
pirates and other perils.”
When the ship left the port of Davao, the shipman in charge forgot to secure one of the portholes,
thru which sea water seeped during the voyage, damaging the plywood. A filed a claim against
the insurance company which refused to pay on the ground that the loss or damage was not due
to a peril of the sea or any of the risks covered by the policy. It was admitted that the sea was
reasonably calm during the voyage that no strong winds or waves were encountered by the
vessel.
How would you decide the case? Explain
ANSWER:
A’s claim should be approved and the case be decided in his favour because the insurer breached
the implied warranty of seaworthiness. Under the Insurance Code of the Philippines, a marine
insurance contains a warranty that the ship is seaworthy at the commencement of the risk. It
refers not only to the structure of the ship but also to its being properly laden. By reason of being
unfit to receive the cargo, the implied warranty of seaworthiness is breached. In the following
case, the fact that the porthole was not secured at the port of departure made the ship
unseaworthy as far as its capacity to receive the cargo is concerned. Hence, the insurer should
be liable for the damage incurred even though the loss was not due to the perils insured against.
4F 2019-2020 34
Marine Insurance; Perils of the sea and Barratry (1986)
Jacob, the owner of a barge, offered to transfer the logs of Esau form Palawan to Manila. Esau
accepted the offer not knowing the barge was manned by an irresponsible crew with deep-seated
resentments against Jacob, their employer. Esau insured his cargo of logs against perils of sea
and barratry. The logs were improperly loaded on one side, thereby causing the barge to tilt and
to navigate on an uneven keel. When the strong winds and high waves, normal for the season,
started to pound the barge, the crew took advantage of the situation and unbolted the sea vales
of the barge, causing sea water to come in, the barge sank. When Esau tried to collect from the
insurance firm, the latter stated that it could not be held responsible considering the unworthiness
of both the barge and its crew. Esau countered that he was not the owner of the barge and he
could not be held responsible for the conditions about which he was innocent.
Is the insurance company liable?
Answer:
Yes, the insurance company is liable if the insured can prove that the damage or loss was caused
by the perils of the sea or barratry. In marine insurance, the implied warranty of seaworthiness of
the vessel at the time of the inception of the voyage applies also to the insurance of cargo. In an
insurance against perils of the sea, it refers only to fortuitous accidents or casualties of the sea,
and it is the responsibility of the insured rather than the insurer to see to it that the vessel is worthy.
Barratry, on the other hand, is the willful misconduct on the part of the master or crew in pursuance
of some fraudulent purpose without the consent of owners, and to prejudice of the owner’s
interest. When so covered, proof of willful and intentional act is necessary. No honest error of
judgment or mere negligence, unless criminally gross, can be barratry.
In this case, the cargo of logs were insured against perils of the sea and barratry. As provided in
the facts, the strong winds and high waves could be considered as perils of the sea; while the
acts of the crew of unbolting the valves of the barge, causing the water to come in and causing
the barge to sink, could be considered as barratry. all Esau, the insured, has to do is to prove that
the loss was due to such peril and barratry.
Hence, the insurance company in this case is liable.
4F 2019-2020 35
Topic: Proximate Cause; Perils of the Sea (1998)

A marine insurance policy on a cargo states that “the insurer shall be liable for losses incident to
the perils of the sea”. During the voyage, seawater entered the compartment where the cargo
was stored due to the defective drainpipe of the ship. The insured filed an action on the policy for
recovery of the damages caused to the cargo. May the insured recover the damages?
ANSWER:
No, the insured may not recover the damages.
Under Section 86 of the Insurance Code, an insurer is liable for a loss of which a peril insured
against was the proximate cause, although a peril not contemplated by the contract may have
been a remote cause of the loss; but he is not liable for a loss of which the peril insured against
was only a remote cause. In relation thereto, rules on marine insurance provides that perils of
the sea or perils of navigation include only those casualties due to the unusual violence or
extraordinary causes connected with navigation.
In this case, the proximate cause of the damage to the cargo insured was the defective drainpipe
of the ship, which is a result of the negligence of the ship’s owner to provide the vessel with the
proper equipment to convey the cargo under ordinary conditions. Thus, the proximate cause of
the damage was not due to the perils of the ship because it did not arise from unusual violence
or extraordinary causes connected with navigation.
Therefore, the insured may not recover the damages because the proximate cause of the loss of
the cargo is not a peril insured against by the insurer.
4F 2019-2020 36
Topic: Marine Insurance; Contribution for General Average and Jettison (1983)
The MV Maliksi, laden with cargo, was on its way from Manila to Davao. Typhoon Bebeng which
had been last reported as leaving in the Philippine area, suddenly changed its course without
giving enough time for warning, and met MV Maliksi with all her strength. In order to lighten the
vessel and prevent it from sinking, the Captain, after taking the proper steps, decided to jettison
part of the cargo. Among those jettisoned were 20 barrels of petroleum which had been loaded
on deck with the consent of the shipper, Juan Reyes. Some big crates below deck were also
jettisoned.
The storm gradually subsided, and MV Maliksi, although it suffered some damage, remained
seaworthy and continued on its way to Davao. Visibility was still poor so that the vessel kept its
light on.
After two hours, the captain and the crew of the MV Maliksi suddenly saw another ship without its
light on, was a few meters away from its port side and would apparently cross its path. In spite of
this, the MV Maliksi was hit on its port side and subsequently sank. It appeared that the watch of
the other vessel, the MV Malaks had fallen asleep.
The MV Malakas took the captain and the crew of MV Maliksi on board, and was able to salvage
part of MV Maliksi’s cargo and carried this also on board.
Discuss briefly the rights and liabilities, if any of Juan Reyes, the owners of the crates jettisoned,
the owners of the cargo saved, the owners of MV Maliksi and the MV Malaks, respectively.
ANSWER:
Juan Reyes and the others are entitled to contribution for general average.
Under the law, the requisites for the proper average are as follows:
1. The jettisoning was made deliberately for the purpose of saving both the vessel and its cargo
from imminent danger; and
2. The vessel was saved
4F 2019-2020 37
In the following case, even though the vessel eventually sank, the right to contribution remains
because the sinking was due to to another and subsequent and independent happening. Also
the fact that Juan Reyes’ cargo containing petroleum was loaded on the deck of the ship does
not removed his right for contribution because the nature of petruem due to its flammable nature,
is allowed to be loaded in fact on a deck. The cargo saved during the typhoon but lost as a result
of collision cannot be made to contribute although they had benefited from jettisoning. Their
complete loss extinguished any obligation on their part subject to contribution for general average.
On the part of the owner of MV Malakas, he is liable for the damages to the MV Maliksi as well
as to the owners of the cargo lost due to collision because the collision was due to the negligence
of his watchman. However such liability is only limited to the value of the vessel MV Malakas with
all its appurtenance.
4F 2019-2020 38
Topic: Marine Insurance; Constructive Total Loss (2005)
M/V Pearly Shells, a passenger and cargo vessel, was insured for P40,000,000.00 against
“constructive total loss.” Due to a typhoon, it sank near Palawan. Luckily, there were no casualties,
only injured passengers. The shipowner sent a notice of abandonment of his interest over the
vessel to the insurance company which then hired professionals to afloat the vessel
forP900,000.00. When re-floated, the vessel needed repairs estimated at P2,000,000.00. The
insurance company refused to pay the claim of the shipowner, stating that there was “no
constructive total loss.”
a. Was there “constructive total loss” to entitle the shipowner to recover from the insurance
company? Explain.
b. Was it proper for the shipowner to send a notice of abandonment to the insurance
company? Explain.
ANSWER:
a. No, there was no constructive total loss. Under Section 133 in relation to Section 141 of the
Insurance Code of the Philippines, there is a constructive total loss if: a. the actual loss of
more than ¾ of the value of the object; b. damage reducing value by more than ¾ of the value
of the vessel and of cargo; and c. expenses of shipment exceed ¾ of value of cargo. In the
case at bar, the vessel was refloated and the costs of the refloating plus the needed repairs
is not more than ¾ value of the vessel. Hence, there is no constructive total loss.
No, it was not proper for the ship owner to send a notice of abandonment to the insrance company
because under Section 140 of the ICP, abandonment can only be availed of when, in a marine
insurance contract, the amount to be expended to recover the to recover the vessel would have
been more than ¾ of its value. Thus, the sending of notice of abandonment is not proper.
4F 2019-2020 39
Topic: Marine Insurance; Doctrine of Limited Liability (2011)
A cargo ship of X Shipping, Co. ran aground off the coast of Cebu during a storm and lost all its
cargo amounting to Php 50 Million. The ship itself suffered damages estimated at Php80 Million.
The cargo owners filed a suit against X Shipping but it invoked the doctrine of limited liability since
its vessel suffered an Php80 Million damage, more than the collective value of all lost cargo. Is X
Shipping correct?
A. Yes, since under that doctrine, the value of the lost cargo and the damage to the ship can be
set-off.
B. No, since each cargo owner has a separate and individual claim for damages.
C. Yes, since the extent of the ship’s damage was greater than that of the value of the lost cargo.
D. No, since X Shipping neither incurred a total loss nor abandoned its ship.
ANSWER:
D. No, since X Shipping neither incurred a total loss nor abandoned its ship.
Doctrine of Limited Liability means no "No vessel, no liability." It provides that shipowners or
agents liability is merely co-extensive with his interest in the vessel such that a total loss thereof
results in its extinction. The total destruction of the vessel extinguishes maritime liens because
there is no longer any res to which it can attach. (Monarch Insurance v. CA, G.R. No. 92735, June
8,2000)
In this case, X Shipping cannot raise the defense of doctrine of limited liability because first, it
does not incurred total loss nor abandoned the ship. Hence, a marine insurer is liable upon a
partial loss, only for such proportion of the amount insured by him as the loss bears to the value
of the whole interest of the insured in the property insured.
4F 2019-2020 40
Topic: Marine Insurance; Deviation; When is it proper (2011)
T, the captain of MV Don Alan, while asleep in his cabin, dreamt of an Intensity 8 earthquake
along the path of his ship. On waking up, he immediately ordered the ship to return to port. True
enough, the earthquake and tsunami struck three days later and his ship was saved. Was the
deviation proper?
A. Yes, because the deviation was made in good faith and on a reasonable ground for believing
that it was necessary to avoid a peril.
B. No, because no reasonable ground for avoiding a peril existed at the time of the deviation.
C. No, because T relied merely on his supposed gift of prophecy.
D. Yes, because the deviation took place based on a reasonable belief of the captain.
ANSWER:
B. No, because no reasonable ground for avoiding a peril existed at the time of the deviation.
Deviation is a departure of vessel from course of voyage, or an unreasonable delay in pursuing

voyage, or the commencement of an entirely different voyage. Section 126 of the Insurance Code
of the Philippines provides that “a deviation is proper: (a) when caused by circumstances over
which neither the master nor the owner of the ship has any control; (b) when necessary to comply
with a warranty, or to avoid a peril, whether or not the peril is insured against; (c) when made in
good faith, and upon reasonable grounds of belief in its necessity to avoid a peril; or (d) when
made in good faith for the purpose of saving human life or relieving another vessel in distress.”
In this case, there was no existing peril yet at the time the ship captain ordered the deviation of
the ship. It is clear under Section 126 that there must be a reasonable grounds of belief that there
is a necessity to avoid a peril at the time when deviation is made. Therefore, the deviation made
by the ship captain is improper.
4F 2019-2020 41
Topic: Marine Insurance; Perils of the Sea; Perils of the Ship (2011)
T Shipping, Co. insured all of its vessels with R Insurance, Co. The insurance policies stated that
the insurer shall answer for all damages due to perils of the sea. One of the insured's ship, the
MV Dona Priscilla, ran aground in the Panama Canal when its engine pipes leaked and the oil
seeped into the cargo compartment. The leakage was caused by the extensive mileage that the
ship had accumulated. May the insurer be made to answer for the damage to the cargo and the
ship?
A. Yes, because the insurance policy covered any or all damage arising from perils of the sea.
B. Yes, since there appears to have been no fault on the part of the shipowner and ship captain.
C. No, since the proximate cause of the damage was the breach of warranty of seaworthiness of
the ship.
D. No, since the proximate cause of the damage was due to ordinary usage of the ship, and thus
not due to a peril of the sea.
ANSWER:
D. No, since the proximate cause of the damage was due to ordinary usage of the ship, and thus
not due to a peril of the sea.
Under the Insurance Code of the Philippines, the risk which may be insured against in marine
insurance are those only perils of the sea, unless perils of the ship are covered by an all-risk
policy. Such perils of the sea must be the proximate cause of the loss in order that the insurer
may be held liable.
Perils of the sea or perils of navigation include only those casualties due to the unusual violence
or extraordinary causes connected with navigation; it also include only such losses as are of
extraordinary nature or arise from some overwhelming power which cannot be guarded against
by the ordinary exertion of human skill or prudence, as distinguished from the ordinary wear and
4F 2019-2020 42
tear of the voyage and from the injuries suffered by the vessel in consequence of her not being
unseaworthy. On the contrary, perils of the ship is a loss which in the ordinary course of event,
results: (a) from the ordinary, natural, and inevitable actions of the sea; (b) from ordinary wear
and tear of the ship; and (c) from the negligent failure of the ship’s owner to provide the vessel
with the proper equipment to convey the cargo under ordinary conditions.
In this case, the proximate cause of the damage was due to the leakage caused by the extensive
mileage that the ship had accumulated. Such damage clearly falls to the perils of the ship since it
is from the ordinary usage, wear and tear of the ship. There being no all-risk-policy, the insurer
cannot be held liable to answer the damages because the risk which may be insured against are
those only perils of the sea.
4F 2019-2020 43
Topic: Marine Insurance; Representation; Test of Materiality (2011)
Shipowner X, in applying for a marine insurance policy from ABC, Co., stated that his vessel
usually sails middle of August and with normally 100 tons of cargo. It turned out later that the
vessel departed on the first week of September and with only 10 tons of cargo. Will this avoid the
policy that was issued?
A. Yes, because there was breach of implied warranty.
B. No, because there was no intent to breach an implied warranty.
C. Yes, because it relates to a material representation.
D. No, because there was only representation of intention
ANSWER:
D. No, because there was only representation of intention
Section 113 of the Insurance Code of the Philippines provides that “if a representation by any
person insured by a contract of marine insurance, is intentionally false in any material respect, or
in respect of any fact on which the character and nature of the risk depends, the insurer may
rescind the entire contract.” It is necessary that for it to be rescinded, such representation must
be material. Applying the test of materiality enunciated in Section 31 of the same code, it provides
that “materiality is determined not by the event, but solely by the probable and reasonable
influence of the facts upon the party to whom the communication is due, in forming his estimate
of the advantages of the proposed contract, or in making his inquiries.”
In this case, the representation made by the ship owner were only representation of intention and
does not affect the validity of the insurance contract. More so, such representation is not the
moving factor or the does not add to the reasons and not material whether such policy be
accepted or not. Therefore, the representations made will not avoid the policy for it being only a
representation of intention.
4F 2019-2020 44
Topic: Marine Insurance; Loss; Constructive Total Loss (2011)
For a constructive total loss to exist in marine insurance, it is required that the person insured
relinquish his interest in the thing insured. This relinquishment must be
A. actual.
B. constructive first and if it fails, then actual.
C. either actual or constructive.
D. constructive
ANSWER:
A. actual.
Section 133 of ICP provides that “a constructive total loss is one which gives to a person insured
a right to abandon, under Section 141.” An abandonment is an act of the insured by which, after
a constructive total loss, he declares the relinquishment to the insurer of his interest in the thing
insured. One of the requisites provided for a valid abandonment is that there must be an actual
relinquishment of his interest in the thing insured. It means that the person must do positive acts
showing his abandonment over such thing insured.
4F 2019-2020 45
Topic: Marine Insurance; Perils of the Ship (2011)
Perils of the ship, under marine insurance law, refer to loss which in the ordinary course of events
results from
A. natural and inevitable actions of the sea.

B. natural and ordinary actions of the sea.
C. unnatural and inevitable actions of the sea.
D. unnatural and ordinary actions of the sea.
ANSWER:
A. natural and inevitable actions of the sea.
Under the law, it is clearly provided that perils of the ship is a loss which in the ordinary course of
event, results: (a) from the ordinary, natural, and inevitable actions of the sea; (b) from ordinary
wear and tear of the ship; and (c) from the negligent failure of the ship’s owner to provide the
vessel with the proper equipment to convey the cargo under ordinary conditions.
4F 2019-2020 46
Topic: Marine Insurance; Abandonment; Agent (2011)
X Shipping, Co., insured its vessel MV Don Teodoro for Php100 Million with ABC Insurance, Co.
through T, an agent of X Shipping. During a voyage, the vessel accidentally caught fire and
suffered damages estimated at Php80 Million. T personally informed ABC Insurance that X
Shipping was abandoning the ship. Later, ABC insurance denied X Shipping’s claim for loss on
the ground that a notice of abandonment through its agent was improper. Is ABC Insurance right?
A. Yes, since X Shipping should have ratified its agent’s action.

B. No, since T, as agent of X Shipping who procured the insurance, can also give notice of
abandonment for his principal.
C. Yes, since only the agent of X Shipping relayed the fact of abandonment.
D. No, since in the first place, the damage was more than ¾ of the ship's value.
ANSWER:
B. No, since T, as agent of X Shipping who procured the insurance, can also give notice of
abandonment for his principal.
Under the Insurance Code of the Philippines, abandonment is an act of the insured, which after
constructive total loss, he declares the relinquishment to the insurer of his interest in the thing
insured. One of the requisites provided for under Section 145 of the same code is there must be
notice to be given to the insurer which may be done orally or in writing. The said notice of
abandonment need not necessarily be made by the insured himself. It may be made by an
authorized agent thereof.
In this case, it was T, the agent of X Shipping that give notice of abandonment to the insurance
company. The relationship established between the agent and principal can be established since
also it was the agent, who procured first the insurance and then later on was the one who gave
notice of abandonment. In addition, the acts made by agents if it acted within the powers and
name of his principal, binds the principal from such acts.
4F 2019-2020 47
Therefore, the notice of abandonment made by agent T is valid and amounts to a valid notice of
abandonment in the concept of insurance.
4F 2019-2020 48
Topic: Marine Insurance; Doctrine of Limited Liability, and Doctrine of Inscrutable Fault
(1997)
Explain these two doctrines in Maritime accidents

I. The Doctrine of Inscrutable Fault
II. The Doctrine of Limited Liability
ANSWER:
I. Under the doctrine of inscrutable fault, where fault is established but cannot be determined
which of the two vessels were at fault, both shall be deemed to have been at fault.
II. Under the doctrine of limited liability, the exclusively real and hypothecary nature of maritime
law operates to limit the liability of the shipowner to the value of the vessel,, earned freightage
and proceeds of the insurance. However, such doctrine does not apply if the shipowner and the
captain are guilty of negligence.
4F 2019-2020 49
Topic: Marine Insurance; Implied Warranties (2000)

What warranties are implied in marine insurance?
ANSWER:
The following warranties are implied in marine insurance:
1) That the ship is seaworthy to make the voyage and/or to take in certain cargoes (Sec. 115,
ICP);
2) That the ship shall not deviate from the voyage insured (Sec. 125);
3) That the ship shall carry the necessary documents to show nationality or neutrality and that it
will not carry any document which will cast reasonable suspicion thereon (Sec. 122);
4) That the ship shall not carry contraband, especially if it is making a voyage through belligerent
waters.
4F 2019-2020 50
Topic: Marine Insurance; All-Risk Policy (2017)
Absolute Timber Co. (ATC) has been engaged in the logging business in Isabela. To secure one
of its shipments of logs to be transported by Andok Shipping Co., ATC purchased a marine policy
with an all-risk provision. Because of a strong typhoon then hitting Northern Luzon, the vessel
sank and the shipment of logs was totally lost. ATC filed its claim, but the insurer denied the claim
on several grounds, namely: (1) the vessel had not been seaworthy; (2) the vessel’s crew had
lacked sufficient training; (3) the improper loading of the logs on only one side of the vessel had
led to the tilting of the ship to that side during the stormy voyage; and (4) the extremely bad
weather had been a fortuitous event.
ATC now seeks your legal advice to know if its claim was sustainable. What is your advice?
Explain your answer.
ANSWER:
I would advise ATC that its insurance claim is sustainable.
As held in Choa Tiek v. Court of Appeals, an “all risks"" insurance policy insures against all causes
of conceivable loss or damage, except as otherwise excluded in the policy or due to fraud or
intentional misconduct on the part of the insured. The insurer can avoid coverage upon
demonstrating that a specific provision expressly excludes the loss from coverage.
Here, there were no stipulations to the effect that the grounds relied upon by the insurer were
specifically excluded from the coverage of the all-risk insurance policy.
Therefore, ATC’s claim will prosper since the loss is covered by the all-risk insurance policy.
4F 2019-2020 51
Topic: Compulsory Motor Vehicle Liability Insurance (1977)
Jose, driving his own car together with his wife Maria, were on their way home from their
respective offices when a car driven by Pedro hit them from behind which was in turn hit by a
gasoline tanker driven by Mario, causing the car of Jose to turn-turtle, thus, resulting in the death
of Maria. All motor vehicles being insured, Jose filed his claim for the death of Maria against the
“NO FAULT” Insurance, Section 378 of the Insurance Code.
I. Will Jose’s claim for the death of Maria against insurers of said three motor vehicles
prosper and up to what amount? Reasons.
II. If Jose includes in the claim damage for his car, will the claim prosper? Why?
ANSWER:
I. Jose’s claim for the death of Maria against the insurers of the three motor vehicles will not
prosper.
According to Section 391 of the Insurance Code, “Any claim for death or injury to any
passenger or third-party pursuant to the provisions of this chapter shall be paid without
necessity of proving fault or negligence of any kind. The total indemnity, however, in
respect of any person shall not exceed P15,000.00, and the claim may only be made
against one motor vehicle.
In the case at hand, the case against the three motor vehicles would not prosper because
he may only claim against one. Pursuant to the provisions of Sec. 391, the amount which
Jose may recover shall not exceed P15,000.00.
II. Jose’s claim for damages for his car will not prosper.
As may be clearly gleaned from Section 391 of the Insurance Code, NO-FAULT Insurance applies
only to “any claim for death or injury to any passenger or third party”.
4F 2019-2020 52
In the case at hand, Jose’s claim for damages for his car is not included in the express provisions
of Section 391 of the Insurance Code, thus, such claim would not prosper.
4F 2019-2020 53
Driving his car one night, A crossed an intersection as the signal light turned green. Suddenly he
saw an old woman crossing the street just a few feet from his car. He applied his brakes
immediately, but just the same, he hit the woman who turned out to be senile already. He brought
her to the nearest hospital where she was confined for 3 days due to her injuries. Upon her
discharge, A had to pay the hospital bill which amounted to P2,000 including X-rays, doctor’s fees
and medicines.
Being covered by the compulsory liability policy required of all vehicle owners under the Insurance
Code, A preferred the matter to his insurance company, which refused to reimburse him, claiming
that since A was not at fault (it was admitted that he was not speeding or in any way negligent),
under A’s policy. Is the insurance company liable to reimburse A for the hospital expenses?
Explain.
ANSWER:
Yes, the insurance company is liable.
According to Section 391 of the Insurance Code, any claim for death or injury to any passenger
or third-party under the Compulsory Motor Vehicle Liability Insurance shall be paid without the
necessity of proving fault or negligence of any kind, provided, that the total indemnity in respect
of any person shall not exceed Php 15,000; proof of loss such as police report of accident and
medical report and evidence of medical or hospital disbursement in respect of which refund is
claimed is submitted; and the claim may be made against one motor vehicle only.
In the case at bar, the claim of the insurance company that there was no third party liability
because A was not at fault is not relevant. This is because under the provisions of Compulsory
Motor Vehicle Liability Insurance, liability may be imposed against the insurance company without
the necessity of proving fault or negligence of any kind, provided that the aforementioned
requirements are complied with.
Therefore, the insurance company may be held liable even if the insured is not at fault.
4F 2019-2020 54
As a rule, an insurance contract is consensual and voluntary. The exception is in the case of:
(1%)
A. Inland Marine Insurance
B. Industrial Life Insurance
C. Motor Vehicle Liability Insurance
D. Life Insurance
ANSWER:
C. Motor Vehicle Liability Insurance
Chapter VI of the Insurance Code deals with this kind of insurance which is properly referred to
as “Compulsory Motor Vehicle Liability Insurance”
In this case, the three other choices (A, B and D) are all consensual and voluntary and only C is
consensual but compulsory as the name it was given by the Insurance Code expressly provides.
Hence, only C is not consensual and voluntary but it is compulsory.
4F 2019-2020 55
Topic: Compulsory Motor Vehicle Insurance; No Fault Indemnity Clause (1981)
“X” owns and operates several passenger jeepneys in Metro Manila. He entered into a contract
with Gold Mine Insurance & Surety Co., insuring the operation of his jeepneys against accidents
with third-party-liability.
During the effectivity of the insurance, one of his jeepneys bumped “B”, who had just alighted
from another passenger jeepney whose driver unloaded passengers in the middle of the street.
“B” suffered bodily injury as a consequence and filed a claim against the insurance company. The
latter refused to pay on the ground that the driver of the jeepney from which passenger “B” alighted
was guilty of negligence in unloading in the middle of the street, and that the driver of the insured
operator was not at fault.
Can passenger “B” recover from the insurance company? Explain.
ANSWER:
Yes, passenger “B” may recover from the insurance company. As provided under Section 391 of
the Insurance Code, any claim for death or injury to passengers or third-party pursuant to the
provisions of the Compulsory Motor Vehicle Insurance shall be paid without the necessity of
proving fault or negligence of any kind.
In this case, the insurance policy of X covers the operation of “X’s” jeepneys against accidents
with any person other than the passenger. Therefore, the insurance covers the liability for body
injuries suffered by “B” when he was bumped by one of X’s jeepneys.
Thus, B can directly claim from the insurer of X, without the need of proving fault or negligence
on X’s part, provided that the total indemnity in respect of any person shall be in accordance as
provided under the law.
4F 2019-2020 56
Topic: Compulsory Motor Vehicle Liability Insurance; No fault indemnity clause (1989)
What do you understand by the “no fault indemnity” provision in the Insurance Code? What are
the rules on claims under said provision?
ANSWER:
The “no fault indemnity” under Section 391 of the Insurance Code provides that any claim for
death or injury to a passenger or to a third party should be paid without the necessity of proving
fault or negligence, subject to the following rules:
(a) The total indemnity in respect of any person shall not be less than Fifteen thousand
pesos (P15,000.00);
(b) The following proofs of loss, when submitted under oath, shall be sufficient evidence
to substantiate the claim:
(1) Police report of accident; and
(2) Death certificate and evidence sufficient to establish the proper payee; or
(3) Medical report and evidence of medical or hospital disbursement in respect of

