indemnify the insured if the insurer receives a
consideration. It is an element of an insurance policy
INSURANCE LAW
PRELIMINARIES
➢ If there is deterioration of health, and you
lose something, you alone will suffer the
burden of that loss. If you lose the
opportunity to earn yet you are the
breadwinner, your family will be left with their
own. If you did not prepare for that event,
your family will suffer. These scenarios have
long been recognized. Merchants have
come up with a solution which is insurance.
Through insurance, people are able to
spread the risk by which properties or lives
are lost.
Example: Let us assume that we all have our
cellphones. We all face the risk of losing our
cellphones. If you lose your phone, you bear the risk
of losing such a phone. But what if we agree to
contribute 10.00 each? Here, if people put it in a pool
of funds, accumulate it so that when one loses his
phone, he will be able to have a new phone from the
pool of funds.
➢ We spread risk given the chance of
happening of an uncertain event. By
spreading the risk, we minimize the impact
of the loss. We spread the risk to as many
persons as we can. The more person we
spread, the lesser the impact of the loss.
Example: If every month, we accumulate 8,000
pesos per person, we spread the risk to 27 people.
But if there are 100 of us, there are more to which
we spread the risk. To have more pool of funds. But
if we spread the risk, there are greater chances of
meeting the risks. (For example, if 100 persons na,
at least 2 may lose their cellphones already instead
of 1.
➢ But the idea is we spread the risk to as many
as possible or as many people as we can.
DEFINITION OF INSURANCE
➢ An agreement whereby one undertakes for a
consideration to indemnify another against
loss, damage or liability arising from an
unknown or contingent event.
➢ Insurance is an agreement. It presupposes
the existence of at least 2 persons because
they agree with each other.
PERSONS PRESENT IN A CONTRACT
a. INSURER-The one who undertakes to
indemnify. He is the one who agrees to
indemnify another.
b. INSURED-The one to be indemnified or
agrees to be indemnified.
❖ It is not limited to 2 persons.
Example: If I take an insurance covering my life for
the benefit of my children, not only 2 persons are
involved, but including children who are the
BENEFICIARIES.
❖ There are also occasions where three or more
people are involved.
Example: Employer (ASSURED) takes an insurance
from an INSURER covering the life of an employee
(INSURED) for the benefit of its employees
(BENEFICIARIES). The insurer will agree to
that an insurer should be receiving consideration
known as PREMIUM. (In ObliCon, this is the cost or
consideration.)
BASIC RULE IN INSURANCE
General Rule: There can be no valid contract of
insurance unless there is payment of PREMIUM.
Payment of premium involves public policy. It is
usually non-waivable.
ILLUSTRATION 1: INSURER asks me, “gusto mo
ba kumuha ng insurance? For the first year, you
don’t have to pay anything, but you will still be
covered including your beneficiaries. If you avail of it,
and you survive the first year, you must pay the
premium the next years.
Q: If in the first year, something happens to you, can
you avail of the insurance?
A: No!
Q: Can your beneficiaries compel the insurer to pay
you?
A: No!
No for both. Why? Because there is no valid contract
of insurance. It is void. If there is no premium paid,
the contract of insurance is void. Insurer must accept
the premium paid. Payment of premium involves
public policy and therefore, it is not waivable. The
purpose is to INDEMNIFY - a contract of
insurance is designed to indemnify.
Note of the GR: A contract of insurance is designed
to indemnify (for property insurances).
ILLUSTRATION 2: Building is worth 10 Million. If
bldg. is insured, and there is an agreement that the
building is insured for 20 Million.
Q: If the bldg. got totally destroyed, how much is the
insurer liable?
A: Insurer for 10 Million, not 20 million. This is
because a contract of insurance is for
indemnification. You can only claim the amount for
which you are to be DAMNIFIED!
FOR LIFE INSURANCES, TO INDEMNIFY IS NOT
THE PURPOSE OF AN INSURANCE.
➢ We do not indemnify life that is lost. We
cannot put value on the life of a person that
is lost. Life of a person is PRICELESS, not
WORTHLESS If we take a life insurance
worth 10 Million pesos. That is not an
admission that your life is only 10 Million
pesos. That is just an agreement and not a
valuation of life.
➢ Losses can be loss of lives, health, limbs,
body parts or any loss or damage to
property. It is not limited to loss of life or
damage. It can also arise from liabilities.
➢ Liabilities can be the subject of insurance.
Ex In law practice. If you are supposed to appeal but
you forget to appeal, then you can have an
insurance against liabilities.
➢ Also, in medical malpractice, you can have
insurance.
RISKS ARISING FROM UNKNOWN OR
CONTINGENT EVENT
➢ A future event that is certain to happen can
 be insured as long as we do not know the
exact occurrence (Ex. Death)
Q: CAN WE INSURE PAST EVENTS?
A: Yes. We can insure past events as long as we do
not know if it has happened already.
ILLUSTRATION 1: (Marine insurance)
A vessel left the port of Burnham today. It is
supposed to go to Singapore in 1 day. 1 day later,
we do not know the whereabouts of the vessel. We
want to get an insurance. We want to insure that
vessel (disclose everything about that). You do not
know that the vessel sank sometime yesterday.
Q: Is insurance possible?
A: Insurance is possible. Even if a past event, if one
does not know that it has occurred already.
CHARACTERISTICS OF INSURANCE
CONTRACTS
1. Consensual in nature.
It is perfected by mere meeting of minds. No
prescribed form in order to perfect a
contract. But the law requires a policy that is
pre-approved by the insurance commission.
It is perfected by mere meeting (consent or
agreement) of the minds of persons. It is not
a formal contract just because there is a
requirement of issuing a policy.
Sir’s take on insurance as a formal contract:
It is not a formal contract. Sec. 51 of the
Insurance Code presents the issuance of a
policy. But the issuance of a policy is not
necessary to an insurance. It is only needed
to become a legitimate business of
insurance. To comply with the requirements
according to SEC regulations.
2. Contract of Indemnity
A person can normally take a contract only
to that extent that he can be damnified. This
is not applicable in life insurance.
3. Personal in nature
Only the contracting parties to the terms of
insurance shall be bound by the terms
thereof. Only parties to the contract can be
bound by the insurance contract.
ILLUSTRATION: A person takes an insurance
covering the property of another person. He just
wants to insure that property because he likes that
property. His objective is to make it his own
sometime in the future. There is a loss.
Q1: Can he claim from his insurer?
A: No. Because the contract is for contract of
indemnification. He did not lose anything nor lose
any pecuniary damage arising from that.
Q2: What about the owner of property? Can he claim
from the insurer who insured the property?
A: No. Because the contract is personal in nature.
Only parties to contract are bound by its terms.
(Note: This is the general rule. Hence, only the
contracting parties shall be bound by its rules.)
❖ Stipulation pour autrui. Rights are granted to
certain persons who are not parties to a
contract and they may claim rights arising
from that contract.
Q3: If there is a stipulation pour autrui, and A takes
an insurance covering his life and designates B?
Can A claim insurance proceeds?
A: Yes. A may claim interest because there is a
stipulation to that effect.
4. Aleatory
The liability that is arising from insurance is
dependent upon the happening of a contingent
event. The occurrence of risks will give rise to liability
of the insurer.
5. Risk Distributing
It is not just a mere risk assumption. It is a risk
distribution.
ILLUSTRATION: Debtor asks creditor to lend an
amount of 1 M pesos only. Debtor says he has
nothing for collateral. Creditor says he cannot grant
the loan. They then agree together so that the debtor
will look for another person who can assume the
obligation. Debtor asks the friend to assume
obligation and the friend agrees to assume the
obligation(surety).
Q1: Is there risk on the part of the friend?
A: Yes. There is a risk involved. No contract of
insurance yet. Because all that we have is mere risk
assumption yet (a surety). no risk distribution.
Q2: Is there a chance that the suretyship agreement
will fall under the ambit of an insurance contract?
A: Yes. The surety should be habitually engaged in
the business of suretyship business. This means he
is acting as a surety to many persons and the many
persons give premium to the surety which are pooled
together as a pool of funds. If the debtor does not
pay, there is still a pool of funds where the creditor
can get for the debt. Here, the risk has been
distributed to many people.
6. Doctrine of Uberrimae Fidei
A contract of insurance is one which is of “perfect
good faith” because normally, parties rely on what
has been represented by the other party(insured).
Insurers rely on warranties or representations made
by insured. Insurers may only use solutions to make
sure that insured is in good faith.
Example: If you are an insurer and here comes a
person applying for life insurance, would you really
know the state of the health of the person? Probably,
if you ask him to submit to you an extensive
executive check up. But if you will make this as a
requirement for purposes of getting insurance, in all
probability, no person will apply for the insurance
because in the first place getting an executive check
up is very expensive (minimum of 20k-100k).
➔ This is why, what happens is, insurers rely
on the representations made by the insured.
➔ There are ways by which the insurer will be
able to protect itself from fraudulent acts
made by the insured. In principle, insurers
normally just have to rely on the warranties
of insured.
7. Voluntary
The decision to take an insurance or not is a
decision made by a person voluntarily WON he
wants to take an insurance. Both the insurer and
insured voluntarily decide to enter into the contract of
insurance. There are some insurances that are
arising from operation of law and not merely
voluntary.
● It depends on the insured to choose the
insurer he wants, and in the same way, it
depends on the insurer to decide whether or
not to accept the risk involve.
● A person may be insurable but the decision
to insure the person is a decision that should
be made by the insurer as well.
Example: If a person is sick with a severe ailment, he
can be insured. A person who is very sick would
probably want to be insured. But the thing is, is there
any insurer who will be willing to accept him as a
risk? This is a decision to be made by the insurer.
General Rule: Insurance contracts are voluntary.
Exception: There are some insurances arising from
operation of law, hence not voluntary.
Example: Social Security Insurances (SSS, GSIS)—they
arise from social legislations; hence, they are mandated by
law→ these are not voluntary.
If you own a motor vehicle, the law requires that you
get liability insurance. The minimum requirement of
law is compulsory third party liability insurance. It is a
departure from the notion of voluntariness in a
contract of insurance.
Nonetheless, there is still an element of
voluntariness like the decision as to which third
party insurer will insure you. But as the decision
if you should be insured, this is mandatory.
8. Partly executed and partly executory
It is executed already insofar as insured is
concerned. Insured has already paid the premium.
But insofar as the insurer is concerned, because of
its aleatory character of an insurance, where the
liability of the insurer is dependent on the occurrence
of a contingent event, then it is still still executory in
the perspective of the insurer.
ELEMENTS OF A CONTRACT OF INSURANCE
Elements of Contract of Insurance: COREC
a. Cause
b. Object
c. Consideration
d. Risk Distribution (not just mere risk
assumption)
e. Existence of an Insurable Interest (the
reason for taking a contract of insurance and
it would depend on whether it is a life or
property insurance)
LAWS GOVERNING INSURANCE CONTRACTS
Hierarchy of Application
1. Special Laws
2. Insurance Code + Specialized Laws
3. Civil Code admits that those not covered by
it are governed by special laws and those
not governed by the latter shall be governed
by the Civil Code
● The special laws are primary. But applying this
is tricky considering the presence of the
Insurance Code and specialized laws.
Example 1: The GSIS Law is in itself containing
provisions on government insurance.
Q: What to do with disputes in connection with GSIS
claims?
A: Apply the GSIS law which is the law that
specifically deals with such a situation.
Example 2: PDIC Law governing insurance on bank
deposits.Because there is a special law governing
this subject matter, this should first be applied. The
rest not covered shall be governed by the general
provisions of the INSURANCE CODE. Those not
covered by the Insurance Code, apply the CIVIL
CODE
Example 3: Insurance Code provision concerning
naming of beneficiaries. Referring to the insurance
law governing this matter, there are relatively few
provisions dealing with this as to who may be named
as beneficiaries. In fact, as a general rule in the
Insurance Code, anyone can be a beneficiary of
another in life insurance. (Okay lang daw kay sir
kung iddesignate mo siyang beneficiary ng life
insurance mo xD)
What is not allowed is, when you want to ensure the
life of another, you cannot just freely insure this.
There must be a reason for this. But what the
Insurance Code does not provide is concerning
inclusions and exclusions from being beneficiaries.
Nonetheless, these are present in the Civil Code,
for example Article 739 in relation to Article 2012,
which provides that those prohibited to donate from
each other are prohibited from naming each other as
beneficiaries in an insurance.
a. Y asked X to kill Z in exchange for naming X
as the beneficiary of Y’s life insurance. This
is not allowed because the naming of the
beneficiary is by reason of committing a
crime. (remote)
b. Naming of a beneficiary because the other
party is a public office in relation to public
office | Contractor offers to district engineer
to approve the contract in exchange for
naming engineer as life insurance
beneficiary (remote)
c. persons guilty of adultery or concubinage
cannot give donations to each other and
cannot name each other as beneficiaries in a
life insurance |
Illustration 1: H is married with W. But H has an affair
with X. H and X are now living together while H and
W are estranged. H takes an insurance covering his
life. H names X as the beneficiary. H dies.
Q1: Can there be a claim from the insurer?
A: Yes. There can be acclaim from the insurer
because H is insured.
Q2: Who can claim from the insurer?
A: Under the Insurance Code, whoever is the
designated beneficiary is the one who can claim the
insurance. Here, although X is named as the insurer,
applying the Civil Code, this law provides that H
cannot designate X as a beneficiary considering that
they are guilty of adultery. Because of the Civil Code
prohibition, they cannot donate to each other nor can
they be beneficiaries of each other.
X cannot claim the proceeds.

Q3: Who can claim the insurance since the
beneficiary is disqualified?
A: There is as if no beneficiary. In this case, the heirs
of H will be able to claim from the insurer.
Illustration 2: H is married to W. They have a child
named One. H has an affair with X and they are now
living together and had a child named Two. H takes
an insurance covering his life and designates X, and
their child Two, as the only beneficiaries. H dies.
Q1: Who will be able to claim from the insurer?
MCQ OPTIONS:
A. W and One only because they are the
legitimate child and legal wife
B. X and Two only because they are the ones
designated as beneficiaries.
C. Child Two only because he is the only one
qualified.
D. X, Child One and Two.
Ans1: Child no. Two only can claim from an
insured. X is disqualified because they are guilty of
adultery hence prohibited from becoming beneficiary
of each other. Child no. Two is the only beneficiary
that is qualified. Contract of Insurance is personal in
nature. Only contracting parties are bound. But No.
Two is a person in whose favor rights are granted
pursuant to the contract of insurance. The entire
amount given to him.
PERFECTION OF CONTRACTS BY
CORRESPONDENCE
Facts: A applies for an insurance with X Insurer.
The application was filed on August 18. The
application was sent on a snail mail. On August 28, it
was received and accepted by the insurer. The
acceptance was communicated through Snail Mail.
The mail reached the residence of A on Sept. 8.
Before Sept. 8, A dies. He did not learn anymore of
the acceptance because he already died at the time
of the notice of acceptance was received.
Q: If premiums were paid at the time of application,
but acceptance did not reach the beneficiaries. Can
the beneficiaries recover from the insurer?
A: No. There was no perfection of contract. Because
the insured never knew that it was accepted by the
insurer. He died before he can even learn about the
acceptance. Since the contract was not perfected,
hence, beneficiaries cannot recover from the insurer.
Note: One of the main distinctions between the Civil
Code and the Code of Commerce concerning
commercial transactions, in the Civil Code, we follow
the Theory of Cognition. In the Code of Commerce,
we follow the Theory of Manifestation. In the Civil
Code, the acceptance of the offer will only bind the
offeror, once the offeror learns of the acceptance. As
distinguished from Code of Commerce, in the Theory
of Manifestation, a contract is perfected by
correspondence by the manifestation made
regarding the acceptance.
Insurance Contracts are not governed by the Code
of Commerce. They are mainly governed by Special
Laws and in default, Civil Code.
PRINCIPLE OF SUBROGATION
When one steps into the smelly shoes of another.
This is applicable to insurance. If an insurer pays
and loss is because of an act of tortfeasor. The
insurer will be subrogated to the insured by reason of
the payment that is made by the insurer.
Example: Here is A who owns a motor vehicle. The
motor vehicle of A is insured by X insurer. It was
comprehensively insured. A was driving but because
of B’s recklessness, there was an accident that
caused damage to A’s vehicle.
Options of A: To go after B. Because B was the
cause of the damage sustained by A. But why bother
going after B if in the first place, you are insured.
Claim from your insurer! A filed a claim from his
insurer, X. X paid A. Let us say that the damage is
300k. If X paid A, 300,00, X as insurer will be
subrogated and will now have the right to claim
against B or run after him for the loss.
Note: Subrogation is a Civil Law concept, you do not
see that in the Insurance Code, but just the same,
we apply this concept, for purposes of determining
the rights and obligations of the parties in a contract
of insurance.
RAMIFICATIONS REGARDING SUBROGATION
1. The right of subrogation exists by operation
of law which means parties need not provide
in a contract of insurance. The insurer is
entitled to subrogation.
2. Subrogation is applicable in connection with
insurances covering properties, or
insurances covering risks or NON-LIFE
insurances. But subrogation does not exist in
case of life insurance.
Example: A owns a motor vehicle and insures it with
X insurer. A also insures his own life with insurer B.
So, there are 2 insurances already. If by reason of
negligence of another person causing vehicular
collision causing damage to car and death of A,
beneficiaries can now claim for benefits of insurance
over the car and the life of insured A. If the insurer
paid, only the insurer of the car may go against the
tortfeasor. But the insurance covering the life, the
liability cannot be subrogated. because the
insurance covering the life, the liability of the insurer
as far as the life insurance is concerned is arising
from the contract and not the tort committed.
This means that the insurer should pay the
beneficiaries simply because there is an agreement
between the insurer and the insured that in the event
that the insured died, the insurer must pay the
beneficiaries. it is not really the act or tort of another
person.
Example: insured paid the insurer 5M to insure his
life. In case the insured died, the insurer cannot go
against or run after the insurer for the 5M. That is not
covered by the concept of subrogation because in
the first place, the reason why the insurer pays the
beneficiaries 5M is because of the contractual
stipulation. That is different from property insurance,
insofar as the insurance over the vehicle is
concerned, you can directly say that the loss is
arising from the negligent act of the tortfeasor, that is
why there is the right of subrogation.
3. Insurer must pay beneficiaries in case of
death of injured. But not because of the
actions of another person. There is
 contractual stipulation between them.
VIDEO 2 STARTS HERE
SUBROGATION
➢ Operates by operation of law, by payment of
insurer to the insured and applies if it is a
non-life insurance because if we were
dealing with life insurance, subrogation is not
applicable
➢ Take note of the Right of the insurer to be
subrogated will not be applicable if the
insurer makes a voluntary payment.
➢ If the risk is not covered by policy, but if the
insurer makes payment, there is voluntary
payment.
➢ Insurer cannot exercise subrogation when by
the act of the insured himself, the insured
releases the tortfeasor from any liability.
ILLUSTRATION: A is driving a motor vehicle which
is insured. By B’s negligent acts, there was a
vehicular collision causing damage to the vehicle of
A. Since the vehicle of A is insured, the option on the
part of A is to recover from his insurer. But let us say
that when A confronted B about the incident, they
discussed the matters concerning the liability of B. A
forgave B and stated “Don’t worry about it anymore. I
am releasing you from liability.” A thinks that
because he is injured, he can go after his insurer. If
insurer paid A, the insurer now goes after B, and B
raises the defense that he was forgiven by A. Insurer
cannot demand the money from B.
➢ A has already condoned B, and released B
of his liability. The insurer can no longer run
after B. Because there is no longer a right of
subrogation. It is UNFAIR. Hence, the
insurer's remedy is to claim reimbursement
from A as it was A who defeated the
insurer’s right of subrogation. Since A
defeated the right of the insurer to
subrogate, A cannot anymore claim from the
insurer. A is to reimburse the payment given
to him.