which refund is claimed;
Claim may be made against one motor vehicle only. In the case of an occupant of a vehicle, claim,
shall lie against the insurer of the vehicle in which the occupant is riding, mounting or dismounting
from. In any other case, claim shall lie against the insurer of the directly offending vehicle. In all
cases, the right of the party paying the claim to recover against the owner of the vehicle
responsible for the accident shall be maintained.
4F 2019-2020 57
Topic: Compulsory Motor Vehicle Insurance; Theft Clause (1981)
“A” was the owner of a car insured with Fortune Insurance Company for “Own Damage”, “Theft”,
and “Third-Party-Liability” effective May 16, 1977 to May 16, 1978. On May 9, 1978, the car was
brought to a machine shop for repairs. On May 11, 1978, while in the custody of the machine
shop, the car was taken by one of the employees to be driven out to a certain place. While
travelling along the highway, the car smashed into a parked truck and suffered extensive damage.
“A” filed a claim for recovery under the policy but was refused payment. The insurance company
averred that the car was not stolen and, therefore, was not covered by the “Theft Clause.”
Decide the merits of the insurer’s contention, with reasons.
ANSWER:
The insurer is liable to A. As held in the case of Perla Compania de Seguros, Inc. v. CA., the risk
insured against in the policy may include theft and if there is such a policy and the vehicle was
unlawfully taken from its rightful owner, the insurer is liable under the theft clause.
In this case, when the car of A which was brought to the machine shop and which was
subsequently taken by one the employees without A’s consent, the car is deemed to have been
stolen. The taking of A’s car without his permission is sufficient to place it under the ambit of the
word theft as contemplated in A’s insurance policy. and thus can hold the insurance company
liable for the loss suffered by reason of theft.
Therefore, insurer is liable for total loss due to car accident of A’s car which was wrongfully taken,
without the insured’s consent, from the machine shop entrusted for repairs.
4F 2019-2020 58
Topic: Authorized driver Clause (1986)
Mayari obtained a comprehensive insurance policy on his car. The policy carried the standard
“authorized driver” clause which states that the insurance company is not liable for any loss,
accident, or damage sustained while the car is being driven by someone other than a duly
authorized driver. One day, Mayari allowed his friend, Kaibigan, to drive the car. Kaibigan figured
in a mishap and the car was a total loss.
Kaibigan had been driving for the past five years but it appears that his driver’s license was
irregularly issued because he cannot read or write; neither did he take any of the prescribed
driver’s tests. After the initial license was issued, he merely asked his wife to go to the LTC Office
to get a renewal of his license. Mayari did not know about the irregularity in the driver’s license of
Kaibigan.
Can Mayari recover on the insurance policy? Explain.
ANSWER:
No, Mayari cannot recover from the policy. The standard “authorized driver” clause requires that
the driver at the time of the accident must be duly authorized and licensed to drive. An irregular
license is not a license at all. Therefore, Mayari cannot recover.
4F 2019-2020 59
Topic: Authorized Driver Clause (1991)
Sheryl insured her newly acquired car, a Nissan Maxima against any loss or damage for P50,000
and against third party liability for P20,000 with the XYZ Insurance Corp. Under the policy, the car
must be driven only by an authorized driver who is either: (1) the insured, or (2) any person driving
on the insured’s order or with his permission: provided that the person driving is permitted in
accordance with the licensing or other laws or regulations to drive the motor vehicle and is not
disqualified from driving such motor vehicle by order of the court. During the effectivity of the
policy, the car, then driven by Sheryl herself, who had no driver’s license, met an accident and
was extensively damaged. The estimated cost of repair was P40,000. Sheryl immediately notified
XYZ, but the latter refused to pay on the policy alleging that Sheryl violated the terms thereof
when she drove it without a driver’s license. Is the insurer correct?
ANSWER:
No. The insurer was not correct in denying the claim of Sheryl.
As held in the case of Palermo v. Pyramid Insurance, while the Motor Vehicle Law prohibits a
person from operating a motor vehicle on the highway without a license or with an expired license,
an infraction of the Motor Vehicle Law on the part of the insured, is not a bar to recovery under
the insurance contract. It however renders him subject to the penal sanctions of the Motor Vehicle
Law. Furthermore, the court ruled that the requirement that the driver be ""permitted in accordance
with the licensing or other laws or regulations to drive the Motor Vehicle and is not disqualified
from driving such motor vehicle by order of a Court of Law or by reason of any enactment or
regulation in that behalf,"" applies only when the driver ""is driving on the insured's order or with
his permission."" It does not apply when the person driving is the insured himself.
Applying the said decision in this case, Sheryl did not violate the terms of her insurance policy
despite driving her vehicle without driver’s license because the same only applies when the driver
is driving on the insured's order or with his permission. It does not apply when the person driving
is the insured himself.
Therefore, Sheryl can still recover the proceeds of her insurance and ZYZ Insurance Corp. erred
in denying the claim of the former.
4F 2019-2020 60
Topic: Authorized Driver Clause (2003)
Rick de la Cruz insured his passenger jeepney with Asiatic Insurers, Inc. The policy provided that
the authorized driver of the vehicle should have a valid and existing driver’s license. The
passenger jeepney of Rick de la Cruz which was at the time driven by Jay Cruz, figured
in an accident resulting in the death of a passenger. At the time of the accident, Jay Cruz
was licensed to drive but it was confiscated by an LTO agent who issued him a Traffic Violation
Report (TVR) just minutes before the accident. Could Asiatic Insurers, Inc., be made liable under
its policy?
ANSWER:
Yes, Asiatic Insurers, Inc. can be made liable under the policy. According to the Authorized Driver
Clause, the driver, other than the insured owner, must be duly licensed to drive the motor vehicle,
otherwise, the insurer is excused from liability. In the case at bar, Jay Cruz, the driver other than
the insured owner, was a licensed driver. The fact that he was merely holding a TVR does not
violate the condition that the driver should have a valid and existing driver’s license. Moreover,
Therefore, Asiatic Insurers, Inc. is liable.
4F 2019-2020 61
Topic: Insurer; 3rd Party Liability; Quitclaim (1994)
Raul’s truck bumped the car owned by Luz. The car was insured by Cala Insurance. For the
damage caused, Cala paid Luz P5,000.00 in amicable settlement. Luz executed a release of
claim, subrogating Cala to all her rights against Raul. When Cala demanded reimbursement from
Raul, the latter refused saying that he had already paid Luz P4,500 for the damage to the car as
evidenced by a release of claim executed by Luz discharging Raul.
So Cala demanded reimbursement from Luz, who refused to pay, saying that the total damage to
the car was P9,500.00 Since Cala paid P5,000 only, Luz contends that she was entitled to go
after Raul to claim the additional P4,500.00
I. Is Cala, as subrogee of Luz, entitled to reimbursement from Raul?
II. May Cala recover what it has paid Luz?
ANSWER:
I. No, Cala is not entitled to reimbursement. The principle of subrogation is a normal incident of
indemnity property insurance as a legal effect of payment; it inures to the insurer without any
formal assignment or any express stipulation to that effect in the policy. However, in this case,
there is no right of subrogation because Luz executed a release in favor of Raul. (Manila
Mahogany Corp. v. CA) The insured by her own act released the wrongdoer liable for the loss.
Therefore, Cala cannot claim against Raul.
II. Yes, Cala may recover from Luz. In Manila Mahogany Corp v. CA, the Court explained that
the insurer can be subrogated to only such rights as the insured may have, should the insured,
after receiving payment from the insurer, release the wrongdoer who caused the loss, the insurer
loses his rights against the latter. Cala lost its right against Raul because of the release executed
by Luz. However, the above-mentioned case further states that the insurer will be entitled to
recover from the insured whatever it has paid to the latter, unless the release was made with the
consent of the insurer. In this case, there was no such consent given by Cala. Therefore, it may
recover the amount of P5,000 from Luz.
4F 2019-2020 62
Topic: Insurer; 3rd Party Liability (1996)
While driving his car along EDSA, Cesar sideswiped Roberto, causing injuries to the latter,
Roberto sued Cesar and the third party liability insurer for damages and/or insurance proceeds.
The insurance company moved to dismiss the complaint, contending that the liability of Cesar has
not yet been determined with finality.
I. Is the contention of the insurer correct? Explain.
II. May the insurer be held liable with Cesar?
ANSWER:
I. No, the contention of the insurer is not correct.
Where an insurance policy insures directly against liability, the insurer’s liability accrues
immediately upon the occurrence of the injury or event upon which the liability depends (Sherman
Shafer v Judge RTC Olongapo City Branch 75 GR l-78848, Nov 14 88 167s386)
In this case, there is no need to wait for the decision of the court determining Cesar’s liability with
finality before the third party liability insurer could be sued. The occurrence of the injury to Roberto
immediately gave rise to the liability of the insurer under its policy.
Thus, contention of the insurer is incorrect.
II. No. The insurer cannot be held solidarily liable with Cesar.
The liability of the insurer is based on contract while that of Cesar is based on tort. If the insurer
were solidarily liable with Cesar, it could be made to pay more than the amount stated in the
policy. This would, however, be contrary to the principles underlying insurance contracts. On the
other hand, if the insurer were solidarily liable with Cesar and it is made to pay only up to the
amount stated in the insurance policy, the principles underlying solidary obligations would be
violated. (Malayan Ins Co v CA GR L-36413 Sep 26, 88 165s536; Figuracion vda de Maglana v
Consolacion GR 60506 Aug 6, 92 212s268)
Thus, the insurer cannot be held solidarily liable with Cesar.
4F 2019-2020 63
Topic: Insurer; 3rd Party Liability (2000)
X was riding a suburban utility vehicle (SUV) covered by a comprehensive motor vehicle liability
insurance (CMVLI) underwritten by FastPay Insurance Company when it collided with a speeding
bus owned by RM Travel Inc. The collision resulted in serious injuries to X; Y, a passenger of the
bus; and Z, a pedestrian waiting for a ride at the scene of the collision. The police report
established that the bus was the offending vehicle. The bus had CMVLI policy issued by Dragon
Ins Co. X, Y, and Z jointly sued RM Travel and Dragon Ins for indemnity under the Insurance
Code of the Phils (PD1460). The lower court applied the ―no fault indemnity policy of the statute,
dismissed the suit against RM Travel, and ordered Dragon Ins to pay indemnity to all three
plaintiffs. Do you agree with the court‘s judgment? Explain.
ANSWER:
No. I do not agree with the court’s judgment because Dragons Ins and RM Travel have different
liabilities, such that, the liability of the insurer is based on contract while that of the insured carrier
or vehicle owner is based on tort.
It is well-entrenched in jurisprudence that although the victims may proceed directly against the
insurer for indemnity, the third party liability is only up to the extent of the amount covered by the
insurance policy.
Herein, the court should have ordered Dragon Ins to pay each of X, Y , and Z to the extent of the
insurance coverage, but whatever amount is agreed upon in the policy should be answered first
by RM Travel and the succeeding amount should be paid by Dragon Insurance up to the amount
of the insurance coverage. The excess of the claims of X, Y, and Z, over and above such
insurance coverage, if any, should be answered or paid by RM Travel.
Thus, I do not agree with the court’s judgment.
4F 2019-2020 64
LIFE INSURANCE
Topic: Life Insurance (1995)
Sun-Moon Insurance issued a Personal Accident Policy to Henry Dy with a face value of
P500,000. A provision in the policy states that “the company shall not be liable in respect of bodily
injury consequent upon the insured person attempting to commit suicide or willfully exposing
himself to needless peril except in an attempt to save human life.” 6 months later, Henry died of
a bullet wound in his head. Investigation showed that one evening Henry was in a happy mood
although he was not drunk. He was playing with his handgun from which he had previously
removed its magazine. He pointed the gun at his sister who got scared. He assured her it was not
loaded. He then pointed the gun at his temple and pulled the trigger. The gun fires and Henry
slumped dead on the floor.
Henry’s wife, Beverly, as the designated beneficiary, sought to collect under the policy. Sun-Moon
rejected her claim on the ground that the death of Henry was not accidental. Beverly sued the
insurer.
Decide. Discuss fully.
ANSWER:
Beverly is entitled to her claim to collect under the policy.
The Court, in the case of Sun Insurance Office, Ltd. vs. CA, explained that “the words ""accident""
and ""accidental"" have never acquired any technical signification in law, and when used in an
insurance contract are to be construed and considered according to the ordinary understanding
and common usage and speech of people generally. In-substance, the courts are practically
agreed that the words ""accident"" and ""accidental"" mean that which happens by chance or
fortuitously, without intention or design, and which is unexpected, unusual, and unforeseen.”
Additionally, the Court also held that “it should be noted at the outset that suicide and willful
exposure to needless peril are in pari materia because they both signify a disregard for one's life.
The only difference is in degree, as suicide imports a positive act of ending such life whereas the
second act indicates a reckless risking of it that is almost suicidal in intent.”
4F 2019-2020 65
The facts of the afore-mentioned case is similar to the facts of the case at bar. The excepted risks
in the Personal Accident Policy issued to Henry Dy are bodily injury due to suicide and willfully
exposing himself to needless peril which, as the Court held, import positive or intentional reckless
acts. Contrary to Sun-Moon’s claim, Henry’s death is accidental because it happened fortuitously,
without intention or design, as shown by the fact that Henry removed the gun’s magazine before
he pointed the same to his temple and believed it was no longer dangerous, and even assured
his sister that the gun was harmless as it was not loaded. The act of Henry does not fall under
suicide or willful exposing himself to needless peril, but rather negligent. His negligence, however,
shall not prevent Beverly from recovering the proceeds of the policy because it was obtained by
Henry against accidents. There is nothing in the policy that relieves the insurer of the responsibility
to pay the indemnity agreed upon if the insured is shown to have contributed to his own accident.
Therefore, Sun-Moon’s rejection of Beverly’s claim shall fail and Beverly shall be entitled to collect
under the policy.
4F 2019-2020 66
Topic: Life Insurance; Beneficiary (1985)
Eduardo Fernandez applied for and was issued Policy No. 0777 by Atlas Life Insurance
Corporation on a whole-life plan for P200,000. Although he was married to Clara, with whom he
had 5 legitimate children, he designated his common-law wife, Diana Cruz, as his revocable
beneficiary in the policy, and referred to Diana in his application and policy, as his wife. 5 years
thereafter, he died. Diana immediately filed her claim for the proceeds of the policy as the
designated beneficiary. Clara also filed her claim as legal wife. The insurance company filed a
petition for Interpleader before the RTC of Rizal to determine who should be entitled to the
proceeds of the policy.
If you were the judge, how would you decide the said interpleader action? Explain.
ANSWER:
If I were the judge, I would decide that the proceeds of the insurance policy be paid to the estate
of the insured.
It is provided under Article 2012 of the New Civil Code that “any person who is forbidden from
receiving any donation under Article 739 cannot be named beneficiary of a life insurance policy
by the person who cannot make any donation to him, according to said article.” Article 739 of the
New Civil Code states that donations “made between persons who were guilty of adultery or
concubinage at the time of donation” shall be void.
Furthermore, in The Insular Life v. Ebrado (1977), which has the same factual milieu as in this
case, the Supreme Court disqualified the common-law wife to be the beneficiary of the common-
law husband in his life insurance policy. As a consequence, the proceeds of the policy were held
payable to the estate of the deceased insured.
In the instant case, the designation of Diana as the beneficiary of Eduardo’s life insurance policy
is void by express mandate of Article 739, as the same was made between persons guilty of
concubinage. On the other hand, Clara cannot claim the proceeds because she is not a party to
the insurance contract.
4F 2019-2020 67
Therefore, if I were the judge, I would decide that the proceeds of the life insurance policy be paid
to the estate of Eduardo.
4F 2019-2020 68
Juan de la Cruz was issued Policy No. 8888 of the Midland Life Insurance Co. on a whole life
plan for ₱20,000 on August 19, 2016. Juan de la Cruz is married to Cynthia with whom he has
three legitimate children. He, however, designated Purita, his common-law wife as the revocable
beneficiary. Juan de la Cruz referred to Purita in his application and policy as the legal wife.
Three years later, Juan de la Cruz died. Purita filed her claim for the proceeds of the policy as
the designated beneficiary therein. The widow, Cynthia, also filed a claim as the legal wife. To
whom should the proceeds of the insurance policy be awarded?
ANSWER:
The proceeds of the insurance policy must be awarded to Cynthia.
In the case of the The Insular Life Assurance Co. vs. Ebrado, it was ruled that, in essence, a life
insurance policy is no different from a donation insofar as the beneficiary is concerned. Both are
founded upon the same consideration: liberality. A beneficiary is like a donee, because from the
premiums of the policy which the insured pays out of liberality, the beneficiary will receive the
proceeds or profits of said insurance. As a consequence, the proscription in Art. 739 of the New
Civil Code should equally operate in life insurance contracts. Art. 739 thus provides that the
following donations shall be void: (1) those made between persons who were guilty of adultery or
concubinage at the time of 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 or ascendants by reason of his office. Thus, common-law spouses are barred from
receiving donations from each other.
In this case, the designated beneficiary of Juan de la Cruz’s life plan is his common-law wife,
Purita. And being merely a common law-wife, she is barred from receiving donations from the
Juan de la Cruz due the prohibition under Art. 739(1) of the New Civil Code. This makes her
designation void, hence disqualified as a beneficiary.
4F 2019-2020 69
Therefore the proceeds of the insurance policy must be awarded to Cynthia as the legal wife
because Purita is disqualified as a beneficiary for being a common-law wife.
4F 2019-2020 70
On January 1, 2000, Antonio Rivera secured a life insurance from SOS Insurance Corp. for P1
Million with Gemma Rivera, his adopted daughter, as the beneficiary. Antonio Rivera died on
March 4, 2005 and in the police investigation, it was ascertained that Gemma Rivera participated
as an accessory in the killing of Antonio Rivera. Can SOS Insurance Corp. avoid liability by setting
up as a defense the participation of Gemma Rivera in the killing of Antonio Rivera? Discuss with
reasons. (4%)
ANSWER:
No, SOS cannot avoid liability under the policy. Under Section 12 of the Insurance Code, “The
interest of a beneficiary in a life insurance policy shall be forfeited when the beneficiary is the
principal, accomplice, or accessory in willfully bringing about the death of the insured. In such a
case, the share forfeited shall pass on to the other beneficiaries, unless otherwise disqualified. In
the absence of other beneficiaries, the proceeds shall be paid in accordance with the policy
contract. If the policy contract is silent, the proceeds shall be paid to the estate of the insured.”
While Gemma’s interest as beneficiary in the policy is considered forfeited since she is an
accessory to the killing of Antonio, the proceeds of the policy should be paid to the nearest relative
of Antonio, if not otherwise disqualified.
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Topic: Beneficiary (2012)
X is the common law wife of Y. Y loves X so much that he took out a life insurance on his own life
and made her the sole beneficiary. Y did this to ensure that X will be financially comfortable when
he is gone. Upon the death of Y, -
A. X as sole beneficiary under the life insurance policy on the life of Y will be entitled to the
proceeds of the life insurance.
B. despite the designation of X as the sole beneficiary, the proceeds of the life insurance will go
to the estate of Y.
C. the proceeds of the life insurance will go to the compulsory heirs of Y.
D. the proceeds of the life insurance will be divided equally amongst X and the compulsory heirs
of Y.
ANSWER:
A. X as sole beneficiary under the life insurance policy on the life of Y will be entitled to the
proceeds of the life insurance.
Under SEC. 11. The insured shall have the right to change the beneficiary he designated in the
policy, unless he has expressly waived this right in said policy. Notwithstanding the foregoing, in
the event the insured does not change the beneficiary during his lifetime, the designation shall be
deemed irrevocable.
Here, the insured did not change the beneficiary X during his lifetime. Hence, X will be entitled to
the proceeds of the insurance
In this case, the designated beneficiary of Juan de la Cruz’s life plan is his common-law wife,
Purita. And being merely a common-law wife, she is barred from receiving donations from the
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Juan de la Cruz due the prohibition under Art. 739(1) of the New Civil Code. This makes her
designation void, hence disqualified as a beneficiary.
Therefore, the proceeds of the insurance policy must be awarded to Cynthia as the legal wife
because Purita is disqualified as a beneficiary for being merely a common-law wife.
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Topic: Life Insurance; Beneficiary; When Forfeited (1981)
On July 1, 1979, Crispulo, married to Laura with whom he has two legitimate children, was issued
Policy No. 8008 of the Midland Life Insurance Co. on a whole-life plan for P10,000. He designated
Angie, his common-law wife as the recoverable beneficiary. He referred to her, in his application
and policy, as his wife.
Two years later, Crispulo died. Angie filed her claim for the proceeds of the policy as the
designated beneficiary therein. The widow, Laura, also filed her claim as legal wife.
If you were the Legal Counsel for the Insurance Company, to whom would you adjudicate the
proceeds of the insurance policy? Reason out your answer briefly.
ANSWER:
If I were the Legal Counsel for the Insurance Company, I would adjudicate the proceeds of the
insurance policy to Laura, the legal wife. Under Art. 739 (1) of the New Civil Code, the donation
of “Those made between persons who were guilty of adultery or concubinage at the time of the
donation” are void. A life insurance policy is no different from a donation insofar as far as the
beneficiary is concerned. Since Crispulo was married to Laura at the time when he designated
his common-law wife Angie, as his beneficiary, the designation is nullified because it falls under
the ground of concubinage.
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Topic: Accident Insurance (1990)
Luis was the holder of an accident insurance policy effective November 1, 1988 to October 31,
1989. At a boxing contest held on January 1, 1989 and sponsored by his employer, he slipped
and was hit on the face by his opponent so he fell and his head hit one of the posts of the boxing
ring. He was rendered unconscious and was dead on arrival at the hospital due to intracranial
hemorrhage. Can his father who is a beneficiary under said insurance policy successfully
indemnify from the insurance company? Explain your answer.
Answer:
Yes. Luis’ father can successfully indemnify for the death of the insured, Luis.
The Court held in the case of Dela Cruz v. Capital Insurance & Surety Co. that an accident is an
event that takes place without one's foresight or expectation — an event that proceeds from an
unknown cause, or is an unusual effect of a known cause and, therefore, not expected.
Furthermore, the Court ruled that while the participation of the insured in the boxing contest is
voluntary, the injury was sustained when he slid, giving occasion to the infliction by his opponent
of the blow that threw him to the ropes of the ring. Without this unfortunate incident, that is, the
unintentional slipping of the deceased, perhaps he could not have received that blow in the head
and would not have died. The fact that boxing is attended with some risks of external injuries does
not make any injuries received in the course of the game not accidental. In boxing, as in other
equally physically rigorous sports, such as basketball or baseball, death is not ordinarily
anticipated to result. If, therefore, it ever does, the injury or death can only be accidental or
produced by some unforeseen happening or event as what occurred in this case.
The death of Luis is accidental which entitles his beneficiary to be indemnified from his insurance
policy. Although Luis voluntarily participated in the boxing contest, the cause of his death, which
was when he slip and was hit on the face was an accident within the coverage of his insurance
policy.
Therefore, Luis’ father who is his beneficiary can successfully be indemnified and claim from the
insurance policy.
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CASUALTY INSURANCE
Topic: Casualty Insurance; Third Party Liability; Theft Clause (1981)
“A” was the owner of a car insured with Fortune Insurance Company for “Own Damage”, “Theft”,
and “Third-Party-Liability” effective May 16, 1977 to May 16, 1978. On May 9, 1978, the car was
brought to a machine shop for repairs. On May 11, 1978, while in the custody of the machine
shop, the car was taken by one of the employees to be driven out to a certain place. While
travelling along the highway, the car smashed into parked truck and suffered extensive damage.
“A” filed a claim for recovery under the policy but was refused payment. The insurance company
averred that the car was not stolen and, therefore, was not covered by the “Theft Clause.”
ANSWER:
The insurer is liable to “A” under the “Theft Clause”. In Villacorta v Insurance Commission, the
Supreme Court held “that when a person, either with the object of going to a certain place, or
learning how to drive, or enjoying a free ride, takes possession of a vehicle belonging to another,
without the consent of its owner, he is guilty of theft.” In this case, the insurer is now liable for the
loss as it clearly falls under the theft clause.
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Topic: Casualty Insurance; Theft Clause (1988)
Mr. Gonzales was the owner of a car insured with Masagana Insurance Company for “Own
Damage”, “Theft”, and “Third Party Liability” effective May 14, 1986 to May 14, 1987. May 2, 1987,
the car was brought to a machine shop for repairs. On May 11, 1987, while in custody of the
machine shop, the car was taken by one of the employees (of the machine shop) to show off to
his girlfriend’s house. While on the way to his girlfriend’s house, the car smashed into a parked
truck and was extensively damaged. Mr. Gonzales filed a claim for recovery under the policy but
was refused payment. The insurance company averred that the car was not stolen, and therefore
was not covered by the “Theft Clause”.
ANSWER:
The contention of the insurance company is untenable. The insured is entitled to recover under
the policy.
In the case of Association of Baptists vs. Fieldmen’s Insurance, the Supreme Court stated that
“when a person, either with the object of going to a certain place, or learning how to drive, or
enjoying a free ride, takes possession of a vehicle belonging to another, without the consent of
its owner, he is guilty of theft because by taking possession of the personal property belonging to
another and using it, his intent to gain is evident since he derives therefrom utility, satisfaction,
enjoyment and pleasure.” In the case at hand, the act of the employee of the machine shop
constitutes theft within the meaning of law and jurisprudence. Hence, the insurance company’s
argument that the car was not stolen cannot be given merit. The insured is therefore entitled to
recover under the policy.
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Topic: Casualty Insurance; Compulsory Motor Vehicle Liability Insurance (1981)
“X” owns and operates several passenger jeepneys in Metro Manila. He entered into a contract
with Gold Mine Insurance & Surety Co., insuring the operation of his jeepneys against accidents
with third-party-liability.
During the effectivity of the insurance, one of his jeepneys bumped “B”, who had just alighted
from another passenger jeepney whose driver unloaded passengers in the middle of the street.
“B” suffered bodily injury as a consequence and filed a claim against the insurance company. The
latter refused to pay on the ground that the driver of the jeepney from which passenger “B” alighted
was guilty of negligence in unloading in the middle of the street, and that the driver of the insured
operator was not at fault.
Can passenger “B” recover from the insurance company? Explain.
ANSWER:
Yes, passenger B may recover from the insurance company. As explained by the Supreme Court
in Bonifacio Brothers v Mora, under the doctrine of stipulation pour autrui, a third person is allowed
to avail himself of a benefit granted to him by the terms of the contract, provided that the
contracting parties have clearly and deliberately conferred a favor upon such person. In this case,
the insurance covers the operation of X’s jeepneys against accidents with third parties, and
therefore B may directly recover from the insurance company.
Furthermore, the insurance company cannot refuse to pay on the ground that driver of the insured
operator was not at fault. Section 391 of the Insurance Code expressly provides that: “Any claim
for death or injury to any passenger or third-party pursuant to the provisions of this chapter shall
be paid without the necessity of proving fault of negligence of any kind: Provided, that for the
purposes of this section:
a. The total indemnity in respect of any person shall not be less than 15,000 pesos.
b. The following proofs, when submitted under oath, shall be sufficient evidence to substantiate
the claim:
(1) The police report of accident; and
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(3) Medical report and evidence of medical or hospital disbursement in respect of which refund is
claimed;
c. Claim may be made against one motor vehicle only. xxx”
In this case, as long as the requisites of provision are met, the defenses provided cannot be used
by the insurance company.
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Topic: Insurer; 3rd Party Liability; No Fault Indemnity (1994)
What is your understanding of a “no fault indemnity” clause found in an insurance policy?
ANSWER:
Under the NO FAULT INDEMNITY clause, the injured third party or passenger is given the
option to file a claim for death or injury without the necessity of proving fault or negligence of any
kind under the following conditions:
(a) The total indemnity in respect of any person shall not exceed Php 15,000.00 (Section 391,
Insurance Code; Insurance Memo. Circular 4-2006);
(b) The following proofs of loss, when submitted under oath, shall be sufficient evidence to
substantiate the claim:
(1) Police report of accident; and
(3) Medical report and evidence of medical or hospital disbursement in respect of which refund is
claimed.
(c) Claim may be made against one motor vehicle only.
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FIRE INSURANCE
Topic: Kinds of Policies (1975)
In 1964, Jose constructed a house worth P50,000.00, which he insured against fire for the same
amount. The insurance for the same amount was renewed every year. In 1974, when the house
was already worth P100,00.00 on account of inflationary prices (in case of a rebuilding), one-fifth
(1/5) of the house was destroyed by fire. As nothing illegal about the contract, how much, if any,
can Jose successfully recover from the Insurance Company? Reason.
ANSWER:
If the fire policy is a valued one, then Jose can recover 1/5 of P50,000.00. i.e., P10,000.00. Under
Sec. 61 of the Insurance Code, the valuation in a valued policy is conclusive between the parties
in the absence of fraud. In this case, the P50,000.00 valuation is conclusive, therefore Jose can
only recover 1/5 of that.
If the policy is an open policy then Jose can recover 1/5 of the value of the house at the time of
the loss. Under Sec. 60 of the Insurance Code, in open policy, the value of thr thing insured is not
agreed upon, but left to be ascertained at time of loss. The amount of the insurance merely
represents the insurer's maximum liability. In this case, at the time of the loss, the house was
worth P100,000.00, therefore, Jose can recover P20,000.00, which is less than the value of the
policy.
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Topic: Fire Insurance; Insurable Interest in Property Insurance (1982)
“A” owns a house valued at P50,000 which he had insured against fire for P100,000. He obtained
a loan from “B” in the amount of P100,000, and to secure payment thereof, he executed a deed
of mortgage on the house, but without assigning the insurance policy to the latter. For “A’s” failure
to pay the loan upon maturity, “B” initiated foreclosure proceedings and in the ensuing public sale,
the house was sold by the sheriff to “B” as highest bidder. Immediately upon issuance of the
sheriff’s certificate of sale in his favor, “B” insured the house against fire for P120,000 with another
insurance company. In order to redeem the house, “A” borrowed P100,000 from “C” and, as
security device, he assigned the insurance policy of P100,000 to “C”. However, before “A” could
pay “B” his obligation of P100,000, the house was accidentally and totally burned.
Does “A”, “B” or “C” have any insurance interest in the house? May “A”, “B” and “C” recover under
the policies? If so, how much?
ANSWER:
Yes. Sections 13 and Sections 14 0f Insurance Code state that insurable interest in the property
is any interest therein, or liability in respect thereof, and it may consist in (i.) an existing interest,
(ii.) an inchoate interest founded on an existing interest, or (iii.) any expectancy coupled with
existing interest.
As to A, he has insurable interest in his house, an existing interest, but only for P50,000, the value
of the said house. But, when he assigned it to C, said A had no more interest in his insurance
policy, and A cannot anymore recover on said insurance policy.
As to B, he has insurable interest on A’s house, having an interest founded upon an existing
interest, but only for P50,000, the value of A’s house, and therefore, he can recover only the
amount of P50,000.
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As to C, he has no insurable interest on A’s house, being mere contingent or expectant interest
not founded on an actual right or valid contract to A’s house; besides, the assignment to him of
A’s insurance policy was not approved by the insurer; hence, C cannot recover.
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Topic: Fire Insurance; Warranties (1986)
Pabaya paid for a fire insurance policy on his multiple storey building. At the time he applied for
the insurance, he told the representative of the insurance company that he planned to assign a
security guard on every floor of the building right away. Except for the ground floor, no security
guards were assigned. Eleven months after the policy was issued, the building was gutted by fire
which started on the third floor. Unknown to Pabaya, the insurance company had incorporated
his planned undertaking in the policy.
Can Pabaya recover on the fire insurance policy? Explain.
ANSWER
Yes, Pabaya can recover on the fire insurance policy.
Under Sec. 67 of the Insurance Code, a warranty is either expressed or implied. In relation
thereto, Sec. 72 of the same Code provides that a statement in a policy, which imparts that it is
intended to do or not to do a thing which materially affects the risk, is a warranty that such act or
omission shall take place.
In this case, a mere plan to assign a security guard on every floor of the building cannot be
considered as a warranty contemplated under the Insurance Code. Being merely a plan, it cannot
be taken as a promissory undertaking. Further, the assignment of security guards on every floor
of the building is not an undertaking which materially affects the risk that the building may be
gutted by fire.
Therefore, Pabaya can recover on the fire insurance policy because no breach of warranty had
been committed.
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Topic: Fire Insurance; Proximate Cause (1989)
Queens Insurance company insured X, a resident of Baguio City, “against all direct loss and
damage by fire.” X lived in the house heated by a furnace. His servant built a fire in the furnace
using material that was highly flammable. The furnace fire caused intense heat and great volumes
of smoke and soot and damaged the furnishings in the rooms of X. When X tried to collect on the
policy, Queens Insurance refused to pay contending that the damage is not covered by the policy,
where the fire is confined within the furnace. Decide.
ANSWER:
The refusal of Queens Insurance Company to pay is not justified. Section 169 of the Insurance
Code provides that a fire insurance is a contract of indemnity which the insurer for a consideration
agrees to indemnify the insured against loss of, or damage to, property by fire. In this case, the
insurance coverage was “against all direct loss and damage by fire.” Since, clearly, fire was the
proximate cause of the damage, recovery should be allowed as being the real intendment of the
parties. As a rule, recovery is due when the risk insured against is either the proximate cause or
the immediate cause. Even when there is an exclusion, the primordial rule in determining recovery
is whether or not the risk insured against is the proximate cause. In the affirmative, recovery is
allowed. Hence, X may recover on the policy.
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INSURABLE INTEREST
Topic: Insurable Interest (1991)
A piece of machinery was shipped to Mr. Pablo on the basis of C&F, Manila. Mr. Pablo insured
said machinery with the Talaga Merchants Insurance Corp. (TAMIC) for loss or damage during
the voyage. The vessel sank en route to Manila. Mr. Pablo then filed a claim with TAMIC which
was denied for the reason that prior delivery, Mr. Pablo had no insurable interest. Decide the
case.
Answer:
Mr. Pablo had an existing insurable interest on the machinery he bought and thus entitled to the
insurance proceeds.
In the case of Filipino Merchants Insurance Co. v. Court of Appeals, the court ruled that a
vendee/consignee of the goods in transit has such existing interest therein as may be the subject
of a valid contract of insurance. His interest over the goods is based on the perfected contract of
sale. The perfected contract of sale between him and the shipper of the goods operates to vest
in him an equitable title even before delivery or before he performed the conditions of the sale.
The perfected contract of sale even without delivery vests in the vendee an equitable title, an
existing interest over the goods sufficient to be the subject of insurance.
Applying the said ruling in this case, Mr. Pablo had an insurable interest to the machinery base
on the perfected contract of sale which vests him the equitable title over the machinery. The
equitable title vested with Mr. Pablo is an existing interest over the goods which falls squarely with
the provision of Section 14 of the Insurance Code.
Therefore, contrary to the claim of TAMIC, Mr. Pablo had an insurable interest over the machinery
even prior to the delivery.
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Distinguish insurable interest in property insurance from insurable interest in life insurance.
ANSWER:
The relevant provision for insurable interest in life insurance is Sec 10 of the Insurance Code,
while the provisions for insurable interest in property insurance are Secs. 13, 14, 16 and 17 of the
same code. The notable distinctions between the two concepts are:
1. As to extent: insurable interest in property is limited to the value of the property; as for
insurable interest in life insurance, it is unlimited except if secured by the creditor.
2. As to the time when it must exist: in insurable interest in property, it must be at the time of
perfection of the contract and at the time of the loss; as for insurable interest in life, it must
be at the time of the perfection of the insurance contract.
3. As to the need for legal basis: Expectation of benefit must have legal basis in insurable
interest in property insurance; while in insurable interest in life, expectation of benefit need
not have legal basis or need not be based on legally enforceable obligation.
4. As to the beneficiary’s interest: beneficiary must have insurable interest in property