➢ The decision of being subrogated or not lies
solely on the insurer.
Example: the insurer paid the insured 20K by way of
an insurance claim. That 20k can be recovered by
the insurer from the person who caused the loss by
reason of the exercise of the right of subrogation. But
let’s say that the insurer in weighing the pros and
cons of its actions has determined that if the insurer
will exercise the right of subrogation, then it will be
spending more for its lawyers to handle the case and
run after the tortfeasor. in which case, it may decide
not to exercise the right of subrogation, and that is
perfectly within the decision and the discretion on the
part of the insurer.
INTERPRETATION OF INSURANCE
CONTRACTS (Civil Code)
➢ These rules may not necessarily be found in
the Insurance Code, but even if they are not
found, the reference would be whatever is
the rule on interpretation of our Civil Code.
➢ The basic rule is that if the insurance
contract is clear, there is no room for
interpretation, we must follow what is written
in the contract.
➢ If it is plainly stated, then that is the one to
be followed.
➢ If the contract is unclear, ambiguous, then
there is a room for interpretation.
Q: What is the rule on interpreting insurance
contracts?
A: The Civil Code provides that if there is an
ambiguity in the contract, then, the party who caused
the ambiguity shall be bearing whatever is the
interpretation against him will be the interpretation of
that particular contract.
Any person who caused the ambiguity, the ambiguity
shall be resolved against him.
An insurance contract is basically one which is a
contract of adhesion.
➢ It is a Contract of Adhesion: It is the insurer
who dictates the terms of the contract. The
insured just agrees with the terms. He does
not have enough room for negotiations
because these are already pre-determined
by the insurer. Any ambiguity in an
insurance contract shall be resolved strictly
against the insurer.
FINEPRINT RULE:
- took its name from fine prints in the contract.
Those which are inserted in little fonts or
text.
- Are works of the insurer. The insurer is
expectedly enjoying the services of lawyers.
- If there is ambiguity in the contract, the
insurer has no one to blame but itself.
- Any ambiguity shall be resolved strictly
against the insurer and liberally in favor of
the insured. (This is a rule on interpretation)
THE CONTRACT OF INSURANCE ITSELF
Based on the Insurance Code
WHAT MAY BE INSURED?
Proper subject may be referring to loss (life,
property), or damage, or those allied to life such as
health, body parts, it can also be property, or risks
regarding creation of liability.
Elements:
A. Cost
B. Object
C. Consideration
D. Risk distribution
E. Insurable interest.
Q: WHO MAY BE INSURED?
A: Parties in a contract of Insurance
- Anyone can be an insurer
- Anyone who wants to be an insurer must
follow the requirements under the law
➢ INSURER: one who wants to be in a
legitimate business insurance must comply
with the requirements of law, and INSURED
WHO MAY NOT BE INSURED?
A: Public Enemies. Anyone, except public enemies
may be insured.
● Public Enemies: a person or a citizen or subject
of a country which is at war with the Philippines.
- Right now we are not in a state of war.
Even if a person can be insured, it does not mean
that he will be insured. We made mention before that
a contract of insurance is voluntary in nature. Even if
a person is insurable, he cannot compel an insurer to
accept him as an insured.
Q1: Do you need to be the owner of a property to
be able to insure it?
A1: No. You do not need to be an owner. For as long
as you will suffer a pecuniary loss from a loss,
destruction or deterioration of that property, then
there is an interest in insuring that property.
Note: That a contract of insurance is for
indemnification or designed to indemnify. The person
who can take the insurance is one who will suffer a
loss arising from the loss, destruction or deterioration
of a thing.
Ask yourself If you will suffer a pecuniary loss when
the property gets destroyed or damaged. If yes, then
you have an insurable interest in the property.
Q2: Can you insure the properties of your
parents? If their properties get damaged, will you
suffer damage?
A2: No. Your parents will pay for it. Even if you will
inherit it, the thought of inheriting in the future is a
merely and purely inchoate right.
Q3: In a Creditor-debtor relationship, the debtor
has interest in his property of course but can the
creditor insure the property of the debtor?
A3: No. The creditor does not suffer pecuniary
damage if debtor’s property gets damaged, unless
the property is used/constituted as a collateral for a
payment of an obligation to the creditor. The creditor
can insure the property of the debtor if that property
is a collateral. If that property is not constituted as a
collateral, the creditor has no reason to assert a right
over the property of the debtor.
INSURANCES TAKEN BY CREDITORS AND
DEBTORS or MORTGAGEES AND
MORTGAGORS
Ramifications of the set-up.
ILLUSTRATION 1: The loan is in the amount of 3
Million pesos. The creditor granted this to the debtor.
The debtor owns a building worth 10 million pesos.
Q1: Who can insure the building?
A1: The bldg. may be insured by the debtor by 10
million.
Q2: Can the creditor insure the property of the
debtor?
A2: No. The creditor cannot insure because it has no
right over that property of the debtor.
ILLUSTRATION 2: (continued from FACTS 1) The
debtor insured the bldg. for 10 million pesos. The
building gets lost by fire. Both the creditor and debtor
claim for the proceeds.
Q1: If you were the insurer, to whom would you give
the proceeds?
A1: Give the proceeds to the debtor because he
insured the bldg. and he suffered damage or loss.
The creditor cannot claim because the contract is
personal in nature. You cannot give any claim to the
creditor.
Q2: If the bldg. is constituted as a collateral and the
debtor executes a real estate mortgage in favor of
the creditor. The debtor can insure the amount for 10
million. Who can insure the building?
A2: the may continue to insure that building in the
amount of Php 10M (his interest over the building)
Q: Can the creditor insure the building?
A: Yes. The creditor can NOW insure the building,
because he has an interest over the building. The
destruction will imperil the payment of the obligation
to him. He can directly claim that he has interest over
that building. He can insure up to 3 million pesos (his
interest over the loan he granted to debtor).
Q3: What if the debtor took an insurance covering
his building used as collateral and loss takes place
with both claiming for proceeds? If you were the
insurer to whom would you give the proceeds?
A3: The debtor will be given 1(0) million pesos.
Because the debtor is the insured and he suffered
the loss. The creditor cannot claim because it is
personal in nature (contract of insurance). It was the
debtor who took out the insurance.
Q4: What if it is the creditor who took an insurance
for the bldg.? Assume that the creditor was able to
insure the bldg. for 10 million pesos and loss takes
place as property gets destroyed. To whom will we
give the proceeds and how much?
A4: The creditor gets the claim as the contract of
insurance (COI) is personal in nature. It is the
creditor who insured and suffered a loss. But only
give to the creditor 3 million, as COI is for
indemnification purposes. His interest is only 3
million even if he was able to insure the 10 million
pesos. He only suffered loss up to the extent of
Php3M.
Q5: If the Insurer of the creditor paid the creditor 3
million, is the loan extinguished?
A5: No. It is the insurer who paid the creditor. There
is a right of subrogation. Insurer will run after the
debtor for the payment of the obligation. Hence, the
loan is not extinguished.
Q6: (Same Facts) Creditor granted a loan in favor of
a debtor to secure the obligation, the debtor
executes a real estate mortgage. Both the creditor
and debtor have insurance or a right. If it was the
debtor who took the insurance, but the peculiarity is
that in that insurance, the debtor makes the loss
payable to the creditor. What would be the
consequence?
A6: Sections 8 & 9 of the INSURANCE Code.
Mortgagor makes it payable to the mortgagee.
"Section 8. 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 a mortgagee, the insurance is deemed
to be upon the interest of the mortgagor, who does
not cease to be a party to the original contract, and
any act of his, prior to the loss, which would
otherwise avoid the insurance, will have the same
effect, although the property is in the hands of the
mortgagee, but any act which, under the contract of
insurance, is to be performed by the mortgagor, may
be performed by the mortgagee therein named, with
the same effect as if it had been performed by the
mortgagor.
"Section 9. If an insurer assents to the transfer of an
insurance from a mortgagor to a mortgagee, and, at
the time of his assent, imposes further obligations on
the assignee, making a new contract with him, the
acts of the mortgagor cannot affect the rights of said
assignee.
Example: Property gets destroyed by fire. To
whom is an insurer obligated to give the
proceeds? Will we give the amount to the
creditor?
A: Yes. Give him the amount of 3 million
pesos. Why? He is not a party to this
contract, why would you give it to him?
Ordinarily, only parties are bound by the COI
unless there is a stipulation in favor of a third
person. The insurer and the insured agreed
that the creditor is given rights to claim from
the insurer directly.
Q7: What is the consequence/effect of the payment
made by the insurer of the debtor to the creditor.
A7: Payment made by the insurer of the debtor to
the mortgagor will extinguish the obligation. The
contract of insurance is still for the benefit of the
mortgagor. Yes, the laws was made in favor of the
mortgagee but the fact remains that this contract of
insurance taken by mortgagor is for his own benefit.
That is the reason why the payment being made in
favor of the creditor shall result to the extinguishment
of the obligation. Q: Does that mean that the debtor
is still entitled to claim to the insurer notwithstanding
the loss payable clause? YES. Hence, regarding the
10 million insurance, the debtor/mortgagor can claim
the 7 million balance of the proceeds because a
contract of insurance is for his benefit. Since the
subject of insurance is for 10 million and the creditor
only claimed 3 million, the debtor or mortgagor may
claim the balance of 7 million pesos.
Q8: What if the debtor or mortgagor did an act that
violated the Insurance policy? If the insurer says it
will not pay the insurer? Or there is a breach of
policy because of less fire extinguishers. Is the
insurer liable?
A8: No. Insurer is not liable for the benefit taken by
the mortgagor. Mortgagor continues to be a party in
insurance. Any act will produce the avoidance of the
insurer. Any act of mortgagor or debtor that resulted
in breach of obligation will result in the insurer not
being liable.
Q9: What if before the loss has taken place, the
creditor already saw that the debtor is supposed to
place 5 fire extinguishers. There were no funds
accordingly by the debtor, so the creditor funds the 5
fire extinguishers. Mortgagee placed the fire
extinguishers. Insurer now says that he will not pay
the creditor and claims that it is the debtor who is
supposed to put the fire extinguishers. (Sabi daw ni
INSURER: contract is clear, it is supposed to be the
debtor who placed the extinguishers.. not liable daw
siya..)
Arguments:
Creditor: Insurer the debtor may not have placed the
5 fire extinguishers but I did. Therefore, you are
supposed to be liable.
Insure: Creditor, this contract is clear, it is supposed
to be the debtor who will place the 5 fire
extinguishers and he never did. You, creditor, placed
the 5 fire extinguishers, not the debtor. Therefore,
applying the contract itself, the debtor was not able
to fulfill its obligation. Therefore, I'm not liable to
you.
Q: Who is correct? Is the insurer liable?
A9: Yes. The insurer is liable. Section 8, when a
mortgagor takes an insurance over a mortgaged
property, and makes the loss in favor of the
mortgagee, the contract is still for the benefit of
mortgagor, he continues to be party to that contract,
any act of him that can cause the avoidance of the
policy will produce the effect of avoidance but any
act that is required to be done by mortgagor may be
done by mortgagee and will produce same effect as
if it were done by the mortgagor. The Mortgagee is
correct that the insurer should be liable.
VIDEO 3 STARTS HERE
LOSS PAYABLE CLAUSE
Recall: Parties to the contract of insurance that could
be taken separately by mortgagors and mortgages.
Situation: If an owner wants to take insurance for his
property- he can validly do that. But-
Q: Can a creditor insure the property of the debtor?
Is there any legal reason for a creditor to be able to
insure the property of a debtor?
A: The mere creditor-debtor relationship would not
vest upon the creditor the right to insure a property of
a debtor because the creditor has no interest over
the property of the debtor; because even if a
particular property of the debtor would be lost or
destroyed or damaged, the creditor will not directly
incur immediate damage as his right over the debt
subsists. The creditor can still claim from the debtor.
● However, it is different if the property serves
as a collateral for the payment of an
obligation i.e. subject of a real estate
mortgage in favor of a creditor. This time, the
creditor now has a claim —the property
serves as a security for payment of the
obligation or the loan.
NB: The mortgagor owner of the property
has his own interest in order to take an
insurance. The mortgagee-creditor must also
have separate interest over the property that
serves as collateral. In this case, they can
take separate insurances over the property.
The consequence of this, particularly if the creditor
makes an insurance for the property and that
property gets destroyed, is what would happen the
creditor can claim from this insurer.
Q: What happens to the debt or obligation?
A: The obligation is not extinguished as the insurer of
the creditor can exercise his right of subrogation and
claim from the debtor.
Loss Payable Clause
● If the debtor took an insurance covering his
property— he can claim from the insurer in
case of loss/compensation. The creditor
cannot claim in cases of those entered into
by the debtor in case it does not have any
interest over the property as a contract of
insurance is personal in nature.
● There is a possibility that the debtor would
take an insurance covering property and yet
 make the loss payable to the debtor.
● Under Section 8, mortgagor of property
takes an insurance in his own name BUT
makes the loss payable to the mortgagee, or
assigns a policy of insurance to the
mortgagee.
2 possible scenarios in loss payable clause after
mortgagor takes an insurance:
1. Makes the loss payable in favor of
mortgagee
2. The mortgagor assigns the policy of
insurance in favor of the mortgagee
Section 8: The insurance is deemed to be upon
the interest of the mortgagor, who does not
cease to be a party to the original contract.
● The insurance is deemed to be upon the
interest of the mortgagor, who does not
cease to be a party to the original contract.
Consequence: the insurance is for the benefit or
interest of the mortgagor and he does not cease to
be a party to that contract.
Situation: If a mortgagor takes an insurance covering
a property, and assigns the policy in favor of the
mortgagee. Notwithstanding assignment, the
mortgagor is still a party to the contract. He still
remains to have an interest in the contract.
Possible Argument: The mortgagor does not have
claims from proceeds of insurance because he
already assigned the policy of the contract in favor of
the mortgagee. THIS IS NOT CORRECT.
The mortgagor remains to be a party to the contract
because the contract is for his interest.
Situation: A creditor grants a loan in favor of the
debtor. The loan is for an amount of 5 million. To
secure an obligation, the debtor executes a Real
Estate Mortgage (REM) so that his property worth 10
million will serve as collateral covering the property
and then assigns the policy in favor of the
mortgagee.
Q1: If loss takes place, what is the consequence?
A1: The mortgagee, although not a party to the
contract of insurance, can directly claim from the
insurer because there is a stipulation in the policy
that affords him a right—which entitles him as third
person(mortgagee) to directly claim from the insurer?
Q2: What if the insurer pays the mortgagee? What
happens to the obligation?
A2: Insurance is extinguished. Because insurance
is for the interest of mortgagor. Hence, the payment
by the insurer inures to the benefit of the mortgagor.
Since the mortgagee will be able to claim from the
insurer directly, the mortgagee can claim from the
insurer 5 million which is the amount of the loss
sustained by it given that a contract of insurance is
for indemnification. The claim is limited to 5 million.
Q3: The insurance for 10 million, the mortgagee is
only able to claim 5 million. What happens to the
other 5 million as the insurance is for the amount of
10 million?
A3: The 5 million can be claimed by the mortgagor.
The mortgagor- because he continues or remains to
be a party to the contract and it is deemed to be for
his own benefit. Even if the mortgagor has assigned
the policy, he still has rights over that insurance.
EFFECTS OF LOST PAYABLE (Sec. 8)
Any act of his, prior to the loss, which would
otherwise avoid the insurance, will have the same
effect, although the property is in the hand of the
mortgagee.
Illustration: If it so happens that the mortgagor gets
insurance covering his property and makes the loss
in favor of the mortgagee. Then, the mortgagor
violated the terms of the contract of insurance. Even
if he has assigned the policy in favor of the
mortgagee, his act of violating the contract will
produce the effect of avoidance, hence, the insurer
can deny liability. It does not matter if the property is
in the hands of the mortgagee. The contract is for the
benefit of the mortgagor.
● But any act which, under the contract of
insurance, is to be performed by the
mortgagor, may be performed by the
mortgagee therein named, with the same
effect as if it had been performed by the
mortgagor.
● Even if policy specifically requires that it
must be done by a mortgagor, that can be
done by the mortgagee.
UNION MORTGAGE CLAUSE
Section 9: If an insurer assents to the transfer of
an insurance from a mortgagor to a mortgagee,
and, at the time of his assent, imposes further
obligations on the assignee, making a new
contract with him, the acts of the mortgagor
cannot affect the rights of said assignee.
V. Loss payable clause
2 possible scenarios in loss payable clause
after mortgagor takes an insurance:
a. Makes the loss payable in favor of
mortgagee
b. The mortgagor assigns the policy of
insurance in favor of the mortgagee
**either way, Section 8 shall govern
● Under Section 9, there is also transfer or
assignment. Thus, an insurer “assents to the
transfer of insurance from a mortgagor to a
mortgagee”. The transfer is in the contract of
an assignment. Here, the mortgagor also
assigns the policy in favor of the mortgagee.
But the mere assignment does not make it
fall under Section 9 alone because
assignment per se is governed by Section 8.
● But, here in section 9, Insurer imposes additional
obligations on the mortgagee→ a new contract is
entered into by the parties.
● In Civil law, this is like in the context of
novation hence, there is a new contract
between insurer and mortgagee. Logically, if
there is a new contract, the mortgagor is no
longer a party to the assignment, hence, the
mortgagor cannot affect the rights of the
mortgagee.
MORTGAGEE-INSURER CONTACT
Situation: Here comes a debtor taking an insurance
covering his property. The property is used to secure
the obligation in favor of a creditor. The debtor
assigns the policy in favor of a mortgagee. Here, we
have a loss payable clause in favor of the
mortgagee. When the insurer agrees to the
assignment of the policy in favor of the mortgagee,
the insurer says to the mortgagee that he is obliged
to comply with the following requirements: 1. You are
supposed to give an additional premium; 2) Follow
the following conditions, etc. The mortgagee then
agrees. The mortgagee and insurer now enter into a
new contract. LOSS now takes place. Insurer denies
liability on ground that the mortgagor violated terms
of insurance.
Q: Assuming that the mortgagor really violated the
terms of contract, is the insurer liable to the
mortgagee?
A: Yes. The act of mortgagor cannot affect the rights
of the mortgagee. This is governed by Section 9.
Hence, know the applicable provision.
TAKE NOTE:
1. Rule accordingly on what is applicable
2. The assent is not the operative act to fall
under Section 8 or 9. The operative act to
make it fall under section 9 are the
impositions of new obligations upon the
mortgagee.
❖ Practical applications of Section 8 and 9:
Example: If one wants to take a housing loan. You
decided to take a loan, borrowed from a bank for the
construction of a house. Bank checks credit
worthiness. If a housing loan is approved, the bank
requires you to take fire insurance and a life
insurance. Along with these could be real estate
mortgages covering houses. The fire insurance will
be used so that in the event that there is fire—the
bank will have a loss payable clause so that the bank
can claim directly from the insurer whatever the
amount of the unpaid obligation.
Another insurance required is life insurance—a bank
will also require a loss payable clause so that the
bank can claim from the insurer also. In commercial
situations, MRI or mortgage redemption insurance
contains loss payable clause so that in the event of
death, the bank will be paid.
VIDEO 3 ENDS HERE
INSURABLE INTEREST (Session 5)
In General, there are 2 major kinds of insurance, to
wit:
1. Insurance over life
2. Insurance over property
DEFINITION
It is the reason or foundation why a person takes an
insurance. It could be a legal reason (e.g. Insurance
over property, not founded on legal basis in life
insurance)
INSURABLE INTEREST IN LIFE
Need not be founded on a strict legal basis as it may
be moral in nature. Do you have either a legal or
moral reason why you want life to be protected? Why
do you want to take an insurance over the life of
another person? There must be an underlying basis
why one wants to insure the life of a person.