insurance, while insurable interest in a life insurance is not necessary of the insured took
out the policy on his own life and designated another. Beneficiary must have insurable
interest if one took out an insurance on the life of another.
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For both the Life Insurance and Property Insurance, the insurable interest is required to be -
a. existing at the time of perfection of the contract and at the time of loss.
b. existing at the time of perfection and at the time of loss for property insurance but
only at the time of perfection for life insurance.
c. existing at the time of perfection for property insurance but for life insurance both
at the time of perfection and at the time of loss.
d. existing at the time of perfection only.
ANSWER:
b. existing at the time of perfection and at the time of loss for property insurance but only at
the time of perfection for life insurance.
SEC. 19. An interest in property insured must exist when the insurance takes effect, and when
the loss occurs, but need not exist in the meantime; and 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.
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X owned a house and lot. X insured the house. The house got burned. Then he sold the partially
burnt house and the lot to Y. Which statement is most accurate?
a. X is not anymore entitled to the proceeds of the insurance policy because he already sold
the partially burnt house and lot.
b. X is still entitled to the proceeds of the insurance policy because what is material is that at
the time of the loss, X is the owner of the house and lot.
c. No one is entitled to the proceeds because ownership over the house and lot was already
transferred.
d. Y will be the one entitled to the proceeds because he now owns the partially burnt house
and lot.
ANSWER
b. X is still entitled to the proceeds of the insurance policy because what is material is that
at the time of the loss, X is the owner of the house and lot.
Sec. 19 of the Insurance Code provides that an interest in property insured must exist when
the insurance takes effect, and when the loss occurs, but need not exist in the meantime.
Here X was still the property owner at the time when the insurance takes effect and at the
time of the loss hence, he may still recover despite selling the property to Y.
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Carlo and Bianca met in the La Boracay festivities. Immediately, they fell in love with each other
and got married soon after. They have been cohabiting blissfully as husband and wife, but they
did not have any offspring. As the years passed by, Carlo decided to take out an insurance on
Bianca’s life for P1,000,000.00 with him (Carlo) as sole beneficiary, given that he did not have a
steady source of income and he always depended on Bianca both emotionally and financially.
During the term of the insurance, Bianca died of what appeared to be a mysterious cause so that
Carlo immediately requested for an autopsy to be conducted. It was established that Bianca died
of a natural cause. More than that, it was also established that Bianca was a transgender all along
– a fact unknown to Carlo. Can Carlo claim the insurance benefit?
ANSWER:
Yes, Carlo can claim the insurance benefit
Section 10(b) of the Insurance Code provides that a person has insurable interest over the life
and health of any person on whom he depends wholly or in part for education or support, or in
whom he has a pecuniary interest.
In this case, since Carlo always depended on Bianca both emotionally and financially, then Carlo
has insurable interest over the life of Bianca. The fact of lack of kinship or legal obligation to
support and the void marriage is irrelevant.
Hence, Carlo can claim the insurance benefit because he has insurable interest over the life of
Bianca, to whom he depends.
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An insurable interest in the subject matter insured where he has a relation or connection with, or
concern in it that he will derive pecuniary benefit or advantage from its preservation. Which among
the following subject matters is not considered insurable?
A) A partner in a firm on its future profits

B) A general creditor on debtor’s property
C) A judgment creditor on debtor’s property
D) A mortgage creditor on debtor’s mortgaged property
ANSWER:
B) A general creditor on debtor’s property
Sec 13 of the Insurance Code provides for the list of insurable interest in property, which consists
in: existing interest; inchoate interest founded on an existing interest; or expectancy, coupled with
existing interest in that out of which the expectancy arises.
In this case, a general creditor has no existing interest, no inchoate interest and no expectancy
with existing interest over his debtor’s property, since a general creditor has no interest yet on the
property of debtor until the latter caused breach of their contract.
Hence, B is the correct answer because a general creditor has no insurable interest yet over the
debtor’s property until the latter breaches the obligation.
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Insurable Interest (2015)
Novette entered into a contract for the purchase of certain office supplies. The goods were
shipped. While in transit, the goods were insured by Novette. Does she have an insurable interest
over the goods even before delivery of the same to her? Explain.
Answer:
Yes. Novette has an insurable interest over the goods.
Section 14 of the Insurance Code of the Philippines provides that an insurable interest in property
may consist in:
(a) An existing interest;
(b) An inchoate interest founded on an existing interest; or
(c) An expectancy, coupled with an existing interest in that out of which the expectancy arises.
Herein Novette has such existing interest in the goods shipped as may be the subject of a valid
contract of insurance. His interest over the goods is based on the perfected contract of sale. The
perfected contract of sale between him and the shipper of the goods operates to vest in him an
equitable title even before delivery or before he performed the conditions of the sale.
The perfected contract of sale even without delivery vests in the vendee an equitable title, an
existing interest over the goods sufficient to be the subject of insurance. Hence, Novette has an
insurable interest over the goods.
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The newly restored Ford Mustang muscle car was just released from the car restoration shop to
its owner, Seth, an avid sportsman. Given his passion for sailing, he needed to go to a round-the-
world voyage with his crew on his brand new 180-meter yacht. Hearing about his coming voyage,
Sean, his bosom friend, asked Seth if he could borrow the car for his next roadshow. Sean, who
had been in the business of holding motor shows and promotions, proposed to display the
restored car of Seth in major cities of the country. Seth agreed and lent the Ford Mustang to Sean.
Seth further expressly allowed Sean to use the car even for his own purposes on special
occasions during his absence from the country. Seth and Sean then went together to Bayad Agad
Insurance Co. (BAIC) to get separate policies for the car in their respective names.
BAIC consults you as its lawyer on whether separate policies could be issued to Seth and Sean
in respect of the same car.
a. What is insurable interest?
b. Do Seth and Sean have separate insurable interests? Explain briefly your answer.
ANSWERS:
a. As defined in the case of Lalican vs. Insular Life, 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.
b. Yes, Seth and Sean have separate insurable interests.
Section 14 of the Insurance Code provides that insurable interest in property consists of
either an (1) existing interest, (2) an inchoate interest founded on an existing interest, or
(3) an expectancy coupled with an existing interest in that out of which the expectancy
arises. In addition, Section 15 of the same Code provides that a carrier or depository of
any kind has an insurable interest in a thing held by him as such, to the extent of his liability
but not to exceed the value thereof.
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Here, Seth, being the owner, has an existing insurable interest over his car. On the other
hand, Sean has insurable interest over safety of the same car which may become the
basis of his liability in case of loss or damage to the property, as contemplated under
Section 15.
Therefore, separate insurance policies could be issued to Seth and Sean with respect to
the same car as they have separate insurable interests.
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Topic: Insurable Interest; Property (1977)
A owns a house worth P500,000.00. He insured it against fire for P250,000.00 for the period from
January 1, 1977 to January 1, 1978. At the instance of B, who is a judgment creditor of A, the
said house was levied upon by the Sheriff and sold at public auction on March 15, 1977. It was
adjudicated to B for P150,000.00 at the auction sale. B insured the house against fire for
P150,000.00 for the period from March 16, 1977 to March 16, 1978. The house was accidentally
burned on April 1, 1977.
A. May A recover under his policy? Give reasons

B. May B recover under his policy? Give reasons.
ANSWERS:
A. A can recover under his policy.
A judgment debtor whose property has been seized on execution has an insurable interest
therein until the right to redeem or have the same set aside has been lost.
In the case at hand, the auction sale was made on March 15, 1977. The house was burned
on April 1, 1977, less than 12 months from the date of the auction sale. Inasmuch as the
right of A to redeem has not expired, the 12 months time after the sale having not elapsed
before the loss occurred, A has an insurable interest in the house at the time of loss.
Thus, A may validly recover under his policy
2. Yes, B can recover under his policy.
Section 14 of Insurance Code provides that an insurable interest in property may consist
in an existing interest or expectancy, coupled with an existing interest in that out of which
the expectancy arises. Also, under Section 17 of Insurance Code, the measure of
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insurable interest in property is the extent to which the insured might be damnified by the
loss or injury thereof.
In this case, since B is a purchaser at a judicial sale, he has existing interest over the
property of A or even an expectancy, during the redemption period, which is coupled with
existing interest out of which expectancy arises. B’s insurable interest is only to the extent
of the amount for which he insured it which the insured may be indemnified in case of loss
by fire.
Therefore, B can recover under his policy because he has insurable interest over the
property adjudicated to him in the judicial sale.
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Topic: Insurable Interest: Property (1979)
The agent in Davao of the insured “A” was employed to ship “A”‘s copra to Manila and to
communicate the shipment to the buyer “A” in Manila. The said agent wrote the owner of copra
announcing the sailing of the ship, but failed to state that the ship had run a ground, which fact
he already knew before announcing the sailing. “A”, the buyer of the copra, in all good faith, took
out a marine insurance on the copra. The copra was badly damaged and was a total loss. Can
the insured recover on the policy? Reason.
ANSWER:
No, the insured cannot recover on the policy because the subject matter of the insurance at the
time of contracting it was already lost.
Section 19 of The Insurance Code of the Philippines provides that “an interest in property insured
must exist when the insurance takes effect and when the loss occurs, but need not exist in the
meantime; and 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 this case, the ship has run aground causing the damage and total loss of the copra which is
the subject matter of the insurance policy. Section 19 is clear that in property insurance, it is
necessary that the insurable interest exists when the insurance takes effect and when the loss
occurs, but need not exist in the meantime. Hence, when A took out a marine insurance, there is
no insurable interest existing because of the total loss of the subject matter, copra.
Therefore, A cannot recover on the policy.
4F 2019-2020 97
Topic: Insurable Interest; Life; Property (1984)
On January 4, 1983, Mr. P joined Alpha Corporation (ALPHA) as President of the company.
ALPHA took out a life insurance policy on the life of Mr. P with Mutual Insurance Company,
designating ALPHA as the beneficiary. ALPHA also carried fire insurance with Beta Insurance
Co. on a house owned by it, but temporarily occupied by Mr. P again with ALPHA as beneficiary.
On September 1, 1983, Mr. P resigned from ALPHA and purchased the company house he had
been occupying. A few days later, a fire occurred resulting in the death of Mr. P and the destruction
of the house.
What are the rights of ALPHA against:
a. Mutual Life Insurance Company?