WHO CAN BE INSURED
Section 10: Every person has an insurable interest in
the life and health:
(a) of himself, of his spouse and of his children;
(b) of any person on whom he depends wholly
or in part for education or support, or in
whom he has a pecuniary interest;
ILLUSTRATION: You are interested in protecting
your own life; hence, you can take an insurance for
your life. Also, a person is interested in protecting the
life of his/her spouse (as a general rule). We are
interested in protecting the life of our children, be it
legitimate or illegitimate. One can also insure the life
of his/her benefactor (a person who sends allowance
for sustenance). A creditor can also insure the life of
his debtor because it has pecuniary interest over the
life of the debtor.
Section 10: Every person has an insurable interest in
the life and health:
(a) xxx
(b) xxx
(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.
Instances:
1. An employer can insure the life of his
employees because the employer relies on
the rendition of service of the employee, and
death of the employee might delay the
performance of the service.
2. If you are person who commissions an artist
to do a work for another, the person who
commissioned may now insure the life of
that artist
3. a talent manager can insure the lives of his
actors/actresses who are under his contract
as a talent manager.
4. In a boxing match—boxers are interested in
protecting the life of each other.
5. X in his will said that in the case of my death,
my property shall be inherited by Y. Y is
allowed to make use of the property as long
as Z is alive. Y’s use of property is
dependent on the life of Z. Hence, Y can
insure the life of Z.
Q: Are the instances above an exclusive list?
A: No. Insurable interest on life need not be founded
on a strict legal basis. Hence, you can identify other
persons who have insurable interest to include.
Q1: You are now gainfully employed. Can you insure
the life of your parents?
A1: Yes. Because you have the moral obligation to
secure the life of your parents. Most authorities in
insurance law have argued that parties who are
already engaged, not yet married, can insure the life
of each other. There is a basis in protecting each
other-definite commitment to marry each other.
Q2: Can you insure the life of your bf/gf?
A2: That itself is not sufficient as a basis for
purposes of getting an insurance. It is not yet enough
to vest insurable interest. Engagement will. But a
mere bf/gf relationship will not suffice.

Q3:Gray area: What if you are living in? You are
cohabiting without marriage? Can you insure?
A3: Sir’s thought: I do not think this may vest
insurable interest over the life of another. Even if you
are already cohabiting, it is still something that is not
sufficient to vest as an insurable interest… it is
temporary.. no real commitment. But if there is the
commitment to marry, there can be an insurable
interest.
Q4: You have already cohabiting for quite a while
and already have children but did not decide to
marry yet (you do not believe in marriage). Will that
vest insurable interest over the life of another?
A4/Sir’s opinion: Yes. There is an insurable interest.
If you have been cohabiting for a significant and
have children, you already have a moral obligation to
protect the life of your partner, as a parent of your
children, and even your children.
Main point: Section 10 is not exclusive.
Q5: Who must possess insurable interest over life
insurance?
A5: A person who takes interest or insurance over
the life of another has insurable interest.
Q6: Will a professor/lecturer have insurable
interest/moral reason to insure the life of its
students?
A6: No. There is no insurable interest.
Q7: What if I took an insurance for my student’s life
even if no insurable
interest?
A7: Contract of insurance is void.
Basi rule: the person who is insuring the life of
another should have insurable interest over
persons it is insuring.
Q8: What about the beneficiaries? Should they have
insurable interest over the life being insured? For
example, you insure your own life (you have interest
over your life) If you decided to name me (sir) as
your beneficiary, is this valid?
A8: Yes. This is valid. A beneficiary need not
possess insurable interest over the life being
insured.
Exception (Art. 739): You cannot name as
a beneficiary those persons enumerated
under the law.
But as a general rule, anyone can be a
beneficiary.
Q9: What is the extent of the insurable interest in
life?
A9: It is immeasurable. There is no ceiling. There is
no monetary value for life because life is priceless.
As long as one is capable of paying a premium.
WHEN SHOULD THE INSURABLE INTEREST BE
POSSESSED?
It must be possessed or required to exist only at the
time the contract takes effect. It need not exist
thereafter.
Illustration 1: An employer insures the life of an
employee. In the policy over the life of an employee,
it is the employer who is the beneficiary. The
employee resigned, and after sometime died.
Q: Can the employer claim the proceeds of
insurance?
A: Yes. Because insurable interest in life only needs
to exist at the time the contract takes effect. It need
not exist thereafter.
Illustration 2: Husband insures the life of the wife.
The husband is named as beneficiary. Subsequently,
the parties had a decree of annulment. After
annulment has been ordained and marriage is
annulled. Wife dies after.
Q: Can the husband claim the proceeds of the
insurance?
A: yes. Because at the time the contract took effect,
there was an insurable interest.
Illustration 3: X is sending Y to school. Y is
dependent upon X for his schooling. Y insured the
life of X. Y has already graduated and gainfully
employed when X died.
Q: Can Y still get the proceeds of insurance?
A: Yes. Because insurable interest in life needs to
exist only at the time the contract takes effect. It
need not exist thereafter.
Illustration 4 (Exemption): Creditor insures the life
of the debtor. The indebtedness by the debtor is in
the amount of 5 million. The debtor has already paid
the obligation. After paying the obligation, the debtor
died.
]Q: Can the creditor claim proceeds of insurance?
A: No. This is an exception! In a creditor-debtor
relationship, the main interest of creditor in insuring
the interest of debtor is because of pecuniary interest
over the debtor; that is why it has interest in
protecting the life of debtor. But if the obligation or
pecuniary interest has already been satisfied,
there is no reason for the creditor to protect the
life of debtor.
If a creditor wants to protect the life of debtor, since
the interest of creditor is pecuniary, the creditor can
only insure the life of the debtor up to a certain
amount or extent of the obligation. This is an
exception to the instance that an insurable interest in
life has no ceiling.
INSURABLE INTEREST IN PROPERTY
Section 13: 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.
● Anyone has an insurable interest in property
who derives a benefit from its existence or
would suffer loss from its destruction.
● The test is “will a person be suffering
pecuniary damage by reason of loss,
destruction, or deterioration of the thing”?
● Test: Will the person be benefitted by the
property’s continued existence, or will he
suffer a direct pecuniary loss by its
destruction? If yes, there is an insurable
interest.
How do you know if you have insurable interest
in property?
1. Ownership
Q1: Should you be the owner to have insurable
interest over the property?
A1: No. As long as you will suffer pecuniary damage
by reason of loss, destruction, or deterioration of the
thing, you can claim insurable interest.
Q2: If you are a lessee, do you have insurable
interest over the property leased to you? If there is
loss?
A2: Yes. If monthly rental is 100,000 and you are
supposed to give 30,000 advance payment. In case
there is loss, you as the lessee suffers pecuniary
interest. Hence, lessees have insurable interest over
the property rented.
Mortgagee can insure the property mortgaged to
him
Q3: Can a child insure the property of his parents?
Will the destruction of a parent's property result in
pecuniary damage to the child?
A3: Children may not have an insurable interest as
the destruction of things of parents will not
necessarily result in pecuniary loss on children. A
mere expectation of inheritance is just expectation
and may not even arise.
Q4: If I want to take an insurance concerning my pet,
how do we classify it?
A4(sir’s thought): Insurance covering pets is
more of an insurance over a property and not as
insurance over life. Life refers to the life and health of
a person. Pets are considered properties here in the
Philippines.
Q5: If your pet dies, will you suffer pecuniary loss?
A5: Yes. Can have insurable interest. Can insure pet
as to the value of the pet. One cannot claim that
he/she suffers emotional damage, in case of pet
insurance.
HOW MUCH IS THE INSURABLE INTEREST
OVER PROPERTY
A: The amount for which a person should be
damnified! The amount of pecuniary loss that will be
sustained by a person by reason of destruction or
deterioration.
● Sentimental values are not regarded for
purposes of insurance. We consider
pecuniary values. Prove the pecuniary loss
in case of loss, destruction of deterioration.
The purpose of Contract of Insurance is to
indemnify
● If you have a property but your property is
not susceptible to destruction, there is a
great likelihood that you cannot claim
insurance over your property.
HOW MUCH IS THE INSURANCE INTEREST
OVER PROPERTY
BOTH the insured and the beneficiary should have
insurable interest. (Note: In insurance over life, only
the insurer should have insurable interest)
Q1: What if the insured has no insurable interest but
the beneficiary has insurable interest or vice-versa?
What is the effect?
Situation 1: You are inspired by the property of your
neighbor, by his house. You took an insurance
covering that neighbor’s house. You named yourself
as the beneficiary. House gets destroyed. You are
claiming from the insurer: Is the insurer liable?
A1: No. You do not have insurable interest. You
cannot take an insurance covering it. There is
nothing for you to be damnified. You cannot claim.
Situation 2: You are inspired by the property of your
neighbor, by his house. You took an insurance
covering that neighbor’s house. You named your
neighbor as your beneficiary. (Galit sa pera, wala
kang mapaglagyan ng pera mo ). If the house gets
destroyed, can you or your neighbor claim insurance
proceeds over the interest?
A2: No. You cannot claim. You don’t have an
insurable interest. There is nothing for you to be
damnified. Your neighbor cannot claim proceeds as
the insurance is void. It was taken by a property that
has no insurable interest.
Here, the beneficiary has insurable interest but the
one who took the insurance(you) has no insurable
interest.
Situation 3: You said to your neighbor that you are
so inspired by his house, that you think it is lovely.
Neighbor tells you that he is taking an insurance, and
is thinking of naming YOU as the beneficiary. Hence,
he takes an insurance covering his house and
names you as his beneficiary. The situation here is
“the one who takes an insurance has an insurable
interest but the beneficiary (YOU) designated has no
insurable interest. What is the effect?