b. Beta Insurance Co.?
ANSWERS:
a. ALPHA has the right to recover from Mutual Life Insurance Company.
Section 18 of the Insurance Code 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. In relation thereto, Section 19 of the Insurance Code
provides that the 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
Here, the insurable interest of ALPHA on the life of Mr. P existed at the time the insurance
took effect, i.e. when Mr. P was the President of the company. The death of Mr. P after
his resignation from the company is immaterial because the law explicitly provides that in
insurance taken on the life of health of a person, insurable interest need not exist after the
time the insurance took effect or when the loss occurred.
Hence, ALPHA has the right to recover from Mutual Life Insurance Co because of the
death of Mr. P.
2. ALPHA cannot recover from Beta Insurance, Co.
4F 2019-2020 98
Section 14 (a) states that an insurable interest in property may consist in an existing
interest. Hence, insurable interest must exist at the time of the perfection of the contract
and at the time of the actual loss.
In the case at bar, Alpha cannot recover from the property insurance since an interest in
the property insured must exist not only when the insurance took effect but also when the
loss occurs. The house which was insured was destroyed by fire after ALPHA had already
sold the same to Mr. P.
Therefore, the insurable interest of ALPHA over the property insured no longer existing
when the loss occurred, the same cannot recover from the property insurance against
Beta Insurance, Co.
4F 2019-2020 99
Topic: Insurable Interest; Property (1987)
On February 3, 1987, while Jose Palacio was in the hospital preparatory to a heart surgery, he
called his only son, Boy Palacio, and showed the latter a will naming the son as sole heir to all
the father’s estate including the family mansion in Forbes Park. The following day, Boy Palacio
took out a fire insurance policy on the Forbes Park mansion. One week later, the father died. After
his father’s death, Boy Palacio moved his wife and children to the family mansion which he
inherited. On March 30, 1987, a fire occurred razing the mansion to the ground. Boy Palacio then
proceeded to collect on the fire insurance he took earlier on the house.
Should the insurance company pay? Reasons.
ANSWER:
No, the insurance company should not pay.
Section 14 of the Insurance Code of the Philippines provides that “an insurable interest in property
may consist in: (a) an existing interest; (b) an inchoate interest founded on an existing interest; or
(c) an expectancy, coupled with an existing interest in that out of which the expectancy arises.”
Section 19 provides that “an interest in property insured must exist when the insurance takes
effect, and when the loss occurs, but need not exist in the meantime.”
In the case at bar, the interest of Boy Palacio, at the time he took out the fire insurance policy
over the Forbes Park mansion owned by Jose Palacio, who was still alive at that time, was a mere
expectancy not coupled with an existing interest. Section 19 of the ICP clearly requires the
existence of the interest at two times: first, when the insurance takes effect; and second, when
the loss occurs. Boy Palacio does not have any insurable interest over the subject property which
would give the insurance company a legal obligation to pay him because his interest in the
property did not exist at the time he took out the fire insurance policy, or when the insurance took
effect.
Therefore, the insurance company should not pay.
4F 2019-2020 100
Topic: Insurable Interest; Change of Interest in the Thing Insured (1980)
“N” owns a condominium unit presently insured with Holy Insurance Co. for P1 Million. “N” later
sells the condominium unit to “O”. Somehow “O” fails to obtain the transfer of the insurance policy
to his name from “N”. Subsequently, fire of unknown origin destroys completely the condominium
unit.
Who may collect the insurance proceeds?
ANSWER:
Neither “N” nor “O” may collect.
To be entitled to insurance proceeds, the Insurance Code requires that a person must have
insurable interest. Under Sec. 19 of the said Code, “[a]n interest in property insured must exist
when the insurance takes effect, and when the loss occurs, but not exist in the meantime.”
Furthermore, as provided in Sec. 20 of the Insurance Code, “a change of interest in any part of a
thing insured unaccompanied by a corresponding change in interest in the insurance, suspends
the insurance to an equivalent extent, until the interest in the thing and the interest in the insurance
are vested in the same person.”
On the one hand, “N” had insurable interest at the time insurance took effect. However, when the
loss occurred, he had no more interest over the condominium unit. On the other hand, “O” cannot
recover because he had no insurance contract over the said condominium unit bought from “N”.
Thus, both “N” and “O” may not collect the insurance proceeds.
4F 2019-2020 101
Topic: Insurable Interest of the Mortgagor and Mortgagee (1984)
To secure a loan of P10M, O mortgaged his building to C. In accordance with the loan
arrangements, O had the property insured with Acme Insurance Company for P10M with C as
the beneficiary. C also took an insurance on the building upon his own interest with Beta Insurance
Co. for P5M.
The building was totally destroyed by fire, a peril insured against in both insurance policies. It was
subsequently determined that the fire had been intentionally started by O and that, in violation of
the loan agreement, O had been storing inflammable materials in the building.
How much can C recover from either or both insurance companies? What happens to the P10M
debt of O to C?
ANSWER:
A. C cannot recover from Acme Insurance Company.
Sec. 8 of the Insurance Code provides that unless the policy otherwise provides, where a
mortgagor of property effects insurance in his own name providing that the loss shall be
payable to the mortgagee, or assigns a policy of insurance to the mortgagee, the insurance
is deemed to be upon the interest of the mortgagor, and any act of his, prior to the loss,
which would otherwise avoid the insurance will have the same effect.
Apart from storing inflammable materials in the building, it is the very act of the owner-
mortgagor, O, which caused the peril insured against.
Hence, the policy taken out by O is avoided and C, the designated beneficiary cannot
recover from the same policy.
B. On the other hand, C can recover from Beta Insurance.

In the case of Palileo v. Cosio (97 Phil 919) the SC ruled that where a mortgagee,
independently of the mortgagor, insures the mortgaged property in his own name and for
his own interest, he is entitled to the insurance proceeds in case of loss, but in such case,
4F 2019-2020 102
he is not allowed to retain his claim against the mortgagor, but is passed by subrogation to
the insurer to the extent of the money paid.
Here, C can recover the full amount of P5M since the act of O of intentionally starting the
fire which caused the loss cannot be attributable to the mortgagee, C. The act of O does not
affect the insurance policy, unless the insurance policy itself prohibited any storing of
inflammable materials inside the property insured.
C. The P10M debt of O to C will be affected by the amount recovered by the latter from the
insurance policies.
Following the same doctrine from the case cited, since C is entitled to recover P5M from
Beta Insurance, which comprises half of the debt in question, he is not allowed to retain his
entire claim against the mortgagor, O. but the same is passed by subrogation to the insurer
to the extent of the money paid.
Therefore, mortgagor, O, is still liable to mortgagee, C, up to the amount of the remaining

P5M.
4F 2019-2020 103
Topic: Insurable Interest; Life (1987)
On July 14, 1985, X, a homosexual, took an insurance policy on the life of his boyfriend, Y. In the
insurance application, X misrepresented that Y was in perfect health although he knew all the
time that Y was afflicted with AIDS. On October 18, 1987, Y died in a motor accident. Shortly
thereafter, X filed his insurance claim. Should the insurer pay? Reasons.
ANSWER:
No, the insurer should not pay.
Section 10 of the Insurance Code of the Philippines provides that “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 or 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.” In paragraph (a), what
is required is blood relationship, while in paragraphs (b), (c), and (d), there must be pecuniary
interest.
In the case at bar, X is the boyfriend of Y, not the spouse which is covered by the law. The
relationship contemplated under paragraph (a) of Section 10 is not met by the relation between X
and Y. Moreover, X has no pecuniary interest over the life of Y to fall under the other paragraphs
of Section 10.
Therefore, the insurer has no legal obligation to pay X because the latter has no insurable interest
over the life of Y.
4F 2019-2020 104
Topic: Insurable Interest; Life (1988)
On October 18, 1980, P took out a life insurance policy and named his only son Q as beneficiary.
The policy was silent with regard to any change of beneficiary. P later learned that Q was hooked
on drugs and immediately notified the insurance company in writing that he is substituting his
sister, R, as his beneficiary in place of Q. P later died of advanced tuberculosis. In the application
form filled up by the agent of the insurance company prior to the issuance of the life insurance
policy by the insurance company, the agent, without knowledge of P, filled in a false answer and
made it appear that P was in good health. Upon P’s death, Q claimed the proceeds of the
insurance policy contending that as designated beneficiary, he cannot be changed without his
consent, he having acquired a vested right to the proceeds of the policy.
(a) Is Q’s contention correct? Reasons.
(b) Can the insurance company refuse liability on the policy? Reasons.
ANSWERS:
(a) No, the contention of Q is not correct.
Under Section 11 of the Insurance Code, “The insured shall have the right to change the
beneficiary he designated in the policy, unless he has expressly waived this right in said policy.”
In this case, P did not waive his right to change the beneficiary he designated in the policy. In
fact, P substituted his sister, R, in place of Q, the original beneficiary. Therefore, Q’s contention
is untenable. He has no vested right over the proceeds of the policy as he was substituted by R.
(b) No, the insurer cannot refuse liability.
The insurance agent is an agent not of the insured but of the insurer and the latter must thus
suffer for the misconduct of the agent (see Malayan Insurance Co. vs. Pinca, G.R. No. 67835,
October 12, 1987). In this case, the agent of the insurance company filled in a false answer,
without knowledge of P, and made it appear that P was in good health. Therefore, the insurance
company cannot escape liability as it is bound by the acts of its agent.
4F 2019-2020 105
Topic: Insurable Interest; Life; Parties to an Insurance Contract — Beneficiary (1987)
Blanco took out a P1M life insurance policy naming his friend and creditor, Montenegro, as his
beneficiary. When Blanco died, his outstanding loan obligation to Montenegro was only P50,000.
Blanco’s executor contended that only P50,000 out of the insurance proceeds should be paid to
Montenegro and the balance of P950,000 should be paid to Blanco’s estate. Is the executor’s
contention correct? Reason out your answer.
ANSWER:
No, the executor’s contention is not correct.
Section 53 of the Insurance Code of the Philippines provides 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.” Moreover, in the case of Picar vs. GSIS, the
Court held that “the proceeds of a life insurance in which a third person is named beneficiary
belong exclusively to such beneficiary as an individual, they are not the property of the heirs of
the insured, are not subject to administration, and cannot properly be claimed or received by the
administrator or other legal representative of the insured as assets of his estate.”
In the case at bar, it was Blanco himself who took a life insurance policy on his own life, and
designated the creditor, Montenegro, as beneficiary. Montenegro need not have insurable interest
over the life of Blanco as it was the latter himself who took the life insurance on his own life.
Applying Section 53, the insurance proceeds shall be applied exclusively to the interest of
Montenegro for he was the person whose name or for whose benefit it was made. Additionally,
the proceeds of the life insurance, amounting to P1 Million, belong exclusively to Montenegro as
beneficiary, and are not subject to administration and should not be claimed by the executor for
Blanco’s estate.
Therefore, the executor’s contention is not correct.
4F 2019-2020 106
Topic: Insurable interest of the Beneficiary in Property and Life Insurance (1997)
(a) A obtains a fire insurance on his house and as a generous gesture names is neighbor B as
the beneficiary. If A’s house was destroyed by fire, can B successfully claim against the policy.
(b) A obtains an insurance over his life and names his neighbor B as the beneficiary because of
A’s secret love for B. if A dies, can B successfully claim against the policy.
Answer:
(a) No, B may not claim against the fire insurance policy. The beneficiary must have an
insurable interest in the property that is the object of the property insurance. The contract will be
considered a wagering contract if the beneficiary will be allowed to recover even if he has no
insurable interest on the subject property. An insurance contract is not a wagering contract. In
this case, B has not insurable interest the insured house of A. Hence, B may not claim against
the fire insurance policy.
(b) Yes, B can claim against the life insurance policy. If the insured takes out an insurance
on his own life, he can designate anybody whether or not the beneficiary has insurable interest
over his insured life. In this case, B need not have an insurable interest over A’s life to be the
beneficiary. Hence, B can claim on the life insurance policy in case of A’s death.
4F 2019-2020 107
Topic: Insurable Interest; Property Insurance (1994)
In a civil suit, the Court ordered Benjie to pay Nat P500,000.00. To execute the judgment, the
sheriff levied upon Benjie’s registered property (a parcel of land and the building thereon), and
sold the same at public auction to Nat, the highest bidder. The latter, on March 18, 1992,
registered with the Register of Deeds the certificate of sale issued to him by the sheriff.
Meanwhile, on January 27, 1993, Benjie insured with Garapal Insurance for P1,000,000.00 the
same building that was sold at public auction to Nat. Benjie failed to redeem the property by March
18, 1993. On March 19, 1993, a fire razed the building to the ground. Garapal Insurance refused
to make good its obligation to Benjie under the insurance contract.
1. Is Garapal Insurance legally justified in refusing payment to Benjie?

2. Is Nat entitled to collect on the insurance policy?
ANSWERS:
1. Yes, Garapal Insurance is justified in its refusal to pay.
The law requires in property insurance that a person can recover the proceeds of the
policy if he has insurable interest at the time of the issuance of the policy and also at the
time when the loss occurs. Under Sections 13 and 14 of the Insurance Code, insurable
interest in property is any interest therein, or liability in respect thereof, and it may consist
in (1) an existing interest, (2) an inchoate interest founded on an existing interest, or (3)
any expectancy coupled with an existing interest.
At the time of the loss, Benjie was no longer the owner of the property insured as he failed
to redeem the property. At the time of fire, Benjie no longer had insurable interest in the
property insured.
2. No, Nat is not entitled to collect on the insurance policy.
While at the time of the loss he had insurable interest in the building, as he was the owner
thereof, Nat did not have any interest in the policy. There was no automatic transfer clause
in the policy that would give him such interest in the policy. Therefore, Nat cannot collect.
4F 2019-2020 108
Topic: Insurable Interest; Property Insurance (2001)
JQ, owner of a condominium unit, insured the same against fire with XYZ Insurance Co., and
made the loss payable to his brother, MLQ. In case of loss by fire of the said condominium unit,
who may recover on the fire insurance policy? State the reason/s for your answer.
ANSWER:
JQ can recover on the fire insurance policy but MLQ cannot recover from the same fire insurance
policy.
Under Section 18 of the Insurance Code, 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. In addition, Section 19 of the Insurance Code provides that an interest in property insured
must exist when the insurance takes effect, and when the loss occurs, but need not exist in the
meantime.
Here, the insurance is one of property. JQ has insurable interest over the condominium unit as
he is the owner of the same. Such insurable interest existed when the insurance took effect and
when the loss occurred. MLQ does not have insurable interest as his interest over the property is
not established.
Hence, only JQ can recover from the fire insurance policy.
4F 2019-2020 109
Topic: Insurable Interest; Double Insurance (1999)
A businessman in the grocery business obtained from First Insurance an insurance policy for P5M
to fully cover his stocks-in-trade from the risk of fire. Three months thereafter, a fire of accidental
origin broke out and completely destroyed the grocery including his stocks-in-trade. This
prompted the businessman to file with First Insurance a claim for five million pesos representing
the full value of his goods. First Insurance denied the claim because it discovered that at the time
of the loss, the stocks-in-trade were mortgaged to a creditor who likewise obtained from Second
Insurance Company fire insurance coverage for the stocks at their full value of P5M.
a. May the businessman and the creditor obtain separate insurance coverages over the same
stocks- in-trade? Explain.
b. First Insurance refused to pay claiming that double insurance is contrary to law. Is this
contention tenable?
c. Suppose you are the Judge, how much would you allow the businessman and the creditor
to recover from their respective insurers? Explain.
ANSWERS:
a. Yes, the businessman and the creditor may obtain separate insurance coverages over the
same stocks- in-trade.
Section 13 of the Insurance Code provides: Every interest in property, whether real or
personal, or any relation thereto, or liability in respect thereof, of such nature that a
contemplated peril might directly damnify the insured, is an insurable interest.
Section 14 of the same law provides: An insurable interest in property may consist in: (a)
An existing interest; (b) An inchoate interest founded on an existing interest; or (c) An
expectancy, coupled with an existing interest in that out of which the expectancy arises.
In property insurance, it is required that one has insurable interest over the property
insured. As the owner, the businessman’s insurable interest over the stocks-in-trade
consists of an existing interest as he derives pecuniary benefit from its preservation and
would suffer pecuniary loss by its destruction. In the same manner, the creditor stands to
be benefitted and/or prejudiced from the preservation and/or destruction, respectively, of
such stocks-in-trade as the same were mortgaged as security to him.
4F 2019-2020 110
Since both the businessman and the creditor have distinct insurable interests over the
same stocks-in-trade, they may obtain separate insurance coverages over said stocks.
2. No, the contention that double insurance is contrary to law is untenable.
No law provides that double insurance is illegal per se. By the express provision of Section
93 of the Insurance Code, double insurance exists where the same person is insured by
several insurers separately in respect to the same subject and interest. The requisites in
order for double insurance to arise are as follows:
1. The person insured is the same;
2. Two or more insurers insuring separately;
3. There is identity of subject matter;
4. There is identity of interest insured; and
5. There is identity of the risk or peril insured against.
In the present case, while it is true that the policies were both issued over the same subject
matter, i.e. stocks-in-trade belonging to the businessman, and both covered the same peril
insured against, it is, however, beyond cavil that the said policies were issued to two
different persons – the businessman is the recognized insured of First Insurance, while
the creditor is the recognized insured of Second Insurance Company. The interest of the
businessman over the property subject matter of both insurance contracts is also different
and distinct from that of the creditor’s. The policy issued by First Insurance was in
consideration of the interest of the businessman over its own stocks-in-trade. On the other
hand, what was issued by Second Insurance Company to the creditor was over the latter’s
insurable interest over the safety of the stocks, which were mortgaged to him.
Therefore, there arises no double insurance since the insured are two different
persons/entities having distinct insurable interests. Also, as there is no law providing that
double insurance is illegal per se, the contention of First Insurance is untenable.
C. I will allow the businessman to recover the full value of the policy, while the creditor shall only
be allowed to recover up to the extent of the debt secured.
4F 2019-2020 111
Insurable interest, according to Section 13 of the Insurance Code, refers to every interest in
property, whether real or personal, or any relation thereto, or liability in respect thereof, of such
nature that a contemplated peril might directly damnify the insured.
In the case at bar, the businessman’s insurable interest over the stocks-in-trade covers its entire
value of P5 Million. This is the same value that the risk of fire, the contemplated peril, might directly
damnify him. On the other hand, the creditor’s insurable interest is limited to the extent of the debt
secured by the insured stocks.
Therefore, I will allow the businessman to recover P5 Million, while I will allow the creditor to
recover the amount equal to the debt secured.
4F 2019-2020 112
Topic: Insurable Interest; Life vs. Property Insurance (2000)
IS, an elderly bachelor with no known relatives, obtained life insurance coverage for P250,000.00
from Starbrite Insurance Corporation, an entity licensed to engage in the insurable business under
the Insurance Code of the Philippines (PD1460). He also insured his residential house for twice
that amount within the same corporation. He immediately assigned all his rights to the insurance
proceeds to BX, a friend-companion living with him. Three years later, IS died in a fire that gutted
his insured house two days after he had sold it. There is no evidence of suicide or arson or
involvement of BX in these events. BX demanded payment of the insurance proceeds from the
two policies, the premiums for which IS had been faithfully paying during all the time he was alive.
Starbrite refused payment, contending that BX had no insurable interest and therefore was not
entitled to receive the proceeds from IS‘s insurance coverage on his life and also on his property.
Is Starbrite‘s contention valid? Explain?
ANSWER:
Starbrite is correct with respect to the insurance coverage on the property of IS, but not as to the
insurance coverage on the life of IS.
Under Section 18 of the Insurance Code, 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.
Herein, BX has no insurable interest in the residential house of IS since the former is a mere
friend-companion of IS. BX is not entitled to receive the proceeds from IS‘s insurance on his
property. As to the insurance coverage on the life of IS, BX is entitled to receive the proceeds.
There is no requirement that BX should have insurable interest in the life of IS. It was IS himself
who took the insurance on his own life.
Thus, Starbrite is correct with respect to the insurance coverage on the property of IS, but not as
to the insurance coverage on the life of IS.
4F 2019-2020 113
Topic: Insurable Interest: Bank Deposit (2000)
BD has a bank deposit of half a million pesos. Since the limit of the insurance coverage of the
Philippine Deposit Insurance Corp (PDIC) (RA 3591) is only one tenth of BD‘s deposit, he would
like some protection for the excess by taking out an insurance against all risks or contingencies
of loss arising from any unsound or unsafe banking practices including unforeseen adverse
effects of the continuing crisis involving the banking and financial sector in the Asian region. Does
BD have an insurable interest within the meaning of the Insurance Code of the Philippines
(PD1460)?
ANSWER:
Yes, BD has an insurable interest within the meaning of the Insurance Code of the Philippines.
Under Section 17 of the Insurance Code, the measure of an insurable interest in property is the
extent to which the insured might be damnified by loss or injury thereof.
Herein, BD has insurable interest in his bank deposit. In case of loss of said deposit, more
particularly to the extent of the amount in excess of the limit covered by the PDIC Act, PBD will
be damnified. He will suffer pecuniary loss of P300,000.00, that is, his bank deposit of half a
million pesos minus P200,000.00 which is the maximum amount recoverable from the PDIC.
Thus, BD has an insurable interest.
4F 2019-2020 114
Topic: Insurable Interest; Public Enemy (2000)
May a member of the MILF or its breakaway group, the Abu Sayyaf, be insured with a company
licensed to do business under the Insurance Code of the Philippines (PD 1460)? Explain.
ANSWER:
Yes, a member of the MILF or the Abu Sayyaf may be insured with a company licensed to do
business under the Insurance Code of the Philippines.
Under Section 7 of the Insurance Code, anyone except a public enemy may be insured. What is
prohibited to be insured is a public enemy. A public enemy is a citizen or national of a country
with which the Philippines is at war.
Such member of the MILF or the Abu Sayyaf is not a citizen or national of another country, but of
the Philippines.
Thus, a member of the MILF or the Abu Sayyaf may be insured.
4F 2019-2020 115
Topic: Insurable Interest; Public Enemy (2013)
In 2010, the Philippine National Police declared Kaddafy Benjelani "Public Enemy No. 1" because
of his terrorist activities in the country that have resulted in the death of thousands of Filipinos. A
ransom of P15 million was placed on Kaddafy Benjelani's head.
Worried about the future of their family, Kaddafy Benjelani's estranged wife, Aurelia, secured in
December 2010 a life insurance policy on his life and designated herself as the beneficiary.
Is the policy valid and binding?