A3: Note that in the insurance code, BOTH the
insured and the beneficiary should have insurable
interest. Hence, if one does not have insurable
interest, the designation of the beneficiary is
unenforceable. The contract itself remains to be
valid. Hence, here, if loss takes place, “You” cannot
claim because there is no insurable interest. But the
neighbor can claim because as if there was no
beneficiary designated, hence, he can claim the
proceeds.
WHEN SHOULD THE INSURABLE INTEREST BE
POSSESSED?
● In insurance over life, insurable interest
needs to be possessed at the time the
contract takes effect, and need not exist
thereafter.
● In insurance over property, insurable interest
needs to exist both at the time the contract
takes effect, and at the time of the loss
although it need not exist in the meantime.
● The possession of insurable interest is not a
continuing requirement.
Illustration 1: X is the owner of a house. X takes an
insurance over the house as the owner. X sold the
house to Y. After selling the house to Y, the property
gets destroyed. Who between X and Y could claim
from the insurer?
A: X cannot claim from the insurer, because he does
not have insurable interest at the time of the loss. Y,
the buyer, cannot also claim the proceeds of
insurance, as he is not a party to the contract of
insurance, he is not even insured.
NB: Insurance is a separate property apart from the
property subject insurance. The sale of a property
does not necessarily involve the transfer of interest
in the insurance contract.
Illustration 2: X is the owner of a house. X takes an
insurance over the house as the owner. After
insuring the house, X sells the house to Y. Y is now
the owner. After selling, X wants to buy back his
house. (nalaman niya lang yung value nung wala na
daw kasi yung house, may hugot). Y said for the
right price, he will sell the property. X bought back
the property. For some unfortunate reason, there
was a fire that destroyed the house. Can X claim
proceeds of insurance?
A: X can claim the proceeds over an insurance.
Because he had insurable interest both at the time
the contract took effect, and at the time of the loss,
although in the meantime he lost the insurable
interest when he sold the property. But since he
regained back the insurable interest, at the moment
of loss, he can claim from the insurer.
Matters to think about: What if there was a change
in the nature of the insurable interest. What if a
person insures property. At the time he insured the
property, he was the owner. He subsequently sold
the property. After selling the property, the one who
brought the property told the previous owner to lend
him a certain amount. The seller agreed with the
condition that there should be security. Borrower
agrees by executing a real estate mortgage over the
property he bought. (Hence, the seller regained
insurable interest as a mortgagee). Suppose at that
time, the loss takes place. Can he recover?
Or on the reverse, at the time when a person insured
a property, he was a mortgagee. For failure of
mortgagor to pay the obligation, mortgagee
foreclosed the mortgage and for failure to redeem,
the mortgagee was able to consolidate his
ownership of the property. Now, he is the owner.
Can he claim the proceeds of insurance?
Q; When X sold the house to Y, what happened to
the policy? Is the policy avoided? Is it nullified,
canceled?
A: No. Policy is not avoided, canceled, or nullified. It
is also not valid. The subject of insurance is on a
property of which a person no longer has insurable
interest.
GENERAL RULE: The policy at that time is
suspended. Hence, if loss takes place at the time the
policy is suspended, the insured cannot take claims
of proceeds over the proceeds over a policy that is
suspended
CONCEALMENT
● Uberri Mae Fidae-both parties are required
to comply with duty to disclose
● Either party must disclose a certain set of
facts regarding matters that are to be
disclosed.
● Facts within the knowledge to disclose,
hence, there are devices such as
Concealment, Representation and
Warranties—to help one disclose
● CONCEALER: Failure or neglect to
communicate a fact he is supposed to
communicate when such is within his
knowledge.
Example: A partner knows that he is very sick at the
time of getting insurance and did not disclose it to
the insurer.
● In representation, the insured makes a
collateral statement of facts designed for the
insurer to enter into the contract of
insurance.
● The insurer makes collateral statements or
inducements so that the insured will agree to
enter into a contract.
Example: If I own a property, I tell the insurer that my
property is always guarded (hence, there is less
chance that it will be destroyed by fire). Or it is not
used for industrial purposes, although commercial
purposes. With these, insurers may be induced to
enter into the insurance. These are collateral
inducements. They are not written in the contract.
● Note, if inducement is part of a contract or
carried in the policy itself, it becomes a
warranty. Insured is warranting that his
property is always guarded.
● Warranty is of a heavier weight than that of a
representation.
➔ CONCEALMENT-“may alam ka na
dapat malaman ni insurer, hindi mo
sinabi, that is concealment.”
➔ REPRESENTATION-“May alam ka,
sinabi mo kay insurer ang isang
purpose so that the insurer will
agree to accept you as a risk”.
➔ WARRANTY- “Si insurer, he
received the information said that it
be included in the policy, warranty
yan.”
● In all these instances, it involves knowledge
of facts, communicating of certain facts,
miscommunication of facts.
● If in reality, my property is not guarded by 5
guards- MISREPRESENTATION yan. That
is a breach of warranty, a violation of Uberri
Mae Fidae. Note: Parties should comply with
duty to each other in good faith.
❖ CONCEALMENT- Failure or neglect to
communicate that which he knows but fails
to communicate. That which a party knows.
❖ it doesn’t matter whether or not there is
intentional or unintentional communication
❖ That which a party knows. There must be
knowledge. If no knowledge of facts, there is
no power to communicate such facts. Before
you can reveal something, you must know
something about it. If you don’t know about
it, you cannot be guilty of concealment.
Examples:
1. You do not know every time if you are
feeling sick. You may have manifestations,
but some may ignore it.
2. You are sick but you don’t know the sickness
you have. If you don’t reveal that you are
sick, you may be liable for concealment. But
if what you revealed is that you are always
having headaches, but you did not know that
you have a brain tumor—you did not
withhold anything—this was something not
known to you. Hence, you cannot be
charged with concealment.
3. You didn’t know you have AIDS. You cannot
reveal if you do not know that you are sick.
SITUATION: What if X applied for a life insurance on
August 1. At that time he applied for insurance, he
was never hospitalized for any serious ailment.
Application for insurance was sent on August 1 and
received by the insurer on August 10. On August 15,
X was hospitalized for serious ailment. On August
20, insurance was approved by the insurer—
communicated to insured X.
Q: If prior to August 20, X never communicated to
the insurer that he was hospitalized, is he guilty of
concealment? When do we test the existence of
knowledge/reference points?
A: At the time when the contract takes effect. In our
problem, the test of knowledge is when the insurer
accepted the application and when communicated to
X. Hence, X is guilty of concealment. Because he
had knowledge on August 20. There was neglect to
communicate. We communicate facts that we know.
Q: What id FACTS which a party knows turn out to
be FALSE? Is that still a fact that needs to be
communicated?
Illustration: X was diagnosed of having AIDS. Sa
sobrang pagkagulat, kumuha agad siya ng insurance
and never revealed that he has AIDS. After his
application was approved, he was not convinced that
he was sick. He had a second opinion which turned
out negative. Para sure, nagpa final test siya—he
was not really sick of AIDS. (Here, what he knew at
the time he applied for insurance is false)If X died,
insurer now denies liability such that X committed
concealment, which turned out to be false.
Q: Suppose that he never revealed his diagnosis of
AIDS, is he still guilty of concealment?
A: We test the knowledge of facts at the time the
contract takes effect.
NO CLEAR CUT ANSWER TO THIS!!
Some argue that there was concealment. Some say
that he is not guilty of concealment. Sir believes that
he is not guilty because he must know facts, which
are true. if they are not true, they are false OR
FALSITIES. How could one be guilty when that fact
is false. (OPEN TO POSSIBLE DEBATES)
❖ Concealment is failure to communicate that
which a party knows and ought to
communicate. The facts should be
communicated.
HOW WOULD YOU KNOW THAT
FACTS ARE TO BE
COMMUNICATED?
Dangerous preposition: All facts known to the
insured should be communicated. Virtually
impossible.
Q: How can a person reveal all the things that she
knows to an insurer? What should be revealed?
Certain facts that a person needs to reveal. When it
comes to the insured, there are 3 categories of facts:
A. Facts that need to be disclosed even if not
asked
B. Facts that need to be disclosed only when
asked
C. Facts that need that do not need to be disclosed
even if asked. (even if there is wrongful
revelation of facts→ there is still no
concealment)
WHAT ARE THE FACTS THAT NEED TO BE
DISCLOSED EVEN IF THEY ARE NOT ASKED?
A: Section 28 of INSURANCE CODE:
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.
1. Within your knowledge as an insured
2. Material to the risk (sec. 31)
3. You do not make any warranty out of those
facts
4. Insurer has no means of ascertaining the
facts.
Material to the Risk (Section 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.
In short, a fact is material if:
1. If it will affect the decision of insurer WON to
accept the risk; or
2. If it will not affect the acceptance or non-
acceptance, will it affect the decision to
determine the premium (to increase or
decrease)
Q1: In life insurance, is the state of health material?
A1: Yes. Of course. Hence, there is a need to reveal
knowledge of facts. Kung nahospitalize ka na, may
nararamdaman kang sakit, the law requires us to
reveal these facts.
● If you were to take insurance and you know
that you were diagnosed of hypertension,
diabetes, one must disclose all of this.
Q2: Is age material?
A2: Of course, it is. It may affect the determination of
your premium.
Example: An 80 yr old person goes to you to ask for
insurance.
Q: Would you impose a premium versus a 20-yr old
one?
A: No. Of course, magkaiba ang premium niyan.
“Age matters especially in insurance”. Hindi age
doesn’t matter.
Q3: What about sex (not the number of times) but
the gender. Is biological gender material whether
Female or Male or what? What if for example, a
person has changed his/her gender? Is it still
relevant to know the original sex? If such is not
revealed, is this concealment???? With how the laws
are crafted now, if a transwoman never disclosed
that she is born male, will she be guilty of
concealment?
A3: Sir’s answer: Is that material to the risk
involved? Your biological gender? I think it is
material to the risk. There are some risks that are
faced by males, and by females. We have different
life insurance for both. It may also affect the
determination of premium (separately and
differently).
Gender is a material aspect. I think it is proven by
science naman that there are types of ailments
where men are more prone to, and where women
are more prone to din. From my limited perspective,
GENDER IS something material. Magkaiba ang risks
ng babae at lalaki.
FINAL ANSWER ni sir: If a transwoman never
disclosed that she is born male, she will be guilty of
concealment. In the future, there is a need for future
legislation regarding these matters.

Q4: The fact that a woman is pregnant? Is that
material? For example, A applied for an insurance,
she never revealed that she was pregnant (maliit pa
kasi tiyan, naparami lang ng kain). She was able to
safely deliver, no complications. After giving birth,
she died because of an accident. Beneficiaries were
claiming for proceeds. Insurer knew that she never
disclosed her pregnancy. Can the insurance deny
her claims on the ground of concealment?
A4: Yes. Although the death was caused by accident
but not by pregnancy, the insurer can still invoke
concealment. There need not be any connection
between the fact concealed, and the reason for the
loss. If there is concealment, there is concealment.
There is no need to connect the fact concealed and
reason of loss.
Q5: is that not unfair—that there is no more
connection between the cause of the loss and fact
concealed and still is guilty of concealment?
A5: Yes. Actually, it is fair. The essence of material
fact is it affects the decision of the insurer WON to
accept the risk. If it affects the decision of insurer
concerning the acceptance of the risk, then one
essential element of a contract has been vitiated—
CONSENT has been vitiated. It affects the decision
to accept or not the risk.
● Moreover, a fact is material if it affects the
acceptance or non- acceptance, or will affect
the decision to determine the premium (to
increase or decrease). Premium is the
consideration in a contract of insurance. It
affects consideration which is a basic
element in a contract of insurance.
● Hence, either way, from the perspective of
CONSENT or consideration, essential
elements of a contract are affected—then
the insurer can still invoke the fact that there
was concealment even if there is no
connection between the fact concealed and
reason of loss.
● When a woman is pregnant, she faces all
kinds of risks. An insurer had it known that
the insurer was pregnant would have made
a different decision—he could have
accepted her as insured but with higher
premium—because of higher risks.
Q: Is your work as a lawyer material to the risk.
A: Yes. Ofc. We face more risks than other types of
professionals. We have seen in different occasions.
Totoo yan, Hindi ko kayo tinatakot. Katotohanan yan.
My suggestion is “do things professionally. Somehow
it will avoid the possibility of incurring personal harm
on your part”. Although we are really exposed to a
degree of risk. Ex. As compared to other types of
professions. We might be facing more risks than
them.
(One working student told sir, Sir alam mo kung
nakakamatay and mura, ilang beses ka ng namatay.
Kasi maraming bumagsak nung time na yun. E
marami daw minumura ako. Nung umalis ako sa
school, nagdadrive na ako, parating kumakabig sa
kanan. Nakakita ako ng talyer, pinark ko. Pagkakita
ko flat na flat na yung talyer.. halatang tinusok ng
concrete nail. I remembered it was the time we
released the grades. Kaya gusto kong kantiyawan si
Dean nuon, baka naman pwede tayong humingi ng
hazard pay)
Bottomline: Professions such as soldiers, law
enforcement officers have risks involved. If facts are
material to the risks, they are in your possession,
hence, you must disclose them. If we don’t disclose,
guilty of concealment.
● If facts are material to the risk and you know
of such facts, and the other party has no
means of ascertaining those facts because
they are in you possession or knowledge,
then you must disclose them. If don’t
disclose, guilty of concealment.
Section 30: Facts that need to be revealed only
when asked. (The facts that the other party knows
about them need not be disclosed. Notoriously
known. If president Duterte takes an insurance, I
don’t think that he needs to disclose that he is
president of the Philippines because other parties
know them already.
● Regarding the pandemic, the insurer is
expected to know that. If you belong to a
place where surges have been going on,
your insurer is expected to know them
because there is reasonable expectation that
the insurer is aware of what is happening.
SECTION 29: Neither party to a contract of
insurance is bound to communicate information of
the matters following, except in answer to the
inquiries of the other:
(a) Those which the other knows;
- Facts that are notoriously known: the other
party is in possession of them already.
(b) Those which, in the exercise of ordinary
care, the other ought to know, and of which
the former has no reason to suppose him
ignorant;
- if one is expected to know those facts. For
example, if you take an insurance right now.
You don’t have to reveal the fact that all of
us are facing a pandemic. Insurer is
expected to know that(yung mga may surge
ng cases). Insurer is aware of what is
happening. Cannot assume that they are
ignorant of facts.
Example: My property is located in Bocaue, known to be
filled with firecrackers, manufacturing firecrackers). If I
am engaged in the business of manufacturing products.
Expectations of having explosives→ It is safe to
assume that the insurer is not ignorant of those facts.
What about situations when fact is safely disclosed
in the newspaper. Can we safely assume that facts
are within the knowledge of the insurer? No. This is
not expected to be known. Ikaw ba nagbasa ng
diyaryo ngayon? The mere fact that it was put in the
newspaper is supposed to be known by everyone.
(c) Those of which the other waives
communication;
- It was expressly mentioned that the insurer
waives knowledge of those facts. But implied
waivers can take place. This happens if the
insurer fails to ask a question which he
should have asked when an answer was
given by the insured.
Example. Insurer asks the insured. Have you ever
been hospitalized for the past 3 years? Insured
answered “yes”. Insured never disclosed the serious
ailments to the insurer.
Q: Is the insured guilty of concealment?
A: No. There is a waiver of communication. When
the insured was asked and she answered yes to
being hospitalized, the expected behavior of the
insurer is to ask to specify the sickness or reasons
(further). Here, it was satisfied with the answer “yes”
by the insured. Hence, there is a waiver of
communication.
Q: What if in life insurance, the insurer waived
medical examination? Is there waiver of
communication regarding the state of health of the
insured?
A: No. It simply means waiver of the exam itself. It
does not result to waiver of communication! All the
more that the duty to disclose.
(d) Those which prove or tend to prove the
existence of a risk excluded by a warranty,
and which are not otherwise material; and
(e) Those which relate to a risk excepted
from the policy, and which are not otherwise
material.
Q: What are facts you do not need to disclose even
when asked, or even when revealed wrongly?
A: Section 35: Facts found in section 35 or matters of
judgment or opinion.
● There is no need to reveal them. When
asked about them and even if you wrongly
stated them, you cannot be guilty of
concealment. Ex. What is your opinion about
how many years you would live? (this is an
opinion)
Example: Rate yourself the state of your health from
1-10. This calls for opinion. But, facts regarding prior
hospitalization, sickness, diagnosis, treatment—
these need to be disclosed.
Example: Asked about your wife/husband… “Have
you or your spouse been hospitalized?” In so far as
your hospitalization history, those are facts you need
to disclose. But in so far as your spouse is
concerned, those are opinions, you may or may not
know that.
REPRESENTATION
A representation is a factual statement made by the
insured at the time of, or prior to, the issuance of the
policy, to give information to the insurer and
otherwise induce him to enter into the insurance
contract
● If you will notice, a representation is
basically a form of a collateral inducement
so that a party will be able to convince
another to enter into a contract of insurance.
Usually, it is the insured who makes the
collateral inducement so the insurer will be
willing to enter in that contract of insurance.
Please take note that a representation is a
collateral form of inducement because it is
not forming part of the contract itself. It is
made to induce but it does not form part of
the contract itself. Anything that a
prospective insured will say in order to
convince the insurer to accept that person as
a risk that is the idea of representation. So if
you consider that context if being a collateral
form of inducement, how can you collaterally
induce it?
● As earlier said it is made before or at the
time of the taking of a contract of insurance.
In representation, insured induces
something that would want the insurer to
agree to accept you as a risk.
Example: you represent that you have never been
hospitalized→ that is a form of inducement. Or in
property insurance you say that your property is only used
for residential purposes. That is a form of inducement. In
this situation, you're urging the insurer to tell him facts for
which he should be amenable to accept you as a risk. This
form of inducement may be oral or written. It may be in
writing, written in saliva, as long as it is to induce.
KINDS OF REPRESENTATIONS
a. Affirmative
b. Promissory
Q: How do you know if it is affirmative or
promissory?
A: If it relates to something that is true at the time the
contract takes effect then it is affirmative. It relates to
something that is true at the time the contract takes
effect. On the other hand, the name suggests,
promissory, you promise something if you represent
something that is required to be true on a future date
then that is a promissory representative.
Affirmative representation: I have 5 guards in the
insured property. You are stating that as a fact and it
is true at the time the contract takes effect, it means
that after the contract has taken effect, if you decide
to reduce the number of guards from five to four
only, you are not guilty of misrepresentation because
it was true at the time the contract took effect.
Considering that it is affirmative, you have complied
with your obligation. You have been faithful with your
duty to disclose.
On the other hand, you told the insurer, do not be worried
because my property will always be guarded by five
guards. That is a promissory representation because of the
nature of the representation that was made→you are
making a promise that your property will always be
guarded by five guards.
That implies that in the future if you reduce the
number of guards, you are guilty of
misrepresentation considering that you did not
comply with the promise made.
For instance, you tell the insurer don't worry because
my property will be guarded by five guards. Okay to
make sure that that is what you will do, let’s put it in
the contract. So it was placed on the contract. How
do you categorize that? Do you still categorize that
as a representation?
A: Not anymore since it is no longer a collateral form
of inducement. It became part of the contract and
therefore it is now considered as a warranty. No
longer a mere representation but a warranty.
Q: Now, what if I tell my insurer, don't worry about
my property being insured. My property is always
guarded by five guards. How do you characterize
that statement? Is that an affirmative representation
or is that a promissory representation? Is it
something that is required to be true at the time the
contract took place or is something to be true in the
future?
A: There is no problem in saying that that statement
is required to be true at the time the contract takes
effect but let’s see if it is something that is amounting
to a promise. Because if it is a promise, then there
must be faithful compliance with that representation
even in the future. That can be interpreted to mean
that the property has in the past been guarded by
five guards and it is guarded by five guards up to the
present.