A. Yes, the policy is valid and binding because Aurelia has an insurable interest on the life of
Kaddafy Benjelani.
B. No, the policy is not valid and binding because Kaddafy Benjelani has been officially
declared a public enemy.
C. Yes, the policy is valid and binding because it has been in force for more than two years.
D. No, the policy is not valid and binding since the spouses' estrangement removed Aurelia's
insurable interest in Benjelani's life.
E. None of the above.
Answer:
A. The policy is valid and binding.
Section 10(a) of the Insurance Code states that every person has an insurable interest in the life
and health of himself, of his spouse and of his children. Mere relationship is sufficient to insure
the life of the spouse based on Section 10(a). Moreover, in Filipinas Compania de Seguros v.
Christern Huenefeld and Co provides that a public enemy is a nation, including its citizens or
subjects, with whom the Philippines is at war.
Here, Aurelia is the spouse of the insured person Kaddafy Benjelani and has insurable interest
by her mere relationship with the insured. Also, Kaddafy is not a public enemy in contemplation
of the law as held in the jurisprudence as he did not belong to an enemy State in war with the
4F 2019-2020 116
Philippines. Thus, Aurelia having insurable interest over the life of her spouse, the insurance
policy is valid and binding.
4F 2019-2020 117
Topic: Insurable Interest; Non-Life Insurance Policy; Fire Insurance (2009)
Ciriaco leased a commercial apartment from Supreme Building Corporation (SBC). One of the
provisions of the one-year lease contract states:
"18. x x x 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 of the LESSOR. If the LESSEE
obtains fire insurance coverage without the consent of the LESSOR, the insurance
policy is deemed assigned and transferred to the LESSOR for the latter’s benefit."
Notwithstanding the stipulation in the contract, without the consent of SBC, Ciriaco insured the
merchandise inside the leased premises against loss by fire in the amount of P500,000.00 with
First United Insurance Corporation (FUIC).
A day before the lease contract expired, fire broke out inside the leased premises, damaging
Ciriaco’s merchandise. Having learned of the insurance earlier procured by Ciriaco, SBC
demanded from FUIC that the proceeds of the insurance policy be paid directly to it, as provided
in the lease contract.
Who is legally entitled to receive the insurance proceeds? Explain. (4%)
ANSWER:
Ciriaco is entitled to receive the proceeds of the insurance policy.
Sec. 18 of the Insurance Code provides that “[n]o 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 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. (Spouses Cha v. Court of Appeals (1997))
4F 2019-2020 118
SBC has no insurable interest in the merchandise of Ciriaco inside the leased premises. The
automatic assignment of the policy to SBC under the provision of the lease contract is void for
being contrary to law and/or public policy. The insurer FUIC cannot be compelled to pay the
proceeds of the fire insurance policy to a SBC who has no insurable interest in the property
insured.
Therefore, the proceeds of the fire insurance policy thus rightfully belong to Ciriaco.
4F 2019-2020 119
Topic: Insurable Interest; Building Destroyed by Fire (2010)
To secure a loan of P10 million, Mario mortgaged his building to Armando. In accordance with
the loan arrangements, Mario had the building insured with First Insurance Company for P10
million, designating Armando as the beneficiary. Armando also took an insurance on the building
upon his own interest with Second Insurance Company for P5 million. The building was totally
destroyed by fire, a peril insured against under both insurance policies. It was subsequently
determined that the fire had been intentionally started by Mario and that in violation of the loan
agreement, he had been storing inflammable materials in the building.
1. How much, if any, can Armando recover from either or both insurance companies?
2. What happens to the P10 million debt of Mario to Armando? Explain
ANSWERS:
1. As to First Insurance Company

Armando cannot collect anything from First Insurance Company.
Under Sec. 87 of the Insurance Code, “An insurer is liable where the thing insured is
rescued from a peril insured against that would otherwise have caused a loss, if, in the
course of such rescue, the thing is exposed to a peril not insured against, which
permanently deprives the insured of its possession, in whole or in part; or where a loss is
caused by efforts to rescue the thing insured from a peril insured against”. Also, under Art.
811 of the Code of Commerce, fire insurance policies contain a warranty that the insured
will not store hazardous materials within the averages include all damages and expenses
which are deliberately caused to save the vessel, Its cargo, or both at the same time, from
a real and known risk.
In the present case, the loss was due to a willful act of Mario, who committed arson and
who stored inflammable materials in the building. Thus, First Insurance Company is not
liable for the loss of the building.
As to Second Insurance Company
4F 2019-2020 120
Armando can collect from Second Insurance Company. As held in the case of Panlilio vs
Cosio, a mortgagee has an insurable interest in the building. Thus, Armando as mortgagee
of the building can recover P5 million from Second Insurance Company.
2. Armando can only collect the balance of P5 million
Following the same doctrine from the above-mentioned case, since Armando will be able
to collect P5 million from Second Insurance Company, this amount should be considered
as partial payment of the loan. Second Insurance Company can recover from Mario P5
million which it paid since it became subrogated to the rights of Armando.
4F 2019-2020 121
Topic: Insurable Interest: Life Insurance (2011)
X has been a long-time household helper of Z. X's husband, Y, has also been Z's long-time driver.
May Z insure the lives of both X and Y with Z as beneficiary?
A. Yes, since X and Y render services to Z.

B. No, since X and Y have no pecuniary interest on the life of Z arising from their employment
with him.
C. No, since Z has no pecuniary interest in the lives of X and Y arising from their employment with
him.
D. Yes, since X and Y are Z’s employees
ANSWER:
C. No, since Z has no pecuniary interest in the lives of X and Y arising from their
employment with him.
A person has insurable interest over the life of another only if he has pecuniary interest over the
life of such person, except if the person insured is his spouse or child. Section 10 of the Insurance
Code of the Philippines provides that “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
or 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.
In general, the test to determine if a person can insure the life of another is whether such a person
is interested in the preservation of the insured life despite the insurance.
In this case, Z has no insurable interest over the life of X and Y since they do not fall among any
of the instances provided for under Section 10. Friendship and/or long standing relationship alone
is not the insurable interest contemplated in life insurance. Therefore, Z cannot insure the lives of
both X and Y and designate himself as beneficiary.
4F 2019-2020 122
Topic: Insurable Interest; Beneficiaries; Revocation (2018)
Shortly after Yin and Yang were wed, they each took out separate life insurance policies on their
lives, and mutually designated one another as sole beneficiary. Both life insurance policies
provided for a double indemnity clause, the cost for which was added to the premium rate. During
the last 10 years of their marriage, the spouses had faithfully paid for the annual premiums over
the life policies from both their salaries. Unfortunately, Yin fell in love with his officemate, Yessel,
and they carried on an affair. After two years, their relationship bore them a daughter named
Yinsel. Without the knowledge of Yang, Yin changed the designation of the beneficiary to an
"irrevocable designation" of Yinsel and Yessel jointly. When Yang learned of the affair, she was
so despondent that, having chanced upon Yin and Yessel on a date, she rammed them down
with the car she was driving, resulting in Yin's death and Yessel's complete loss of mobilization.
Yang was sued for parricide, and while the case was pending, she filed a claim on the proceeds
of the life insurance of Yin as irrevocable beneficiary, or at least his legal heir, and opposed the
claims on behalf of Yessel and her daughter Yinsel. Yang claimed that her designation as
beneficiary in Yin's life insurance policy was irrevocable, in the nature of one "coupled with
interest," since it was made in accordance with their mutual agreement to designate one another
as sole beneficiary in their respective life policies. She also claimed that the beneficiary
designation of Yessel and the illegitimate minor child Yinsel was void being the product of an illicit
relationship, and therefore without "insurable interest."
a. Is Yang correct in saying that her designation as beneficiary was irrevocable?
b. Do Yessel and Yinsel have “insurance interest” on the life of Yin?
ANSWER
a. No. As provided by Section 11 of the Insurance Code, “the insured shall have the right to
change the beneficiary he designated in the policy, unless he has expressly waived this right in
the policy.” There is nothing in the life insurance policy taken by Yang which indicated that the
designation of Yin is irrevocable. As such, it is deemed to be revocable. It is only in the event that
the insured does not change the beneficiary during his lifetime that such designation shall be
deemed irrevocable.
4F 2019-2020 123
2. Yessel has no insurable interest in the life of Yin. As provided by Section 10 of the
Insurance Code: “Every person has an insurable interest in the life and health: (a) Of
himself, of his spouse and of his children.” The relationship between Yin and Yessel is an
illicit one which is not included in the aforementioned proviso. Furthermore, persons who
are proscribed to become donees under the rules on donation cannot be designated as
beneficiary in life insurance. These include persons in illicit relations as in the case of Yin
and Yessel. On the other hand, Yinsel, has insurable interest on the life of Yin there is no
proscription in naming an illegitimate child as a beneficiary.
4F 2019-2020 124
BENEFICIARY
Topic: Beneficiary: Effects: Irrevocable Beneficiary (2005)
What are the effects of an irrevocable designation of a beneficiary under Insurance Code?
Explain.
ANSWER:
Under Section 11 of ICP, the designation is revocable unless the right to revoke is expressly
waived in the policy. The irrevocable designation gives the beneficiary a vested right over Life
Insurance. In turn, the insured cannot act to divest the irrevocable beneficiary, in whole or in part
without the beneficiary’s consent.
4F 2019-2020 125
Topic: Beneficiary Rights: Irrevocable Beneficiary (2005)
Jacob obtained a life insurance policy for P1 million designating irrevocably Diwata, a friend, as
his beneficiary, however, changed his mind and wants Yob and Jojo, his other friends, to be
included as beneficiaries considering that proceeds of the policy are sufficient for the three other
friends. Can Jacob still add Yob and Jojo as beneficiaries?
ANSWER:
No, Yob and Jojo cannot be added as beneficiaries in addition to Diwata.
Under Section 11 of ICP, the designation is revocable unless the right to revoke is expressly
waived in the policy.
As the irrevocable beneficiary, Diwata has acquired vested right over Jacob’s life insurance policy.
Any additional amount will reduce the amount which Diwata may recover, which may adversely
affect her vested right.
Thus, Jojo and Yob cannot be added as beneficiaries in the policy.
4F 2019-2020 126
PREMIUM
Topic: Premium (1978)
On December 17, 1975, a fire policy, insuring a building and its contents, was delivered to the
insured company. By agreement, it was allowed to pay the premium within 30 days. On January
8, 1976, it paid the premium by means of a check postdated January 16, 1976. The check was
deposited by the insurance company only on February 20, but the check bounced, although
January 19, the insured has a sufficient bank balance. On January 18, two days after the premium
became due, the insured property was burned and became a total loss. Can the insurance
company cancel the policy for non-payment of premium? Give reasons for your answers.
ANSWER:
No, the insurance company cannot cancel the policy.
In the case of Capital Insurance & Surety Co., Inc. vs. Plastic Era Co., Inc., the Court ruled that
by accepting the promise of the insured to pay the insurance policy, the insurer implicitly agreed
to modify the tenor of the insurance policy and, in effect, waived the provision therein that it would
only pay for the loss or damage in case the same occurs after the payment of the premium.
Considering that the policy is silent as to the mode of payment, the insurer is deemed to have
accepted the promissory note in the payment of the premium instead of cash. This rendered the
policy immediately operative on the date it was delivered. The fact that the check was later on
dishonored did not in any way operate as a forfeiture of the insured's right under the policy, in the
absence of express stipulation thereon to that effect. The payment of the premium is an
independent obligation the non-fulfillment of which would entitle the insurer to recover.
Where credit is given by an insurance company for the payment of the premium it has no right to
cancel the policy for nonpayment except by putting the insured in default and giving him personal
notice.
4F 2019-2020 127
Topic: Premium (2014)
On September 25, 2013, Danny Marcial (Danny) procured an insurance on his life with a face
value of P5,000,000.00 from RN Insurance Company (RN), with his wife Tina Marcial(Tina) as
sole beneficiary. On the same day, Danny issued an undated check to RN for the full amount of
the premium. On October 1, 2013, RN issued the policy covering Danny’s life insurance. On
October 5, 2013, Danny met a tragic accident and died. Tina claimed the insurance benefit, but
RN was quick to deny the claim because at the time of Danny’s death, the check was not yet
encashed and therefore the premium remained unpaid.
1. Is RN correct?
2. Will your answer be the same if the check is dated October 15, 2013?
ANSWERS:
1. No, RN is not correct.
Under Section 77 of the Insurance Code, no policy or contract of insurance issued by an

insurance company is valid and binding unless and until the premium thereof has been
paid, except in case of life or industrial life policy whenever the grace period provision
applies. Also, Section 17(c) of the NIL provides that where the instrument is not dated, it
is considered as dated as of the time it was issued. Also, the subsequent effects of
encashment or impairment due to fault of creditor would retroact to the date of the
mercantile instrument and its acceptance by creditor.
In this case, it is true that the premiums remained unpaid until the death of Danny Marcial
but it is the fault of RN Insurance why the check was not encashed even if it has in its
possession the check as early as September 15, 2013, form which time it could have
easily encashed the check before the death of Danny. This case is similar with Malayan
Insurance vs Arnaldo.
4F 2019-2020 128
Therefore, RN is not correct in denying the claim because it was its fault why the premium
was not paid despite having the opportunity to encash the same.
2. No, the answer will not be the same.
Under Section 77 of the Insurance Code, no policy or contract of insurance issued by an

insurance company is valid and binding unless and until the premium thereof has been
paid, except in case of life or industrial life policy whenever the grace period provision
applies.
In this case, the postdating of the check by Danny of October 15, 2013 does not sufficiently
put the insurance into effect because the giving of a check does not have the effect of
payment until it was encashed. At the time of death of Danny on October 5, 2013, contract
of insurance was not yet valid and binding due to not payment of premium.
Therefore, the answer will not be the same because RN Insurance can validly refused
payment of insurance proceeds due to non-payment of premiums.
4F 2019-2020 129
Topic: Insurance; Return of Premiums (2000)
Name at least three instances when an insured is entitled to a return of the premium paid.
ANSWER:
Three instances when an insured is entitled to a return of premium paid are:
1. Section 80 (a) of the Insurance Code provides, to the WHOLE PREMIUM, if no part of his
interest in the thing insured be exposed to any of the perils insured against.
2. Section 80 (b) provides, where the insurance is made for a definite period of time and the
insured surrenders his policy, to such portion of the premium as corresponds with the unexpired
time at a pro rata rate, unless a short period rate has been agreed upon and appears on the face
of the policy
, after deducting from the whole premium any claim for loss or damage under the policy which
has previously accrued.
3. Section 82 provides, when the contract is voidable on account of the fraud or misrepresentation
of the insurer or of his agent or on account of facts the existence of which the insured was ignorant
without his fault; or when, by any default of the insured other than actual fraud, the insurer never
incurred any liability under the policy.
ALTERNATIVE INSTANCE: Section 83 provides, in case of an over insurance by several

insurers, the insured is entitled to a ratable return of the premium, proportioned to the amount by
which the aggregate sum insured in all the policies exceeds the insurable value of the thing at
risk.
4F 2019-2020 130
Topic: Cash & Carry Basis (2003)

What is meant by “cash and carry” in the business of insurance?
ANSWER:
In the business of insurance, cash and carry means no premium payment, no policy. According
to this rule, no policy or contract of insurance issued by an insurance company is valid and binding
unless and until the premium thereof has been paid.
4F 2019-2020 131
Topic: Effects of Payment of Premium by Installment (2006)
The Peninsula Insurance Company offered to insure Francis' brand new car against all risks in
the sum of P1 Million for 1 year. The policy was issued with the premium fixed at P60,000.00
payable in 6 months. Francis only paid the first two months installments. Despite demands, he
failed to pay the subsequent installments. Five months after the issuance of the policy, the vehicle
was carnapped. Francis filed with the insurance company a claim for its value. However, the
company denied his claim on the ground that he failed to pay the premium resulting in the
cancellation of the policy.
Can Francis recover from the Peninsula Insurance Company?
ANSWER:
Yes, Francis can recover from Peninsula Insurance Company but the latter is entitled to deduct
the amount of the unpaid premiums from the insurance proceeds.
In Makati Tuscany Condominium Corporation vs. Court of Appeals, the Supreme Court said in
the wise that Section 77 may not apply if the parties have agreed to the payment in installments
of the premium and partial payment has been made at the time of loss. Certainly, basic principles
of equity and fairness would not allow the insurer to continue collecting and accepting the
premiums, although paid on installments, and later deny liability on the lame excuse that the
premiums were not prepaid in full. A part payment of the premium, if accepted by the insurer, can
thus perfect the contract and bring the parties into an obligatory relation. Such a payment puts
the contract into full binding force, not merely pro tanto, thereby entitling and obligating the parties
by their agreement. Hence, in case of loss, full recovery less the unpaid portion of the premium
(by the operative act of legal compensation), can be had by the insured and, correlatively, if no
loss occurs the insurer can demand the payment of the unpaid balance of the premium.
In this case, Peninsula cannot cancel and deny liability by reason of non-payment of premium as
the policy has been binding between them upon its acceptance of the first two installments.
However, Peninsula has the right to deduct from the proceeds the unpaid portion of the premium.
Thus, Francis can recover from Peninsula but the latter has the right to deduct the amount of
unpaid premiums from the insurance proceeds.
4F 2019-2020 132
Topic: Premium Payment; Loss as an immediate cause; Effect of the negligence of the
insured (2007)
Alfredo took out a policy to insure his commercial building against fire. The broker for the
insurance company agreed to give a 15-day credit within which to pay the insurance premium.
Upon delivery of the policy on May 15, 2006, Alfredo issued a postdated check payable on May
30, 2006. On May 28, 2006, a fire broke out and destroyed the building owned by Alfredo. Reason
briefly in (a), (b) and (c).
a. May Alfredo recover on the insurance policy?
b. Would your answer in (a) be the same if it was found that the proximate cause of the fire was
an explosion and that fire was but the immediate cause of loss and there is no excepted peril
under the policy?
c. If the fire was found to have been caused by Alfredo's own negligence, can he still recover on
the policy?
ANSWERS:
a. Yes, Alfredo can recover on the insurance policy.
In the case of UCPB General Insurance v. Masagana Telemart, which modified the
provisions of Section 77 of the Insurance Code, also known as the “cash and carry” rule,
it was held that the insured should be allowed to recover on losses sustained even when
premium was paid after the fact of loss, provided payment was received by the insurer
during the credit period given to the insured.
In the present case, Alfredo was given a 15-day credit period by the insurance broker
within which to pay the insurance premium, to which he complied with by issuing a
postdated check payable on May 30, 2006 or 15 days from the delivery of the insurance
policy to him.
Thus, received the check payment prior to the loss due to the fire and during the credit
period, Alfredo is entitled to recover on the insurance policy.
4F 2019-2020 133
b. Yes. As provided under Section 86 of the Insurance Code, recovering under an

insurance contract is allowed if the cause of the loss was either the proximate or the
immediate cause as long as an expected peril was not the proximate cause of the loss.
In the problem given, the loss of the commercial building was the immediate cause of the
fire which was the proximate cause of the explosion.
Thus, the explosion and the resulting fire, not being an excepted peril, Alfredo can still
recover on the insurance policy.
c. Yes, he can still recover.

Under Section 87 of the Insurance Code of the Philippines, an insurer is not liable for a
loss caused by willful act or through the connivance of the insured; but he is not
exonerated by the negligence of the insured, or of the insurance agents or others.
In this case, notwithstanding the negligence of Alfredo it will not prevent him from
recovering from the insurance policy, because the law only proscribes recovery when the
loss was due to the willful act of Alfredo, either alone or in connivance with others.
Hence, Alfredo can still recovery from the insurance policy.
4F 2019-2020 134
Topic: Payment of Premiums (2010)
Enrique obtained from Seguro Insurance Company a comprehensive motor vehicle insurance to
cover his top of the line Aston Martin. The policy was issued on March 31, 2010 and, on even
date, Enrique paid the premium with a personal check postdated April 6, 2010. On April 5, 2010,
the car was involved in an accident that resulted in its total loss. On April 10, 2010, the drawee
bank returned Enrique’s check with the notation "Insufficient Funds." Upon notification, Enrique
immediately deposited additional funds with the bank and asked the insurer to redeposit the
check. Enrique thereupon claimed indemnity from the insurer. Is the insurer liable under the
insurance coverage?
ANSWER
No. The insurer is not liable under the insurance policy.
Under Art. 1249 of the Civil Code, the delivery of a check produces the effect of payment only
when it is encashed.
In the present case, the loss occurred on April 5, 2010. Upon deposit of the check, it was returned
by the drawee bank on April 10, 2010 for insufficiency of funds. It was only when Enrique
deposited additional funds that the check was honored.
Thus, payment was not effected and the insurer is not liable in this case.
4F 2019-2020 135
Topic: Exception to Cash and Carry Rule: Credit Extension (2013)
Stable Insurance Co. (SIC) and St. Peter Manufacturing Co. (SPMC) have had a long-standing
insurance relationship with each other; SPMC secures the comprehensive fire insurance on its
plant and facilities from SIC. The standing business practice between them has been to allow
SPMC a credit period of 90 days from the renewal of the policy within which to pay the premium.
Soon after the new policy was issued and before premium payments could be made, a fire gutted
the covered plant and facilities to the ground. The day after the fire, SPMC issued a manager's
check to SIC for the fire insurance premium, for which it was issued a receipt; a week later SPMC
issued its notice of loss.
SIC responded by issuing its own manager's check for the amount of the premiums SPMC had
paid, and denied SPMC's claim on the ground that under the "cash and carry" principle governing
fire insurance, no coverage existed at the time the fire occurred because the insurance premium
had not been paid.
Is SPMC entitled to recover for the loss from SIC?
Answer:
Yes, SPMC is entitled the loss from SIC.
In UCPB General Insurance Co v. Masagana Telemart, the Court provides that the insurer may
grant credit extension for the payment of the premium. This means that if the insurer has granted
the insured a credit term for the payment of the premium and loss occurs before the expiration of
the term, recovery on the policy should be allowed even though the premium is paid after the loss
but within the credit term. The same case provides that it would be unjust and inequitable if
recovery on the policy would not be permitted when the insurer had consistently granted a 60- to
90-day credit term for the payment of premiums despite its full awareness of Section 77 of the
Insurance Code. Estoppel bars it from taking refuge under said Section 77.
4F 2019-2020 136
Applying the jurisprudence with the same scenario, SPMC, who had a long-standing practice of
paying premium within the credit period, can recover the proceeds of the insurance as it falls
among the exception of the cash and carry rule regarding payment of premium. Thus, SPMC is
entitled to the loss from SIC.
4F 2019-2020 137
Topic: Exception to Cash and Carry Rule: Agreement that Premium be paid in Installments
and partial payment made at the time of the loss (2015)
Will an insurance policy be binding even if the premium is unpaid? What if it were partially paid?
ANSWER:
Yes. An insurance policy may be binding even if the premium is unpaid. As a general rule, the
insurance policy is not valid and binding, unless the premium thereof has been paid.
Section 77 of the Insurance Code of the Philippines provides that an insurer is entitled to payment
of the premium as soon as the thing insured is exposed to the peril insured against.
Notwithstanding any agreement to the contrary, no policy or contract of insurance issued by an
insurance company is valid and binding unless and until the premium thereof has been paid,
except in the case of a life or an industrial life policy whenever the grace period provision applies.
This is the cash-and-carry rule. Premium is the consideration for the undertaking of the insurer to
indemnify the insured against a specified peril.
There are exceptions however to the above rule, one of them is, when there is an agreement
allowing the insured to pay the premium in installments and partial payment has been made at
the time of the loss (Makati Tuscany Condominium Corporation vs. CA).
4F 2019-2020 138
Topic: Premium; Payment (1976)
A insured his house against loss by fire for P100,000.00. The policy provides that the insurer shall
be liable “if the property insured shall be damaged or destroyed by fire after payment of premium,
at anytime from, from June 15, 1976 to June 15, 1977.” The policy was delivered to A on June
14, 1976. Instead of paying the premium in cash, A issued a promissory note dated June 15,
1976, for the amount of premium, payable within 30 days. The note was accepted. On June 29,
1976, the property insured was burned. The insurer refused to pay on the ground that the premium
had not been paid, and the note did not have the effect of payment as its value had not been
realized at the time the house was burned. Decide with reasons.
ANSWER
The Insurer has the right to refuse the payment. As provided under Section 77 of the Insurance
Code: “Notwithstanding any agreement to the contrary, no policy or contract of insurance issued
by an insurance company is valid and binding unless and until the premium thereof has been
paid…” Here, A issued a promissory note which does not constitute a payment of the premium
being only a negotiable instrument and not a legal tender. Furthermore, considering that the cited
provision replaced Section 72 of old Insurance Act expressly permitting the granting of credit
extension, the only conclusion is that the law-making power intended by the amendment to
disallow any agreement postponing payment of premium, including a grant of credit extension.
The issuance of a promissory note postpones payment by granting credit extension. Therefore,
the insurer is not liable under this express provision of the new Insurance Code.
4F 2019-2020 139
RESCISSION OF INSURANCE CONTRACTS

(CONCEALMENT; MISREPRESENTATION/OMISSIONS; BREACH OF WARRANTIES)
Topic: Misrepresentation (1975)

In a non-medical insurance contract (one where the company waives medical examination)
the insured failed to disclose that she had once been operated on, although the information
on this matter was supposed to have been supplied to the company. Within the proper period,
may the Insurance Company have the contract rescinded? Reasons.
ANSWER:
Yes, the Insurance Company can rescind the contract on the ground of misrepresentation or
concealment of material fact. Under Section 31 of the Insurance Code, materiality is
determined by the probable and reasonable influence of the facts upon the party to whom the
communication is due. In this case, the fact of the insured’s operation is material to the
insurer, who may have refused to issue the life policy had it known of such fact. This is even
more true in a non-medical insurance where no medical exam is made and the information
given by the insured concerning his past health and diseases is a very important factor which
the insurer takes into consideration in deciding to issue the policy. Therefore, the insurer may
rescind the contract.
4F 2019-2020 140
Topic: Misrepresentation (1977)

A, an agent of life insurance company X, induced B who has been suffering from advance
tuberculosis to apply for P10,000.00 life insurance which B did and he (B) requested A to fill the
application form. Thru the connivance of the physician, it was made to appear in the application
that B is in good health and the P10,000.00 life insurance policy was issued by X to B. If B dies
of tuberculosis, may his beneficiaries recover?
ANSWER:
It depends on whether the A acted without knowledge of B or A is in connivance with B in the
misrepresentation.
Under Section 43 of the Insurance Code, when a person insured has no personal knowledge of
a fact, he may either: (1) repeat information that he has on the subject, which he believes to be
true, with an explanation that he does so on the information of others; or (2) submit the
information, in whole, to the insurer. In these cases, the insured is not responsible for the truth.
The exception is that if the information came from an agent of the insured, who has duty to give
the information.
In this case, if B give the information which he believes to be true and came from other person or
submit the information to A, agent of X, but A without the knowledge of B and with connivance
with company physician made B appears to be in good health when it is not, the beneficiaries can
recover. X cannot raise the falsity as defense to liability. However, if B is also a party to the falsity
(he has knowledge of the scheme of A and company physician), the beneficiary cannot recover.
Hence, the beneficiary can recover if B has no knowledge of the falsity made by A and Company
physician because he stated the truth. However, if he has knowledge of the falsity and connived
with A and company physician, beneficiaries cannot recover.
4F 2019-2020 141
Topic: Concealment; Duty to Communicate (1975)

In a non-medical insurance contract (one where the company waives medical examination) the
insured failed to disclose that she had once been operated on, although the information on this
matter was supposed to have been supplied to the company. Within the proper period, may the
Insurance Company have the contract rescinded? Reasons.
ANSWER:
Yes, the Insurance Company can rescind the contract on the ground of misrepresentation or
concealment of material fact.
Section 26 of the Insurance Code defines concealment as a neglect to communicate that which
a party knows and ought to communicate. And under Section 27, a concealment whether
intentional or unintentional entitles the injured party to rescind a contract of insurance.
In the case, the fact of the insured’s operation is material to the insurer, who may have refused to
issue the life policy had it known of such fact. This is even more true in a non-medical insurance
where no medical exam is made and the information given by the insured concerning his past
health and diseases is a very important factor which the insurer takes into consideration in
deciding to issue the policy. Thus, the contract can be rescinded.
4F 2019-2020 142
Topic: Concealment; Material Information (1976)

Pedro Reyes applied for fire insurance on his house. In his application, it was asked the following
question: “Is the house insured with another Insurance Company? If so, for how much?” His
answer was “No”. The fact, however, is that the house had been insured with the FGU for
P100,000.00. The application was approved and made a part of the policy. Subsequently, a fire
occurred in a neighboring house, and spread to the house of Pedro Reyes which was completely
burned. Demand for payment having been refused by the insurer, Pedro Reyes filed a complaint.
May he recover? Reason.
Answer:
No, Pedro may not recover.
Section 27 of the Insurance Code provides that concealment entitles the injured party to rescind
a contract of insurance, while Section 28 states that each party must communicate to the other in
good faith all facts within his knowledge which are material to the contract and as to which he
makes no warranty and which the other has not the means of ascertaining. In addition, Section
31 provides that materiality is to be determined by the probable and reasonable influence of the
facts upon the party to whom the communication is due, in forming his estimate of the
disadvantages of the proposed contract, or in making his inquiry.
Here, at the time of application, Pedro knew the fact that the house was insured with another
insurance company. Such fact was material because had he answered truthfully, the insurer
would probably have charged him higher premium, or would have made further inquiries, or would
have imposed some other conditions in the policy to protect its interest. Moreover, the insurance
company does not have means of ascertaining the same, and no warranty was extended by Pedro
regarding the facts concealed.
Therefore, the insurer can demand for rescission and Pedro cannot recover from the insurance
company.
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Topic: Concealment; Other Insurance Clause (1979)

A fire insurance policy in favor of the insured contained a stipulation that the insured shall give
notice to the company of any insurances already effected or which may subsequently be effected,
covering the property insured and that unless such notice be given before the occurrence of any
loss, all benefits shall be forfeited. The face of the policy bore the annotation “Co-insurance
declared.” The things insured were burned. It turned out that several insurances were obtained
on the same goods for the same term. The insurer refused to pay on the ground of concealment.
May the insured recover? Reason.
ANSWER:
Yes, the insured may recover because there is no violation of the “other insurance clause.”
In the case of General Ins. And Surety Corp. v. Ng Hua, the court defined the “other insurance
clause” as a clause in the policy that provides that the policy shall be void if the insured procures
additional insurance without the consent of the insurer. The purpose of such is to prevent over-
insurance and thus avert the possibility of perpetration of fraud. It is also a warranty that entitled
the insurer to rescind in case of breach. In addition, Section 26 of P.D. No. 612 provides that “a
neglect to communicate that which a party knows and ought to communicate, is called a
concealment.”
In this case, the face of the policy already contains a notation “Co-insurance declared”; hence no
concealment was made since it means that the insurer is deemed notified of the existence of
other insurance contracts on the property insured. Therefore, the insurer may recover on the
policy.
4F 2019-2020 144
Topic: Concealment (1979)

Marine insurance was secured upon goods on board a ship which departed from Madagascar to
Manila, without any disclosure to the insurer of the fact that the ship had been reported at Lloyd
of London as seen at sea, deep in water and leaky. This report turned out later to be wrong
because the ship was at no time during the voyage leaky or in trouble, but was lost through
another insured risk. The insurer refuses to pay the insured, claiming concealment. The insured
counters that the fact not disclosed was erroneous and did not increase the risk and therefore
immaterial. Decide the dispute with reasons.
ANSWER:
The insured may not recover from the insurer.
“SEC. 28. Each party to a contract of insurance must communicate to the other, in good faith, all
facts within his knowledge which are material to the contract and as to which he makes no
warranty, and which the other has not the means of ascertaining.
The information that the ship in question was seen at sea, deep in water and leaky, although
erroneous, was material, and its concealment entitled the insurer to rescind the contract of
insurance. The matter concealed need not be the cause of the loss.
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X applied for insurance with Metropolitan Life Insurance Company. The application contained this
question: “Have you ever had any ailment or disease of x x x (b) the stomach or intestines, liver,
kidney, genitourinary organ?” X, a laundry woman who has no medical knowledge answered “No”.
The application was approved, premium was paid and six months later, X died from cancer of the
stomach. The post medical examination of X shows that she had the cancer at the time she
applied for a policy. Can the beneficiary of X collect on the policy? Reasons.
ANSWER:
No. Section 27 of the Insurance Code provides that concealment, whether intentional or
unintentional entitles the injured party to rescind a contract of insurance. In this case, X is guilty
of concealment of a material fact because she did not disclose her illness. The fact that X had no
medical knowledge does not excuse her concealment. Lack of knowledge on the part of the
insured about her ailment will not preclude the insurer from raising the defense because Section
27 provides that concealment may either be intentional or unintentional. Hence, the beneficiary
of X cannot collect from the insurer on the policy.
4F 2019-2020 146
Antarctica Life Assurance Corporation (ALAC) publicly offered a specially designed insurance
policy covering persons between the ages of 50 to 75 who may be afflicted with serious and
debilitating illnesses. Quirico applied for insurance coverage, stating that he was already 80 years
old. Nonetheless, ALAC approved his application.
Quirico then requested ALAC for the issuance of a cover note while he was trying to raise funds
to pay the insurance premium. ALAC granted the request. Ten days after he received the cover
note, Quirico had a heart seizure and had to be hospitalized. He then filed a claim on the policy.
Can ALAC validly deny the claim on the ground that the insurance coverage, as publicly offered,
was available only to persons 50 to 75 years of age? Why or why not?
ANSWER:
No, no ALAC cannot. Under Sec. 28 of the Insurance Code, “each party to a contract of insurance
must communicated to the other, in good faith, all facts within his knowledge which are material
to the contract and as to which he makes no warranty, and which the other has not the means of
ascertaining.”
In this case, Quirico was not amiss in his duty of informing ALAC that he was already 80 years of
age and disclosed what is material to the approval of the insurance coverage. By approving the
application of Quirico despite knowing his age, ALAC impliedly waived the age requirement
evidenced by issuing a cover note to him.
Thus, Quirico may claim from the insurance coverage.
4F 2019-2020 147

When X insured his building, X indicated in the application that it is a residential building, but
actually the building was being used as a warehouse for some hazardous materials. What is the
effect on the insurance policy, if any?
a. The insurance policy can be cancelled because of the change in the use.
b. The insurance policy will automatically be changed.
c. The insurance policy need not be changed.
d. The insurance policy is fixed regardless of the change in the use.
ANSWER:
A. The insurance policy can be cancelled because of the change in use.
SEC. 26. A neglect to communicate that which a party knows and ought to communicate, is called
a concealment.
SEC. 27. A concealment whether intentional or unintentional entitles the injured party to rescind
a contract of insurance.
SEC. 31. Materiality is to be determined not by the event, but solely by the probable and
reasonable influence of the facts upon the party to whom the communication is due, in forming
his estimate of the disadvantages of the proposed contract, or in making his inquiries.
Here X’s concealment of the actual use of the property constitutes material concealment which
will enable the insurer to rescind the contract.
Note: The UP LAW Center suggested that this be a bonus question because the question is not
clear.
4F 2019-2020 148
Topic: Concealment; Test of Materiality; Effects of Concealment (1979)

Marine Insurance was secured upon goods on board a ship which departed from Madagascar to
Manila, without any disclosure to the insurer of the fact that the ship has been reported at Lloyd’s
of London as seen at sea, deep in water and leaky. This report turned out later to be wrong
because the ship was at no time during the voyage leaky or in trouble, but was lost thru another
insured risk. The insurer refuses to pay the insured, claiming concealment. The insured counters
that the fact not disclosed was erroneous and did not increase the risk and therefore immaterial.
Decide the dispute with reasons.
ANSWER:
The insured may not recover from the insurer because of the concealment he made.
Section 26 of the Insurance Code of the Philippines provides that “a neglect to communicate that
which a party knows and ought to communicate, is called a concealment.” In addition, Section 27
of the same code provides that a concealment, whether intentional or unintentional entitles the
injured party to rescind a contract of insurance. In order to determine whether the concealment is
a material one, Section 31 provides that “materiality is to be determined not by the event, but
solely by the probable and reasonable influence of the facts upon the party to whom the
communication is due, in forming his estimate of the disadvantages of the proposed contract, or
in making his inquiries.”
Applying the test of materiality in this case, the information that the ship in question was seen at
sea, deep in water and leaky, although erroneous, was material. As a result, the concealment of
such entitles the insurer to rescind the contract of insurance. Therefore, the insurer may validly
rescind the insurance policy and the insured cannot recover from it.
4F 2019-2020 149
Topic: Parties to an Insurance Contract; Beneficiary (1981)

On July 1, 1979, Crispulo, married to Laura with whom he has two legitimate children, was issued
Policy No. 8008 of the Midland Life Insurance Co. on a whole-life plan for P10,000. He designated
Angie, his common-law wife as the recoverable beneficiary. He referred to her, in his application
and policy, as his wife.
Two years later, Crispulo died. Angie filed her claim for the proceeds of the policy as the
designated beneficiary therein. The idow, Laura, also filed her claim as legal wife.
If you were the Legal Counsel for the Insurance Company, to whom would you adjudicate the
proceeds of the insurance policy? Reason out your answer briefly.
ANSWER:
I would adjudicate the proceeds of the insurance policy to Laura, the legal wife. In the appointment
of beneficiary, Article 739 in relation to Article 2012 of the Civil Code imposed certain limitations,
one of them being that the insured may not appoint, as his beneficiary, one with whom he is guilty
of concubinage, at the time of designation. The reason for the application of the provisions in the
Civil Code is because, in essence, life insurance policy is no different from a donation in so far as
the beneficiary is concerned.
In this case, Crispulo was married to Laura at the time when he designate as his beneficiary his
concubine Angie, with whom he was guilty of concubinage at the time of designation, making the
designation void. On her part, Laura may have said designation of Angie nullified, by mere
preponderance of evidence in the same action for nullification.
Thus, the designation of Angie as the beneficiary, being void, Laura can claim the proceeds of
the life insurance policy.
4F 2019-2020 150
Topic: Concealment; Incontestability Clause (1983)

In June 1981, Juan applied for a life insurance policy with a double indemnity provision in case of
death by accident. Despite an express inquiry in the application form for insurance, he did not
mention the fact that he had suffered from viral hepatitis the previous year. As Juan had fully
recovered from the disease, the medical examination performed by the insurance company’s
physician did not reveal such previous illness, and showed that Juan was healthy and was an
insurable risk. The policy was issued forthwith.
In March 1983, Juan died in an automobile accident. Subsequent investigation revealed that Juan
was negligent in not having his brakes checked.
The insurance company refused to pay Juan’s wife, the designated beneficiary, on two grounds:
that Juan was guilty of fraudulent concealment of his liver ailment, and that Juan’s death was
caused by his own negligence.
The policy is silent as to the effect of the insured’s negligence on the right to recover thereunder.
Juan’s wife insists that she has a right to recover because Juan’s death was caused by an
accident which had nothing to do whatsoever with his liver ailment. She therefore insists on double
indemnity.
a) Is she entitled to any indemnity? Explain.
b) If Juan’s accident occurred in July 1983, would your answer be the same?
Answer:
a) No, she is not entitled to any indemnity.
According to Section 27 of the Insurance Code, concealment of a material fact is a ground for
rescission, even if death or loss is due to a cause not related to the concealed matter.
In the case at bar, Juan concealed the fact that he had suffered from viral hepatitis. Such fact is
considered to be material because it misled the insurer in forming the estimate of the risks of the
proposed insurance or in making inquiries. Thus, even if Juan died due to an automobile accident
and not of a liver ailment, the insurer have the right to rescind the contract of insurance.
Therefore, Juan’s wife cannot recover any indemnity from the insurance contract.
b) No, my answer will not be the same.

4F 2019-2020 151
According to Section 48 of the Insurance Code, “after a policy of life insurance made payable on
the death of the insured shall have been in force during the lifetime of the insured for a period of
two (2) years from the date of its issue or of its last reinstatement, the insurer cannot prove that
the policy is void ab initio or is rescindable by reason of the fraudulent concealment or
misrepresentation of the insured or his agent.”
In the case at bar, Juan died on July 1983, which was more than 2 years from the time of the
issuance of his life insurance. Thus, even if there was a material concealment on the part of Juan,
the insurer is now barred to rescind the contract of insurance.
Therefore, Juan’s wife can recover indemnity from the insurance contract.
4F 2019-2020 152
Topic: Incontestability Clause (1984)

On May 5, 1982, Juan applied for a life insurance policy with Acme Life Insurance Co. The policy
was issued to Juan on June 30, 1982 but the date of issue, as appearing on the policy was May
15, 1982, the date of his application. Juan subsequently realized that some of his answers in the
insurance application were erroneous. Accordingly, he supplied the insurance company with the
correct replies. However, his letter to the insurance company was lost in the mails. Juan died
June 1, 1984. The insurance company now refuses to pay Juan’s beneficiary contending that
Juan misrepresented the state of his health at the time of his application. Is the insurance
company liable? State your reason.
ANSWER:
Yes, the insurance company is liable.
Jurisprudence provides that the "incontestability clause" is a provision in law that after a policy of
life insurance made payable on the death of the insured shall have been in force during the lifetime
of the insured for a period of two (2) years from the date of its issue or of its last reinstatement,
the insurer cannot prove that the policy is void ab initio or is rescindible by reason of fraudulent
concealment or misrepresentation of the insured or his agent (Manila Bankers Life Insurance
Corp. v. Aban, G.R. No. 175666, July 29, 2013).
Here, the reckoning date for the effectivity of the insurance is the date of issue as appearing on
the policy, i.e. May 15, 1982. From May 15, 1982 to his time of death on June 1, 1984, two years
had already lapsed which rendered the policy incontestable.
Hence, the insurance company can no longer contest the validity of the policy by reason of the
concealment or misrepresentation of the deceased insured.
4F 2019-2020 153

Manpower Company obtained a group life insurance policy for its employees from Phoenix
Insurance Company. The master policy issued by Phoenix on June 1, 1986 contained a provision
that eligible employees for insurance coverage were full time employees of Manpower regularly
working at least 30 hours per week. The policy had also an incontestable clause. Beforehand,
Phonenix sent enrollment cards to Manpower for distribution to its eligible employees. X filled out
the card which contained a printed clause: “I request the insurance for which I may become
eligibile under said Group Policy. The cards were then sent to Phoenix and X was among the
employees of Manpower who was issued a certificate of coverage by Phoenix.
On July 3, 1988, X was killed on the occasion of a robbery in their house. While processing the
claim of X’s beneficiary, Phoenix found out that X was not an eligible employee as defined in the
group policy since he has not been employed 30 hours a week by Manpower. Phoenix refused to
pay. May X’s beneficiary invoke the incontestability clause against Phoenix? Reasons.
ANSWER:
Yes. Section 48 of the Insurance Code provides that “after a policy of life insurance made payable
on the death of the insured shall have been in force during the lifetime of the insured for a period
of 2 years from the date of its issue or of its reinstatement, the insurer cannot prove that the policy
is void ab initio or is rescindable by reason of the fraudulent concealment or misrepresentation of
the insured or his agent. In this case, the master policy was issued on June 1, 1986 and X died
on July 3,1988. Hence, the policy was already in force for more than 2 years. When X filled out
the card containing the printed clause “I request the insurance for which I may become eligible
under said Group Policy”, it behooved the insure to look into the qualifications of X whether he
can thus be covered or not by the group life insurance policy. After his death, the insurer can no
longer prove that the policy is void ab initio or rescindable by reason of fraudulent concealment
or misrepresentation. If the incontestability clause can apply even to cases of intentional
concealment and misrepresentation, there would be no cogent reason for denying such
application where the insured had not been guilty thereof. Thus, the beneficiary of X may validly
invoke the incontestability clause.
4F 2019-2020 154

Atty. Roberto took out a life insurance policy from the Dana Insurance Corp. (DIC) on 1 September
1989. On 31 August 1990, Roberto died. DIC refused to pay his beneficiaries because it
discovered that Roberto had misrepresented certain material facts in his application. The
beneficiaries sued on the basis that DIC can contest the validity of the insurance policy only within
two years from the date of issue and during the lifetime of the insured. Decide the case.
Answer:
I will rule in favor of the Dana Insurance Corporation (DIC), the incontestability clause provided
under Section 48 of the Insurance Code will not apply in this case.
The court explained in the case of Tan v. Court of Appeals that the so-called "incontestability
clause" precludes the insurer from raising the defenses of false representations or concealment
of material facts insofar as health and previous diseases are concerned if the insurance has been
in force for at least two years during the insured's lifetime. The phrase "during the lifetime" found
in Section 48 simply means that the policy is no longer considered in force after the insured has
died. The key phrase in the second paragraph of Section 48 is "for a period of two years." The
insurer has two years from the date of issuance of the insurance contract or of its last
reinstatement within which to contest the policy, whether or not, the insured still lives within such
period. After two years, the defenses of concealment or misrepresentation, no matter how patent
or well founded, no longer lie.
Based on the facts given, the policy was in force for a period of almost one year only. Considering
that Atty. Roberto died before the two-year period lapse, DIC is not, therefore, barred from proving
that the policy is void ab initio by reason of the insured's fraudulent concealment or
misrepresentation.
Therefore, the DIC can still contest the validity of the insurance policy because it is within the two-
year period provided under the Insurance Code.
4F 2019-2020 155
Topic: Concealment; Material Concealment: Incontestability Clause (1994)

On September 23, 1990, Tan took a life insurance policy from Philam. The policy was issued on
November 6, 1990. He died on April 26, 1992 of hepatoma. The insurance company denied the
beneficiaries’ claim and rescinded the policy by reason of alleged misrepresentation and
concealment of material facts made by Tan in his application. It returned the premiums paid.
The beneficiaries contend that the company had no right to rescind the contract as rescission
must be done “during the lifetime” of the insured within two years and prior to the commencement
of the action.
Is the contention of the beneficiaries tenable?
ANSWER:
N, the incontestability clause does not apply. As explained by jurisprudence, after a policy of life
insurance made payable on the death of the insured shall have been in force during the lifetime
of the insured for a period of two years from the date of its issue or of its last reinstatement, the
insurer cannot prove that the policy is void ab initio or is rescindable by reasons of the fraudulent
concealment or misrepresentation of the insured or his agent (Sec 48, ICP; Florendo v. Philam
Plans). The insured died on April 26, 1992, or less than 2 years from September 23, 1990, the
date he took the insurance policy. Therefore, the contention of the beneficiaries is untenable.
4F 2019-2020 156
Topic: Concealment; Material Concealment: Incontestability Clause (1996)

Juan procured a “non-medical” life insurance from Good Life Insurance. He designated his wife,
Petra, as the beneficiary. Earlier, in his application in response to the question as to whether or
not he had ever been hospitalized, he answered in the negative. He forgot to mention his
confinement at the Kidney Hospital.
After Juan died in a plane crash, Petra filed a claim with Good Life. Discovering Juan’s previous
hospitalization, Good Life rejected Petra’s claim on the ground of concealment and
misrepresentation. Petra sued Good Life, invoking good faith on part of Juan.
Will Petra’s suit prosper? Explain
ANSWER:
No. Petra’s suit will not prosper.
Concealment is a neglect to communicate that which a party knows and ought to communicate.
As a rule, failure on the part of the insured to disclose conditions affecting the risk of which he is
aware, makes the contract voidable at the insured’s option. The reason is that insurance policies
are traditionally contracts uberrime fidae, that is, contracts of the utmost good faith. This doctrine
is essential on account of the fact that the full circumstances of the subject-matter of insurance
are, as a rule, known to the insured only, and the insurer, in deciding whether or not to accept a
risk, must rely primarily upon the information supplied to him by the appellant.
If the policy of life insurance has been in force for a period of 2 years or more from the date of its
issue, insurer can no longer prove that the policy is void ab initio or is rescindible by reason of the
fraudulent concealment or misrepresentation (Section 48, Insurance Code).
Petra’s suit will not prosper (assuming that the policy of life insurance has been in force for a
period of less than 2 years from the date of its issue). The matters which Juan failed to disclose
was material and relevant to the approval and issuance of the insurance policy. They would have
affected Good Life’s action on his application, either by approving it with the corresponding
adjustment for a higher premium or rejecting the same. Moreover, a disclosure may have
warranted a medical examination of Juan by Good Life in order for it to reasonably assess the
risk involved in accepting the application. In any case, good faith is no defense in concealment.
The waiver of a medical examination in the ‘non-medical’ life insurance from Good Life makes it
4F 2019-2020 157
even more necessary that Juan supply complete information about his previous hospitalization
for such information constitutes an important factor which Good Life takes into consideration in
deciding whether to issue the policy or not (See Sunlife Assurance Co of Canada v CA GR
105135, June 22, 1995 245 SCRA 268).
Thus, Petra’s case will not prosper.
4F 2019-2020 158
Topic: Incontestability Clause; Concealment (1997)
The assured answered “No” to the question in the life policy : “Are you suffering from any form of
heart illness?” In fact, the assured has been a heart patient for many years. On September 7,
1991, the assured is killed in a plane crash. The insurance company denies the claim for
insurance proceeds and returns the premium paid.
Is the decision of the insurance company justified?
Answer:
Yes. The decision of the insurer not to pay is justified, assuming that the incontestability clause
does not apply. Section 27 of the Insurance Code provides that a concealment, whether
intentional or unintentional, entitles the injured party to rescind a contract of insurance. Under
Section 48 of the Insurance Code, on the other hand, the insurer has two (2) years from the date
of issuance of the insurance contract or of its last reinstatement within which to contest the policy,
whether or not the insured still lives within such period. After two (2) years, the defense of
concealment or misrepresentation, no matter how patent or well-founded, no longer lie.
In this case, assuming that the incontestability clause does not apply because the policy has not
been in force for two (2) years form the date of issue, the decision of the insurance company not
to pay is justified. There was fraudulent concealment of a material fact in this case--- the heart
ailment--- which was material to the determination by the insurance company whether or not to
accept the application for insurance. However, if the incontestability clause applies, then the
company’s decision to deny the claim of the proceeds of the insurance and to return the premium
paid is not justified.
Hence, the decision of the insurer in this case is justified.
4F 2019-2020 159

Renato was issued a life insurance policy on January 2, 2017. He concealed the fact that three
years prior to the issuance of his life insurance policy, he had been seeing a doctor about his
heart ailment.
On March 1, 2019, Renato died of heart failure. May the heirs claim on the proceeds of the life
insurance policy of Renato?
ANSWER:
Yes, the heirs may claim on the proceeds of the life insurance policy of Renato.
Under Sec. 48 of the Insurance Code, after a policy of life insurance made payable on the death
of the insured shall have been in force during the lifetime of the insured for a period of two (2)
years from the date of its issue or of its last reinstatement, the insurer cannot prove that the policy
is void ab initio or is rescindable by reason of the fraudulent concealment or misrepresentation of
the insured or his agent.
In this case, the life insurance policy of Renato was issued in January 2, 2017 and had been in
effect for more than 2 years at the time of his death on March 1, 2019. Thus, applying Sec. 48 of
the Insurance Code, the insurer can no longer prove that the life insurance policy of Renato is
void or rescindable by reason of fraudulent concealment or misrepresentation as the policy had
already become incontestable.
Therefore, the heirs may claim on the proceeds of the life insurance policy of Renato because the
incontestability clause has already set in.
4F 2019-2020 160

In January 2016, Mr. H was issued a life insurance policy by XYZ Insurance Co., wherein his wife,
Mrs. W, was designated as the sole beneficiary. Unbeknownst to XYZ Insurance Co., however,
Mr. H had been previously diagnosed with colon cancer, the fact of which Mr. H had concealed
during the entire time his insurance policy was being processed.
In January 2019, Mr. H unfortunately committed suicide. Due to her husband's death, Mrs. W, as
beneficiary, filed a claim with XYZ Insurance Co. to recover the proceeds of the late Mr. H's life
insurance policy. However, XYZ Insurance Co. resisted the claim, contending that:
1. the policy is void ab initio because Mr. H fraudulently concealed or misrepresented his
medical condition, i.e., his colon cancer; and
2. as an insurer in a life insurance policy, it cannot be held liable in case of suicide.
Rule on each of XYZ Insurance Co.'s contentions.
ANSWERS:
1. The first contention is untenable. Under Sec. 48 of the Insurance Code, a policy of life
insurance that has been in force for a period of more than 2 years from its issuance has
become incontestable, the insurer cannot prove that the policy is void ab initio or is
rescindible by reason of the fraudulent concealment or misrepresentation. In this case,
although there was material misrepresentation or concealment, the insurer is now barred
from questioning the validity of the policy since the policy has been in force for 3 years.
Therefore, the insurer is liable.
2. The second contention is untenable. Under Sec. 183 of the Insurance Code, the insurer
is liable in case of suicide by the insuree if suicise was committed after the policy has been
in force for a period of 2 years from the date of its issue or its last reinstatement, unless
the polocy provides a shorter period. In this case, the suicide was committed when the
policy has been in force for 3 years, therefore, the insurer is liable.
4F 2019-2020 161
Topic: Concealment; Material Concealment (2001)

“A” applied for a non-medical life insurance. The insured did not inform the insurer that one week
prior to his application for insurance, he was examined and confined at St. Luke’s Hospital where
he was diagnosed for lung cancer. The insured soon thereafter died in a plane crash. Is the insurer
liable considering that the fact concealed had no bearing with the cause of death of the insured?
Why?
ANSWER:
No, the insurer is not liable.
Jurisprudence provides that the insured need not die of the disease he had failed to disclose to
the insurer. It is sufficient that his non-disclosure misled the insurer in forming his estimates of the
risks of the proposed insurance policy or in making inquiries (Sun Life Assurance Company of
Canada v. CA and Spouses Bacani, G.R. No. 105135, June 22, 1995).
Here, the information which the insured failed to disclose was material and relevant to the
approval and issuance of the insurance policy. The matters concealed would have definitely
affected petitioner's action on his application, either by approving it with the corresponding
adjustment for a higher premium or rejecting the same. Moreover, a disclosure may have
warranted a medical examination of the insured by petitioner in order for it to reasonably assess
the risk involved in accepting the application.
Hence, the insurer is not liable because of concealment.
4F 2019-2020 162
Topic: Concealment; Test of Materiality (2011)

An insured, who gains knowledge of a material fact already after the effectivity of the insurance
policy, is not obliged to divulge it. The reason for this is that the test of concealment of material
fact is determined
a. at the time of the issuance of the policy.
b. at any time before the payment of premium.
c. at the time of the payment of the premium.
d. at any time before the policy becomes effective.
ANSWER:
D. at any time before the policy becomes effective.
Section 31 of the Insurance Code of the Philippines provides that “materiality is to be determined
not by the event, but solely by the probable and reasonable influence of the facts upon the party
to whom the communication is due, in forming his estimate of the disadvantages of the proposed
contract, or in making his inquiries.”
Hence, the matters concealed (or misrepresented) refers to those facts occurring at or before the
time the policy becomes effective not thereafter.
4F 2019-2020 163
Topic: Other Insurance Clause (2011)
If an insurance policy prohibits additional insurance on the property insured without the insurer's
consent, such provision being valid and reasonable, a violation by the insured
A. reduces the value of the policy.

B. avoids the policy.
C. offsets the value of the policy with the additional insurances’ value.
D. forfeits premiums already paid.
ANSWER:
B. avoids the policy.
In the case of General Ins. And Surety Corp. v. Ng Hua, the court defined the “other insurance
clause” as a clause in the policy that provides that the policy shall be void if the insured procures
additional insurance without the consent of the insurer. The purpose of such is to prevent over-
insurance and thus avert the possibility of perpetration of fraud. It is also a warranty that entitled
the insurer to rescind in case of breach. Moreover, the other insurance clause may be subject
waiver, but such waiver must either be express or of it is to be implied from conduct mainly, said
conduct must be clearly indicative of a clear intent to waive such right. There must be clear
showing that the insurer knew about the violation of the clause.
In addition, Sec 64 (f) of the ICP provides that there is a ground to rescind the policy in property
insurance upon “discovery of their insurance coverage that makes the total insurance in excess
of the value of the property insured.”
Thus, in case of the violation of what is provided herein will avoid the validity of the insurance
policy.
4F 2019-2020 164
Topic: Concealment; Incontestability of Life Insurance (2013)

Benny applied for life insurance for Php1.5 Million. The insurance company approved his
application and issued an insurance policy effective Nov. 6, 2008. Benny named his children as
his beneficiaries. On April 6, 2010, Benny died of hepatoma, a liver ailment.
The insurance company denied the children's claim for the proceeds of the insurance policy on
the ground that Benny failed to disclose in his application two previous consultations with his
doctors for diabetes and hypertension, and that he had been diagnosed to be suffering from
hepatoma. The insurance company also rescinded the policy and refunded the premiums paid.
Was the insurance company correct? (8%)
Answer:
Yes, the insurance company is correct. Section 26 and 27 of the Insurance Code provides that
concealment is a neglect to communicate that which a party knows and ought to communicate.
Concealment whether intentional or unintentional entitles the injured party to rescind a contract
of insurance. Further, in Section 48 of the Insurance code, provides that after a policy of life
insurance made payable on the death of the insured shall have been in force during the lifetime
of the insured for a period of two (2) years from the date of its issue or of its last reinstatement,
the insurer cannot prove that the policy is void ab initio or is rescindable by reason of the
fraudulent concealment or misrepresentation of the insured or his agent.
In the situation at hand, Benny failed to disclose the fact that he was suffering with diabetes and
hypertension, and that he had been diagnosed to be suffering from hepatoma. Benny applied for
a life insurance and this piece of information is so material that it could probably and reasonably
influence the insurer's decision. Moreover, the insurer is not barred from questioning the
insurance as Benny died within the 2 year period from the date of issue of the policy.
Thus, the insurance company is correct in rescinding the insurance policy.
4F 2019-2020 165
Topic: Parties to the Contract; Representation; Incontestability Clause (2014)

On July 3, 1993, Delia Sotero (Sotero) took out a life insurance policy from Ilocos Bankers Life
Insurance Corporation (Ilocos Life) designating Creencia Aban(Aban), her niece, as her
beneficiary. Ilocos Life issued Policy No. 747, with a face value of P100,000.00, in Sotero’s favor
on August 30, 1993, after the requisite medical examination and payment of the premium.
On April 10, 1996, Sotero died. Aban filed a claim for the insurance proceeds on July 9, 1996.
Ilocos Life conducted an investigation into the claim and came out withthe following findings:
1. Sotero did not personally apply for insurance coverage, as she was illiterate.
2. Sotero was sickly since 1990.
3. Sotero did not have the financial capability to pay the premium on the policy.
4. Sotero did not sign the application for insurance.
5. Aban was the one who filed the insurance application and designated herself as the
beneficiary.
For the above reasons and claiming fraud, Ilocos Life denied Aban’s claim on April 16, 1997, but
refunded the premium paid on the policy. (6%)
A) May Sotero validly designate her niece as beneficiary?

B) May the incontestability period set in even in cases of fraud as alleged in this case?
C) Is Aban entitled to claim the proceeds under the policy?
ANSWER:
A) Yes, Sotero may validly designate her niece as beneficiary
The Insurance Code does not prohibit the designation of any person as beneficiary in an
insurance contract. The code merely prohibits public enemy as insured but anyone can be
insured.
In this case, since there is no prohibition to the designation of Sotero’s niece as beneficiary, the
same can be validly designated by Sotero.
Hence, Sotero may designate her niece as beneficiary because there is no law nor the code that
prohibits such designation.
B) Yes, the Incontestability period may set in even in cases of fraud.
4F 2019-2020 166
Section 48 of the Insurance Code provides that after a policy of life insurance made payment on
the death of the insured shall have been in force during the lifetime of the insured for a period of
two (2) years from the date of its issue or of its last reinstatement, the insurer cannot prove that
the policy is void ab initio or is rescindable by reason of the fraudulent concealment or
misrepresentation of the insured or his agent. In Manila Bankers Life Insurance Corp. vs. Aban,
Section 48 of the Insurance Code was made to regulate both the action of insurers and
prospective takers of life insurance. It seek to protect legitimate policy holder against insurers who
at the end delay payment of claims due to allegations of fraud which it can at first instance
investigate and discover the flaw and irregularity instead of continued collection of premiums.
In this case, since Ilocos Life nearly took 3 years before it made those investigation when it can
do so within the 2 years incontestability period, it can no longer prove that the policy is void ab
initio or is rescindable on the ground of fraud.
Hence, the incontestability period still set in even in fraud cases because it is the reason for the
establishment of Section 48.
C) Yes, Aban, the niece of Sotero, can claim the proceeds under the policy.
Under Article 48 of the Insurance Code, a policy of life insurance which has been in force for a
period of two (2) years from the time of issue or last reinstatement and payment will be made on
the death of the insured cannot be proven to be void ab initio or rescindable by reason of fraud,
concealment or misrepresentation.
In this case, since the life insurance of Sotero was in force for nearly 3 years from the issuance
and the belated setting up of fraud by Ilocos Life, Aban can claim the proceeds of the policy. The
life insurance became incontestable after 2 years from its issue or last reinstatement.
Hence, Aban can claim the proceeds under the policy because Ilocos Life is precluded from
contesting the validity of the insurance contract for having entered into with fraud.
4F 2019-2020 167
Topic: Concealment; Material Information (2016)

X insured his life for P20 million. X, plays golf and regularly exercises every day, hence is
considered in good health. He did not know, however, that his frequent headaches is really caused
by his being hypertensive. In his application for a life insurance for himself, he did not put a check
to the question if he is suffering from hypertension, believing that because of his active lifestyle,
being hypertensive is remote possibility. While playing golf one day, X collapsed at the fairway
and was declared dead on arrival at the hospital. His death certificate stated that X suffered a
massive heart attack.
A) Will the beneficiary of X be entitled to the proceeds of the life insurance under the
circumstances, despite the non-disclosure that he is hypertensive at the time of
application?
B) If X died in an accident instead of a heart attack, would the fact of X’s failure to disclose
that he is hypertensive be considered as material information?
Answer:
A) No, the beneficiary of X is not entitled to the proceeds of the life insurance.
Section 28 of the Insurance Code provides that each party to a contract of insurance must
communicated to the other, in good faith, all facts within his knowledge which are material to the
contract and as to which he makes no warranty, and which the other has not the means of
ascertaining. It is also provided under said code that concealment, whether intentional or
unintentional, entitles the injured party to rescind a contract of insurance.
In the case at hand, the hypertension of X is a material fact that should have been disclosed to
the insurer. The concealment of such material fact entitles the insurer to rescind the insurance
policy.
B) The fact that X is hypertensive is still material information.
Section 31 of the Insurance Code provides that materiality is to be determined not by the event,
but solely by the probable and reasonable influence of the facts upon the party to whom the
communication is due, in forming his estimate of the disadvantages of the proposed contract, or
in making his inquiries. Thus, it is settled that the insured cannot recover even though the material
fact not disclosed is not the cause of the loss.
4F 2019-2020 168
CLAIMS SETTLEMENT AND SUBROGATION

(NOTICE AND PROOF OF LOSS; GUIDELINES ON CLAIM SETTLEMENT)

In a course of a voluntary boxing content, B who had an accident insurance policy, slid and
slipped, enabling his opponent boxer to hit him with a blow that threw him to the ropes, hitting his
head against the canvass, causing B’s eventual death. There is nothing in the insurance contract
appertaining to boxing. Is the Insurance Company liable? Reasons.
ANSWER:
The insurer is liable because the death in this case was an accident within the meaning of the
policy. This case shares similar factual antecedents with the case of Dela Cruz vs Capital
Insurance and Surery Corp. (GR No. L- 21574) where the Court defined accident as an event that
takes place without one's foresight or expectation — an event that proceeds from an unknown
cause, or is an unusual effect of a known cause and, therefore, not expected. In the mentioned
case, the Court ruled that the fact that boxing is attended with some risks of external injuries does
not make any injuries received in the course of the game not accidental. In boxing as in other
equally physically rigorous sports, such as basketball or baseball, death is not ordinarily
anticipated to result. If, therefore, it ever does, the injury or death can only be accidental or
produced by some unforeseen happening or event.
Hence, in the case, the incident was an accident because the insured did not expect to die by
entering such contest. His slipping was accidental and this caused him to hit his head against the
canvass, leading to his death.
4F 2019-2020 169

CNI insure SAM under a homeowner’s policy against claims for accidental injuries by neighbours.
SAM’s minor son, BOY, injured 3 children of POS, a neighbour, who sued SAM for damages.
SAM’s lawyer was ATT who was paid for his services by the insurer for reporting periodically on
the case to CNI. In one report, ATT disclosed to CNI that after his investigations, he found the
injuries to the 3 children not accidental but intentional.
SAM lost the case in the court and POS was awarded one million pesos in damages which he
sought to collect from the insurer. But CNI used ATT’s report to deny the claim on the ground that
injuries to POS’s 3 children were intentional, hence excluded from the policy’s coverage. POS
countered that CNI was stopped from using ATT’s report because it was unethical for ATT to
provide prejudicial information against his client to the insurer, CNI.
Who should prevail: the claimant, POS; or the insurer, CNI? Decide with reasons briefly.
Answer:
CNI may use ATT’s report and is not stopped from using the latter’s report.
Under the law, the person who commissioned someone to do a particular work for him is deemed
to be the owner of the work done. In the following case, CNI commissioned ATT’s report and paid
for it. Hence, he can use the same for whatever purpose he deemed purposeful. Also, ATT has
no conflict of interest in the following case since SAM and CNI’s interest are deemed to be
congruent with each other as to POS’s claim.
On the other hand, the Court held in the case of Finman General Assurance Corp vs CA, there
is no accident in the context of an accident insurance policy if it was a natural result of the insured’s
voluntary act, unaccompanied by anything unforeseen except the injury. In this case,
deliberateness is not clearly shown from the facts presented, especially the fact that BOY was a
minor, and the injured persons.
Hence, it is possible that CNI’s contention may not prosper.
4F 2019-2020 170
Topic: Bank deposit Insurance; Recovery of Loss (1977)

The Deposit Insurance Law insures deposits up to P10,000.00 per depositor. X has three
separate deposits in a single bank, namely, P15,000.00 — Savings Deposit; P15,000.00 —
Current Deposit (checking account). Later on, the bank ran into financial trouble and was ordered
by the Central Bank to close and liquidate.
How much may X recover? Answer with reasons.
*RA 3591, as amended, now insures deposit up to P500,000.
Reconstructed Question: Assuming the question is raised when RA 3591 was already amended.
The Deposit Insurance Law insures deposits up to P500,000.00 per depositor. X has three
separate deposits in a single bank, namely, P750,000.00—Savings Deposit; P750,000.00—
Current Deposit (checking account). Later on, the bank ran into financial trouble and was ordered
by the Central Bank to close and liquidate.
How much may X recover? Answer with reasons.
ANSWER:
X may recover only P500,000.
Under Section 5(j) of RA 3591, insured deposit means the amount due to any bona fide depositor
for legitimate deposits in an insured bank as of the date of closure but not to exceed 500,000
pesos. This is irrespective of the kinds of deposits of a particular depositor.
In this case, regardless of the kind of deposit and the total amount of the same, X may recover
only up to 500,000 pesos form his deposits in a single bank.
Hence, X can recover up to 500,000 only because of the insurance with Philippine Deposit
Insurance Corporation.
4F 2019-2020 171
Topic: Right of the insured to change Beneficiary (1978)

On December 20, 1974, A took out a life insurance policy and named his wife B, as beneficiary.
The policy was silent with regard to any change of beneficiary. Suspecting that B was committing
adultery, A immediately notified the insurance company in writing that he is substituting his brother
C as beneficiary in place of B. A died later on June 30, 1975. B claims the proceeds of the
insurance policy, contending that as designated beneficiary, she cannot be changed without her
consent, she having acquired a vested right to the proceeds of the policy. Decide. Give reasons
for your answer.
ANSWER:
B cannot claim the proceeds of A’s life insurance policy.
Section 11 of the Insurance Code of the Philippines provides that the insured shall have the right
to change the beneficiary he designated in the policy, unless he has expressly waived this right
in said policy.
B’s contention is untenable. Section 11 abandons the former rule that unless the policy reserves
to the insured the right to change the beneficiary, no such right exists and the named beneficiary
has vested right in the policy of which he cannot be divested without his consent (Gercio vs. Sun
Life Assurance of Canada). Now, whether or not the policy reserves to the insured the right to
change the beneficiary, he has the power to so change the beneficiary without the consent of the
latter who acquires no vested right but only an expectancy of receiving the proceeds under the
insurance.
A’s action in substituting his brother C as his beneficiary in place of B, his wife, in his insurance
policy, is valid. The insured, A, can change the beneficiary in a policy of life insurance, without
the consent of the beneficiary.
4F 2019-2020 172
Topic: Right of Insurer to be subrogated (1978)

A helicopter of ABC Co. collided with XYZ’s tramway steel cables in its logging area in Surigao
resulting in the destruction of the helicopter and death of two pilots. ABC Co. insured at its
expense the helicopter and death of two pilots. ABC Co. insured at its expense the helicopter for
P80,000.00 and the two pilots (life insurance) for P50,000.00 each, and as a result of the crash,
the insurer paid ABC Co. a total indemnity of P180,000.00. Nevertheless, ABC Co sustained
additional damages of about P100,000.00 which were not covered by insurance.
1) ABC Co. sued XYZ to recover not only the additional damages, but also the P180,000
which was already compensated by the insurer. Decide. Give reasons.
2) What right/recourse, if any, has the insurer in order to be reimbursed for the amount it paid
to ABC Co? Give reasons.
ANSWER:
1. ABC Co. can only file an action for the additional damages. Article 2207 of the New Civil
Code provides that if the amount paid by the insurance company does not fully cover the
injury or loss, the aggrieved party shall be entitled to recover the deficiency from the
person causing the loss or injury. In the situation at hand, only the additional damages
were not covered by the insurance and thus follows that this is the only amount that ABC
can further recover from the person causing the loss, XYZ Company, following the
principle laid down under Article 2207 of the New Civil Code.
2. The insurer has the right to be subrogated to the rights of ABC Co. against XYZ only to
the extent of the property insured amounting to P80,000. Article 2207 of the New Civil
Code provides that if the plaintiff's property has been insured, and he has received
indemnity from the insurance company for the injury or loss arising out of the wrong or
breach of contract complained of, the insurance company shall be subrogated to the rights
of the insured against the wrongdoer or the person who was violated the contract.
Applying the law at hand, the property insured amounts to the value of the helicopter at
P80,000 which the insurer paid to ABC Co. pursuant to the property insurance executed
between them. Thus, the insurer has the right to be subrogated and indemnified to the
extent of the property insured at P80,000.
4F 2019-2020 173
Topic: Subrogation (1980)

“L” borrows P50,000 from “M” payable 360 days after date, at 12% interest per annum. To secure
the loan, “L” mortgages his house and lot in favor of “M”. To protect himself from certain
contingencies, “M” insures the house for the full amount of the loan with Rock Insurance
Company. A fire breaks out and burns the house and “M” collects from the insurance company
the full value of the insurance.
Upon maturity of the loan, the insurance company demands payment from “L”. the latter refuses
to pay on the ground that the loan had been extinguished by the insurance payment which “M”
received from the insurance company. He argues that he has not entered into any loan or contract
of whatever nature with the insurance company. He further contends that it is bad enough to lose
a house but it is worse if one has to pay off a paid obligation to somebody who has not extended
any loan to him. Besides, he states, that the insurance payment should inure to his benefit
because he owns the house.
Pass upon the merits of “L’s” contentions.
ANSWER:
“L” is incorrect in saying that the payment to “M” resulted in the extinguishment of the loan and
that insurance payment inured to “L’s” benefit. L’s argument that he has not entered into any loan
or contract of whatever nature with the insurance company is also untenable.
As held in Fireman’s Fund Insurance Co. v. Jamila & Co., subrogation is a normal incident of
indemnity insurance. Upon payment of the loss, the insurer is entitled to be subrogated pro tanto
to any right of action which the insured may have against the third person whose. negligence or
wrongful act caused the loss. Under Art. 2207 of the Civil Code, “if the plaintiff has been insured,
and he has received indemnity from the insurance company for the injury or loss arising out of
the wrong or breach of contract complained of, the insurance company shall be subrogated to the
rights of the insured against the wrongdoer or the person who has violated the contract. If the
amount paid by the insurance company does not fully cover the injury or loss, the aggrieved party
shall be entitled to recovery the deficiency from the person causing the loss or injury.”
In this case, the secured creditor “M”’s interest in the mortgaged property of the mortgagor, “L,”
was insured. Said property burned down, and the insurance company Rock Insurance Company
4F 2019-2020 174
(RIC) had to pay the insured, “M”. Such payment by RIC to the insured “M” creates legal
subrogation and makes RIC an assignee on equity to run after the mortgagor, “L.”
Thus, insurance payment to “M” did not extinguish “L’s” obligation to pay the loan to RIC who may
collect in behalf of “M.”
4F 2019-2020 175
Topic: Warranty; Guidelines on Claim Settlement (2014)

On May 13, 1996, PAM, Inc. obtained a P15,000,000.00 fire insurance policy from Ilocano
Insurance covering its machineries and equipment effective for one (1) yearor until May 14, 1997.
The policy expressly stated that the insured properties were located at "Sanyo Precision Phils.
Building, Phase III, Lots 4 and 6, Block 15, PEZA, Rosario, Cavite." Before its expiration, the
policy was renewed on "as is" basis for another year or until May 13, 1998. The subject properties
were later transferred to Pace Factory also in PEZA. On October 12, 1997, during the effectivity
of the renewed policy, a fire broke out at the Pace Factory which totally burned the insured
properties.
The policy forbade the removal of the insured properties unless sanctioned by Ilocano. Condition
9(c) of the policy provides that "the insurance ceases to attach as regards the property affected
unless the insured, before the occurrence of any loss or damage, obtains the sanction of the
company signified by endorsement upon the policy x x x (c) if the property insured is removed to
any building or place other than in that which is herein stated to be insured." PAM claims that it
has substantially complied with notifying Ilocano through its sister company, the RBC, which, in
fact, referred PAM to Ilocano for the insurance coverage.
Is Ilocano liable under the policy? (4%)
ANSWER:
No, Ilocano is not liable under the policy.
Section 75 of the Insurance Code provides that a policy may declare that a violation of specified
provisions thereof shall avoid it, otherwise the breach of an immaterial provision does not
invalidate the policy.
In this case, since the removal of the insured property to another factory was done in violation of
Condition 9(c) of the insurance policy, such act freed Ilocano Insurance from any liability even if
the breach is with respect to immaterial provision.
Hence, Ilocano is not liable because of violation of specified provision, which is the Condition 9(c)
of the insurance policy.
4F 2019-2020 176
Topic: Theft Clause: (1984)

Rey Bautista insued his 1984 Galant with Alpha Insurance Co., Inc for own-damage, theft and
third-party liability effective August 21, 1984 to August 20, 1985. On August 3, 1985 the car was
brought to “Car Specialists”, a wellknown auto repair shop for general checkup. On August 11,
1985, while in the custody of the said shop, the car was taken by one of the employees of the
shop and driven to a hide-out in Montalban, Rizal. While travelling along a narrow street, the car
smashed into a parked gravel and sand truck and it suffered an extensive damage. Rey filed a
claim for total loss with Alpha, but the claim was denied. Rey than sued Alpha to collect on the
policy.
Rule on the said case stating the legal basis in support of your decision.
ANSWER:
The insurer is liable.
The factual milieu of this case are substantially similar with the landmark case of Villacorta v
Insurance Commission (Oct. 28, 1980, 100 SCRA 467) wherein the Supreme Court laid down the
doctrine which substantially provides that when the insured entrusted the keys to the owner of the
repair shop, there was an implied authority given by the insured either to the owner of the shop
or the latter’s employees to drive the car. What should apply is not the authorized driver clause
but the theft clause of the policy.
Herein, the contract of insurance shall be interpreted, in case of doubt, in favor of the insured Rey
Bautista, who is entrusting his car and key to the shop owner; its employees are presumed to
have insured’s permission. The theft clause applies, since the aforesaid act of the employees of
the shop owner is within the article on theft of the Revised Penal Code.
Thus, the insurer is liable.
4F 2019-2020 177
Topic: Assignment of Insurance Policy (1991)

The policy of the insurance upon his life, with the face value of P100,000, was assigned by Jose,
a married man with two legitimate children, to his nephew, Y as security for a loan of P50,000. He
did not give the insurer any written notice of such assignment despite the explicit provision to that
effect in the policy. Jose died. Upon the claim on the policy by the assignee, the insurer refused
to pay on the ground that it was not notified of the assignment. Upon the other hand, the heirs of
Jose contended that Y is not entitled to any amount under the policy because the assignment
without due notice to the insurer was void. Resolve the issues.
Answer:
Y, the assignee, cannot recover the proceeds of the insurance from the insurer.
Section 184 of the Insurance Code provides that a policy of insurance upon life or health may
pass by transfer, will or succession to any person, whether he has an insurable interest or not,
and such person may recover upon it whatever the insured might have recovered. However,
Section 185 of the same code further provides that notice to an insurer of a transfer or bequest
thereof is not necessary to preserve the validity of a policy insurance upon life or health, unless
thereby expressly required.
In the case given, the insurance policy of Jose expressly provides that written notice to the insurer
is required in case the policy will be assigned, in order to preserve the validity of the policy. Thus,
the failure of Jose to give notice to the insurer precludes the assignee, Y, from claiming rights
under the policy.
Therefore, the insurer is within its right in refusing to pay the assignee due to the absence of
written notice from Jose. Y cannot recover the amount loaned from the policy.
4F 2019-2020 178
Topic: Total Loss and Constructive Loss (1992)

An insurance company issued a marine insurance policy covering a shipment by sea from
Mindoro to Batangas of 1,000 pieces of Mindoro garden stones against ―total loss only. The
stones were loaded in two lighters, the first with 600 pieces and the second with 400 pieces.
Because of rough seas, damage was caused to the second lighter resulting in the loss of 325 out
of the 400 pieces. The owner of the shipment filed claims against the insurance company on the
ground of constructive total loss inasmuch as more than 3⁄4 of the value of the stones had been
lost in one of the lighters. Is the insurance company liable under its policy? Why?
ANSWER:
No. Section 129 of the Insurance Code provides that a loss may be either actual or constructive.
Section 130 provides that an actual total loss is caused by:
(a) A total destruction of the thing insured;
(b) The irretrievable loss of the thing by sinking, or by being broken up;
(c) Any damage to the thing which renders it valueless to the owner for the purpose for
which he held it; or
(d) Any other event which effectively deprives the owner of the possession, at the port of
destination, of the thing insured.
On the other hand, a constructive total loss is one which gives to a person insured a right to
abandon, under Section 139 of the Insurance Code. Section 139 provides that a person insured
by a contract of marine insurance may abandon the thing insured, or any particular portion thereof
separately valued by the policy, or otherwise separately insured, and recover for a total loss
thereof, when the cause of the loss is a peril injured against,
(a) If more than three-fourths thereof in value is actually lost, or would have to be expended
to recover it from the peril;
(b) If it is injured to such an extent as to reduce its value more than three-fourths;
4F 2019-2020 179
In this case, there is no actual or constructive loss to speak of. There is no constructive total loss
that can be claimed since the 3⁄4 rule is to be computed on the total 1,000 pieces of Mindoro
garden stones covered by the single policy coverage. Here, it was based on 600 garden stones.
Given such circumstances, the insurance company is not liable under its policy covering against
“total loss only” the shipment of 1,000 pieces of Mindoro garden stones.
4F 2019-2020 180
Topic: Property Insurance; Prescription of Claims (1996)

Robin insured his building against fire with EFG Assurance. The insurance policy contained the
usual stipulation that any action or suit must be filed within one year after the rejection of the
claim. After his building burned down, Robin filed his claim for fire loss with EFG. On Feb 28,
1994, EFG denied Robin’s claim. On April 3, 1994, Robin sought reconsideration of the denial,
but EFG reiterated its position. On March 20, 1995, Robin commenced judicial action against
EFG. Should Robin’s action be given due course? Explain.
ANSWER:
No, Robin’s action should not be given due course.
The request for reconsideration did not suspend the running of the prescriptive period of one year
stipulated in the insurance policy.
Thus, when robin commenced judicial action against EFG Assurance on March 20, 1995, his
ability to do so had already prescribed. The one-year period is counted from Feb 28, 1994 when
EFG denied Robin’s claim, not from the date (presumably after April 3, 1994) when EFG reiterated
its position denying Robin’s claim. The reason for this rule is to insure that claims against
insurance companies are promptly settled and that insurance suits are brought by the insured
while the evidence as to the origin and cause of the destruction has not yet disappeared (See
Sun Ins Office Ltd v CA gr 89741, Mar 13 91 195s193).
Thus, Robin’s action should not be given due course.
4F 2019-2020 181
Topic: Actual Total Loss (1996)

RC Corporation purchased rice from Thailand, which it intended to sell locally. Due to stormy
weather, the ship carrying the rice became submerged in sea water, and with it the rice cargo.
When the cargo arrived in Manila, RC filed a claim for total loss with the insurer, because the rice
was no longer fit for human consumption. Admittedly, the rice could still be used as animal feed.
Is RC’s claim for total loss justified? Explain.
ANSWER:
Yes, RC’s claim for total loss is justified.
Under the Insurance Code of the Philippines:
Sec. 130. An actual total loss is cause by:
(a) A total destruction of the thing insured;

(b) The irretrievable loss of the thing by sinking, or by being broken up;
(c) Any damage to the thing which renders it valueless to the owner for the purpose
for which he held it; or
(d) Any other event which effectively deprives the owner of the possession, at the port of
destination, of the thing insured.
The rice, which was imported from Thailand for sale locally, is obviously intended for consumption
by the public. The complete physical destruction of the rice is not essential to constitute an actual
total loss. Such a loss exists in this case since the rice, having been soaked in sea water and
thereby rendered unfit for human consumption, has become totally useless for the purpose for
which it was imported (Pan Malayan Ins Co v CA gr 95070 Sep 5, 1991).
Thus, RC’s claim for total loss is justified.
4F 2019-2020 182
Topic: Insurer; Group Insurance; Employer-Policy Holder (2000)

X company procured a group accident insurance policy for its construction employees variously
assigned to its provincial infrastructure projects. Y Insurance Company underwrote the coverage,
the premiums of which were paid for entirely by X Company without any employee contributions.
While the policy was in effect, five of the covered employees perished at sea on their way to their
provincial assignments. Their wives sued Y Insurance Company for payment of death benefits
under the policy. While the suit was pending, the wives signed a power of attorney designating X
Company executive, PJ, as their authorized representative to enter into a settlement with the
insurance company. When a settlement was reached, PJ instructed the insurance company to
issue the settlement check to the order of X Company, which will undertake the payment to the
individual claimants of their respective shares. PJ misappropriated the settlement amount and the
wives pursued their case against Y Insurance Co. Will the suit prosper? Explain.
ANSWER:
Yes, the suit will prosper.
It is well established practice in the group insurance business that the employer-policy holder is
the agent of the insurer.
Herein, Y Insurance Co is liable. X company, through its executive, PJ, acted as agent of Y
Insurance Co. The latter is thus bound by the misconduct of its agent.
Thus, the suit will prosper.
4F 2019-2020 183
Topic: Mutual Insurance Company; Conservator v. Receivership (2006)
1. What is a mutual insurance company or association?

2. Distinguish between the role of a conservator and that of a receiver of a bank.
ANSWER:
1. A mutual insurance company, as defined in the case of is a cooperative enterprise where

the members are both the insurer and the insured. In it, the members all contribute, by a
system of premiums or assessments, to the creation of a fund from which all losses and
liabilities are paid, and where the profits are divided among themselves, in proportion of
their interest. Additionally, mutual insurance associations, or clubs, provide three types of
coverage, namely, protection and indemnity, war risks, and defense costs (White Gold
Marine Services, Inc. vs. Pioneer Insurance and Surety Corporation and the Steamship
Mutual Underwriting Association).
2. A conservator takes charge of the management of an insurance company. He is

appointed when the Insurance Commissioner finds that a company is in a state of
continuing inability or unwillingness to maintain a condition of solvency or liquidity deemed
adequate to protect the policy holders and creditor. On the other hand, a receiver of a
bank, appointed to manage a bank or quasi-bank that is unable to pay its liabilities in the
ordinary course of business, or has insufficient realizable assets to meet its liabilities, or
cannot continue in business without probable losses to its depositors or creditors; or has
willfully violated a final cease and desist order, involving acts or transactions amounting
to fraud or a dissipation of the assets of the institution. The main purpose of the receiver
is to recommend the rehabilitation or liquidation of the bank.
4F 2019-2020 184
Topic: Right of Subrogation (2011)

Where the insurer was made to pay the insured for a loss covered by the insurance contract, such
insurer can run after the third person who caused the loss through subrogation. What is the basis
for conferring the right of subrogation to the insurer?
A. Their express stipulation in the contract of insurance.
B. The equitable assignment that results from the insurer’s payment of the insured.
C. The insured’s formal assignment of his right to indemnification to the insurer.
D. The insured’s endorsement of its claim to the insurer.
ANSWER:
B. The equitable assignment that results from the insurer’s payment of the insured.
In the case of Pan Malayan Ins. v. CA, it was discussed that the principle of subrogation is a
normal incident of indemnity property insurance as a legal effect of payment; it inures to the
insurer without any formal assignment or any express stipulation to that effect in the policy. Said
right is not dependent upon nor does it grow out of any privity of contract. Payment to the insured
makes the insurer an assignee in equity.
4F 2019-2020 185

The "incontestability clause" in a Life Insurance Policy means ---
A. that life insurance proceeds cannot be claimed two (2) years after the death of the insured.
B. that two (2) years after date of issuance or reinstatement of the life insurance policy, the
insurer cannot anymore prove that the policy is void ab initio or rescindable by reason of
fraudulent concealment or misrepresentation of the insured.
C. that the insured can still claim from the insurance policy after two (2) years even though
premium is not paid.
D. that the insured can only claim proceeds in a life insurance· policy two (2) years after
death.
ANSWER:
B. that two (2) years after date of issuance or reinstatement of the life insurance policy, the insurer
cannot anymore prove that the policy is void ab initio or rescindable by reason of fraudulent
concealment or misrepresentation of the insured.
4F 2019-2020 186
Topic: Carriage of Goods by Sea Act; Subrogation (2014)

On December 1, 2010, KoreA Corporation shipped from South Korea to LT Corporation in Manila
some 300,000 sheets of high-grade special steel. The shipment was insured against all risks by
NA Insurance(NA). The carrying vessel arrived at the Portof Manila on January 10, 2011. When
the shipment was discharged, it was noted that 25,000 sheets were damaged and in bad order.
The entire shipment was turned over to the custody of ATI, the arrastre operator, on January 21,
2011 for storage and safekeeping, pending its withdrawal by the consignee’s authorized customs
broker, RVM.
On January 26 and 29, 2011, the subject shipment was withdrawn by RVM from the custody of
ATI. On January 29, 2011, prior to the withdrawal of the last batch of the shipment, a joint
inspection of the cargo was conducted per the Request for Bad Order Survey (RBO) dated
January 28, 2011. The examination report showed that 30,000 sheets of steel were damaged and
in bad order.
NA Insurance paid LT Corporation the amount of P30,000,000.00 for the 30,000 sheets that were
damaged, as shown in the Subrogation Receipt dated January 13, 2013. Thereafter, NA
Insurance demanded reparation against ATI for the goods damaged in its custody, in the amount
of P5,000,00.00. ATI refused to pay claiming that the claim was already barred by the statute of
limitations. ATI alleged that the Carriage of Goods by Sea Act (COGSA) applies in this case since
the goods were shipped from a foreign port to the Philippines. NA Insurance claims that the
COGSA does not apply, since ATI is not a shipper or carrier. Who is correct? (5%)
ANSWER:
NA Insurance is correct.
The COGSA applies only to carriers or ships. Section 1(a and d) of COGSA provides that Carrier
includes the owner or the charterer who enters into a contract of carriage with the shipper, while
a Ship is any vessel used for the carriage of goods by sea.
In this case, COGSA will not apply, since ATI is neither a carrier nor a ship, much less a shipper
because it is an arrastre operator. Also, COGSA does not mention that an arrastre operator may
invoke the one year prescriptive period.
Hence, NA Insurance is correct because COGSA does not cover arrastre operators such as ATI
in this case.
4F 2019-2020 187
Topic: Marine Insurance; Subrogation (2014)

ELP Insurance, Inc. issued Marine Policy No. 888 in favor of FCL Corp. to insure the shipment of
132 bundles of electric copper cathodes against all risks. Subsequently, the cargoes were shipped
on board the vessel "M/V Menchu" from Leyte to Pier 10, North Harbor, Manila.
Upon arrival, FCL Corp. engaged the services of CGM, Inc. for the release and withdrawal of the
cargoes from the pier and the subsequent delivery to its warehouses/plants in Valenzuela City.
The goods were loaded on board twelve (12) trucks owned by CGM, Inc., driven by its employed
drivers and accompanied by its employed truck helpers. Of the twelve (12) trucks en routeto
Valenzuela City, only eleven (11) reached the destination. One (1) truck, loaded with eleven (11)
bundles of copper cathodes, failed to deliver its cargo.
Because of this incident, FCL Corp. filed with ELP Insurance, Inc. a claim for insurance indemnity
in the amount of P1,500,000.00. After the requisite investigation and adjustment, ELP Insurance,
Inc. paid FCL Corp. the amount of P1,350,000.00 as insurance indemnity.
ELP Insurance, Inc., thereafter, filed a complaint for damages against CGM, Inc. before the
Regional Trial Court (RTC), seeking reimbursement of the amount it had paid to FCL Corp. for
the loss of the subject cargo. CGM, Inc. denied the claim on the basis that it is not privy to the
contract entered into by and between FCL Corp. and ELP Insurance, Inc., and hence, it is not
liable therefor.
If you are the judge, how will you decide the case? (4%)
ANSWER:
I will decide the case in favor of ELP Insurance.
Article 2207 of the Civil Code states that if the plaintiff’s property has been insured and he has
received indemnity from the insurance company for injury or loss arising out of the wrong or
breach of the contract, the insurance company shall be subrogated to the rights of the insured
against the person who violated the contract.
In this case, it is immaterial whether CGM has no privity to the contract of FCL Corp. and ELP,
since ELP Insurance is subrogated to the rights of FCL Corp. to the extent of the amount it paid
to the latter under the marine insurance contract. ELP Insurance has the right to seek
reimbursement from CGM, Inc., which caused the breach of contract and/or Tort arising from
contract between CGM, Inc. and FLP Corp.
4F 2019-2020 188
Hence, I will decide in favor of ELP Insurance because it was subrogated to the rights of FCL
Corp. against CGM, Inc.
4F 2019-2020 189
Topic: Loss (2014)

On February 21, 2013, Barrack entered into a contract of insurance with Matino Insurance
Company (Matino) involving a motor vehicle. The policy obligates Matino to pay Barrack the
amount of Six Hundred Thousand Pesos (P600,000.00) in case of loss or damage to said vehicle
during the period covered, which is from February 26, 2013 to February 26, 2014.
On April 16, 2013, at about 9:00 a.m., Barrack instructed his driver, JJ, to bring the motor vehicle
to a near by auto shop for tune-up. However, JJno longer returned and despite diligent efforts to
locate the said vehicle, the efforts proved futile. Resultantly, Barrack promptly notified Matino of
the said loss and demanded payment of the insurance proceeds of P600,000.00.
In a letter dated July 5, 2013. Matino denied the claim, reasoning as stated in the contract that
"the company shall not be liable for any malicious damage caused by the insured, any member
of his family or by a person in the insured’s service. Is Matino correct in denying the claim? (4%)
ANSWER:
Matino Insurance is not correct in denying the claim.
Alpha Insurance and Surety Co. vs. Castor provides that the loss of the property insured due to
the act of the driver of the insures is not an exception to the coverage from the insurance policy
with a tenor that is clear and unambiguous to cover only “malicious damage” only.
In this case, the loss of the car of Barrack was due to theft and not malicious damage. As such,
the theft clause of the insurance policy is applicable and not the malicious damage clause.
Hence, Matino Insurance is not correct when it denied the claim of Barrack because the loss due
to the driver’s act is theft and not malicious damage.
4F 2019-2020 190
Topic: Loss; Notice of Loss (2014)

On May 26, 2014, Jess insured with Jack Insurance (Jack) his 2014 Toyota Corolla sedan under
a comprehensive motor vehicle insurance policy for one year. On July 1, 2014, Jess’ car was
unlawfully taken. Hence, he immediately reported the theft to the Traffic Management Command
(TMC) of the Philippine National Police (PNP), which made Jess accomplish a complaint sheet
as part of its procedure. In the complaint sheet, Jess alleged that a certain Ric Silat (Silat) took
possession of the subject vehicle to add accessories and improvements thereon. However, Silat
failed to return the subject vehicle within the agreed 3-day period. As a result, Jess notified Jack
of his claim for reimbursement of the value of the lost vehicle under the insurance policy. Jack
refused to pay claiming that there is no theft as Jess gave Silat lawful possession of the car. Is
Jack correct? (4%)
ANSWER:
Jack Insurance is not correct.
In the case of Paramount Insurance vs. Sps. Remondeulaz, when what is given is merely physical
possession and not juridical possession, the act of not returning the insured property without
consent or authority of the owner constitute theft. Such theft is compensable under the insurance
policy.
In this case, Ric Silat was merely given physical possession of the car and his apparent taking of
the car of Jess is without consent or authority of the latter. This act of deprivation of property
constitute theft which is compensable.
Hence, Jack Insurance is not correct because Ric Silat was not given lawful possession but
merely physical possession.
4F 2019-2020 191
YEAR ASSIGNMENTS PER STUDENT
1. Almazar, Victor Emmanuel-2019; 1975

2. Angara, Patrick Alexis – 2018; 1976
3. Aquino, Jenica – 2017; 1976
4. Bongabong, Joshua – 2016; 1977
5. Camarao, Aeron -2014; 1977
6. Capuchino, Mafel – 2015; 1978
7. Clemente, Jellyn -2013; 1978
8. Crisostomo, Camille – 2012;1979
9. De Leon, Jea Belinda – 2011;1979
10. Dela Cruz, Alyssa – 2010; 1980
11. Dolor, Xylene – 2009;1980
12. Gamo, Norenz Jacob – 2008; 1981
13. Gomez, Donna Kris – 2007; 1981
14. Guerrero, Anna Charmaine – 2006; 1982
15. Hornilla, Ariadne Kirsten – 2005;1982
16. Icaro, Frederick – 2004;1983
17. Jimenez, Louise Ysabel – 2003; 1983
18. Mallari, Hazel Marie – 2002; 1984
19. Mamaril, Mariela Mae -2001; 1984
20. Mendiola, Glenn Mikko – 2000; 1985
21. Oliva, Pauline Antonette – 1999; 1985
22. Pimentel, Abbeylyn Erica – 1998; 1986
23. Roces, Suzanne – 1997; 1986
24. Salor, Jermile -1996; 1987
25. Senoran, Artlyn Gem – 1995; 1987
26. Tamaray, Paulinet Angela– 1994; 1988
27. Torres, Ronald Derick – 1993; 1988
28. Turrecha, Zennia – 1992: 1989
29. Villanueva, Christine Joy – 1991; 1990
30. Samaniego, Emil- 1991;1975
THE END
4F 2019-2020 192

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Insurance Law

TABLE OF CONTENTS Page

Loss and Abandonment

CLAIMS SETTLEMENT AND SUBROGATION

*YEAR ASSIGNMENTS PER STUDENT …………………………………… 192

Topic: General Principles (2012)

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

Topic: General Principles (2012)

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

Topic: Minority of Insured (2012)

1. The life insurance policy is void ab initio.

CHARACTERISTICS/NATURE OF INSURANCE CONTRACTS

Topic: Insurance; Co-Insurance vs. Re-Insurance (1994)

Distinguish co-insurance from re-insurance.

Topic: Perfection; Cover Note (2009)

Topic: Contract of Insurance (1980)

How would you resolve the issue?

Topic: Perfection of Insurance Contracts (2003)

Topic: Perfection; Cognition Theory (2011)

Topic: Perfection; Cognition Theory (2016)

Decide Jason’s claim with reason (5%)

Topic: Double Insurance; Contract of Indemnity (2008)

Northern Insurance Corp. - P20 Million

Topic: Double Insurance (2005)

What is the nature of liability of several insurers in double insurance? Explain.

Topic: Double Insurance (2012)

I. Is this double insurance? Explain your answer. (3%)

“(a) An existing interest;

“(b) An inchoate interest founded on an existing interest; or

Topic: Double Insurance (2012)

C. The two (2) insurers will be proportionately liable.

D. X can choose who he wants to claim against.

B. X can choose who he wants to claim against.

Hence, X may claim from any of the insurers.

Topic: Double Insurance (2017)

Topic: Double Insurance; Over Insurance (1990)

Explain your answers.

Therefore, Fortune may recover ₽200,000 from X.

X─ ₽200,000; Y─ ₽100,000; Z─ ₽300,000.

X─ 1/12 of ₽600,000 = ₽200,000

Y─ 2/12 of ₽600,000 = ₽100,000

Z─ 6/12 of ₽600,000 = ₽300,000

Therefore, Fortune must return the ₽200,000 he obtained.

RISK INSURED AGAINST

Topic: Excepted Risk; Effects (2012)

A. The insurer will be liable.

A. The insurer will be liable.

Topic: Marine Insurance; Marine Peril (1977)

I. Did the service rendered by X to Y constitute “salvage” or “towage”? Why?

Topic: Marine Insurance; Maritime Commerce (1977)

II. Explain a maritime protest.

Topic: Marine Insurance; Loss and Abandonment (1982)

I. No, the notice of abandonment is not properly made as there is no existence of

Topic: Marine Insurance; Implied Warranty of Sea Worthiness (1983)

How would you decide the case? Explain

Marine Insurance; Perils of the sea and Barratry (1986)

Is the insurance company liable?

Hence, the insurance company in this case is liable.

Topic: Proximate Cause; Perils of the Sea (1998)

2. The vessel was saved

Topic: Marine Insurance; Constructive Total Loss (2005)

Topic: Marine Insurance; Doctrine of Limited Liability (2011)

Topic: Marine Insurance; Deviation; When is it proper (2011)