What you are saying is true before and until now.
Others might be saying that is a promise saying that
the property will always be guarded by five guards.
Pag ganyan ang scenario, something is susceptible
of being interpreted as an affirmative representation
and as a promissory representation, how do you
treat that?
In case of doubt, we rule a representation to be
merely affirmative.
In the problem, it is capable of being interpreted as
both. Because of doubt whether or not it is either, we
rule that it is simply affirmative.
Q: Why assume it is affirmative and not promissory?
A: This is because promissory representations are
more onerous types of representations. A more
onerous type of representation is never presumed.
Because promissory representation are more
onerous types of representation as they are not
presumed. In the problem, we rule that the
representation is merely affirmative.
In interpreting a representation, the manner by which
we interpret this is in relation to how we interpret
contracts in general. The manner in which we
represent contracts will be the manner by which we
interpret the representations.
EFFECTS OF A REPRESENTATION
Q: Why do we have to know if a representation has
been made?
A: It is important to know if a representation has
been made for one, if it is an affirmative
representation, it should be true at the time the
contract takes effect. If it is a promissory, it should be
true on the day promised. If the factual
circumstances would not correspond to the truth as
promised or represented, then there is
misrepresentation.
Situation:: I say to my insurer “Insurer, I own a
vessel/ ship and I want to insure it. But I have a
problem now. My problem is I lack some members of
the crew. I have a ship captain, I have a sailing
mate, engineers, but one of my sailing mates is
absent. I lack a member of my crew. Can I still get
an insurance?”
What you are saying is “Insurer, here are the factual
circumstances in so far as my case is concerned. I
am letting you know because I have the duty to
disclose. I am obligated to let you know about this
since I have a duty to disclose, I am telling you that
my members of the crew are not complete. But if you
want, I would like to take an insurance with you.”
Insurer says “Okay. Just file your application and
you will be evaluated. Please also write what you
have mentioned now so that we can evaluate your
situation accordingly. Anyway, we will come up with
a proposal and let you know.”
Thereafter the insurer presents a proposal and
instructs you to read it carefully because the contract
will govern the transaction. It includes a provision
stating that the vessel should at all times be sea-
worthy. Sea-worthiness includes not only the
structure of the vessel but also the fact that the
vessel is properly manned, properly equipped and
provisioned.
Therefore, sea- worthiness will cover the presence
of all the members of the crew since it requires that
the vessel be properly manned. But when you were
reading the contract, you thought that it was okay
since you already made a representation to your
insurer that you lack some members of the crew and
notwithstanding that here is the contract stating that
the vessel should always be sea- worthy.
You agreed to the policy issued. You thought that it
was okay since you made a representation prior. So
what happened? The vessel sank. When the vessel
sank, you were demanding the insurance proceeds.
The insurer was denying the claim on the ground
that the vessel was not seaworthy because you lack
members of your crew. Is the insurer liable?
That is the importance of knowing the effects of
interpreting representations. Take note that
representations can qualify an implied warranty
but not express provisions in the contract.
Q: In our case, the requirement of seaworthiness,
what was it?
A: It was embodied in the contract itself. Because of
this, can the representation made by the insured
qualify the provision in the contract? No. It cannot.
The insurer is not liable because representations
can qualify implied warranties but not express
provisions of a contract.
Suppose that in that particular problem, the
requirement of seaworthiness was not embodied in
the contract. And so, when the loss took place, the
insured was claiming for the proceeds. The insured
still denies the claim on the ground that it was not
sea- worthy. Insured says that there was nothing in
the contract that speaks of seaworthiness. The
insurer says, yes, there may be nothing in our
contract which speaks of sea worthiness but this is
required in every type of marine insurance. Sea
worthiness is one of the implied warranties in
marine insurance; it is always implied in every
marine insurance that there is a warranty of
seaworthiness.
Going back to our problem, the insured makes a
representation saying that he lacks members of the
crew but he wants to obtain an insurance. The
insurer gave a policy which does not contain the
requirement of seaworthiness.
Q: Should the insured still comply with the
requirement of sea
worthiness?
A: Yes. Since sea worthiness is implied in every
marine insurance, the insured should comply with
that requirement.
Q: But the insured already made a representation
saying that he lacks members of the crew. Loss took
place and the insurer denied liability based on the
ground that the vessel was not seaworthy
considering the absence of members of the crew. Is
the insurer liable?
A: Yes, because the representation made by the
insured effectively qualified the implied warranty of
seaworthiness. In this problem, it was as if the
insured, who was taking a marine insurance, was
telling the insurer that it shall still comply with the
requirement of seaworthiness subject to the
qualification that It lack some members of my crew.
The representation of the insured has effectively
qualified the implied warranty.
Representations can qualify an implied warranty
but NOT an express provision in the contract.
EFFECTS OF MISREPRESENTATION
If there was a Material Misrepresentation, it entitles
the insurer to rescind or deny liability. A mere
misrepresentation will not suffice. It must be a
material misrepresentation.
In Concealment: if there is concealment, it entitles
the insurer to rescind or deny liability.
In Misrepresentation: if it is material, it shall also
entitle the insurer to rescind or deny liability. Whether
it is concealment or misrepresentation, the
consequence would lead to the insurer to rescind or
deny liability.
● The determination of materiality, in so far as
misrepresentation is concerned, is the same
with respect to the rule in concealment.
● Same tests are applied in determining the
materiality of a representation as well as in
the materiality of the fact that has been
concealed.
DISTINCTIONS
Concealment Misrepresentation
there was failure to there was a statement
disclose that was made, but the
statement did not
correspond to the truth
Will result to the insurer Will result to the insurer
being entitled to rescind being entitled to rescind
or deny liability or deny liability
RESCISSION
● Instances of rescission
● Time to rescind
● Failure to Rescind before Commencement of
Action
● Waiver of Right to Rescind
Q: If an insurer would like to exercise the right to
rescind by reason of concealment or material
misrepresentation, when should the insurer exercise
the right to rescind?
A: This right should be exercised prior to the
commencement of an action on the contract.
Q: X committed concealment or material
misrepresentation. Loss takes place. At the time
when the loss took place, can the insurer still
rescind?
A: Yes, for as long as there was no commencement
of an action on the contract.
Q: What if the insured already filed a claim with the
insurer? Can the insurer still rescind?
A: Yes, because there was no commencement of an
action on the contract. The mere filing of a claim with
an insurer is not considered as a commencement of
an action.
Q: When is there “Commencement of an action”?
A: Commencement of an action happens at the time
when an initiatory pleading is filed before a court or
body of competent jurisdiction.
Therefore, in the commencement of an action on the
contract, there must already be a complaint that is
filed before a court or before the insurance
commission. A mere claim with an insurer does not
amount to commencement of an action on the
contract.
Q: What if the insurer did not exercise the right to
rescind?
Note: In civil law, you have learned the
consequences of rescission and that in a rescission
there is mutual restitution. Since there is mutual
restitution, each party should give back or return
what has been received.
Q: The insurer did not exercise the right to rescind,
but he still denied the claim of the insured. Now the
insured files a complaint before the court or before
the insurance commissioner. Can the insurer still
make use of the defense of concealment or
misrepresentation?
A: Yes, it may. This is because the consequence of
concealment or misrepresentation entitles the insurer
to rescind or deny liability. If it wants to exercise the
right to rescind, it must be exercised prior to the
commencement of an action on the contract. If it
does not rescind prior to the commencement of an
action on the contract, it can still invoke the
concealment or representation as a defense.
● There are certain situations, however, that
will lead to an insurer being considered as
having waived the right to rescind.
INSTANCE/S WHEN THERE IS A WAIVER OF
RIGHT TO RESCIND
Notwithstanding knowledge of the fact that has been
misrepresented or concealed, an insurer continues
to receive premiums.
● It’s rather unfair for the insurer to profit from
the situation by continuing to regularly
receive premiums since he had
subsequently obtained knowledge of the
misrepresentation or concealment and when
the loss takes place, the insurer would
rescind. It is only proper that the insurer
should no longer be entitled to exercise the
right to rescind. Estoppel, in this instance,
can set in and shall be considered as a
waiver on the part of the insurer to rescind.
● There is another situation wherein despite
the concealment or a misrepresentation
having been committed, the insurer may no
longer exercise the right to rescind. This is
present in the situation if the policy has
already obtained incontestability.

INCONTESTABILITY
● In a policy of life insurance, that is made
payable at the moment of death of the
insured and the policy has been effective for
a period of at least 2 years, from the date of
its issue or of its last reinstatement, the
insurer can no longer make use of
concealment or misrepresentation.
REQUISITES OF INCONTESTABILITY.
1. It must be a life Insurance. You do not speak
of incontestability in Property Insurance.
You only speak of incontestability in Life
Insurance. It’s not only dealing with life
insurance, the proceeds should be payable
at the moment of death, therefore, Health
insurances are NOT protected by the
concept of incontestability.
2. The proceeds are made payable at the
moment of death, and
3. The policy has been effective for a period of
at least 2 years.
- By law, the policy had already
attained incontestability. If the policy
has attained incontestability, the
insurer can no longer rescind as a
consequence based on concealment
or misrepresentation.
● Take note of the reference point of the 2
year period, it is 2 years from the date of
its issue or from its last reinstatement in
cases of lapse policies
Example: Person committed concealment. He did
not reveal the fact that he was sick at the time that
he took an insurance contract. He paid the premiums
while the insurer did not know about the
concealment, but after 2 and a half years, he died.
The reason for his death was due to an ailment he
was suffering from. It was only at that time when the
insurer learned that the person was already sick at
the time of the taking of the contract of insurance
contract.
Q: Can the insurer still rescind?
A: No, the insurer cannot rescind anymore. The
policy had
already attained incontestability.
● The idea behind incontestability is that our
Insurance Law thinks that the 2-year period
is already enough for an insurer to verify the
truth or facts surrounding the circumstances
made or represented by the insured.
● Considering the network insurer being
possessed by insurers, in relation to how
they came up with certain information, the 2
year period is already deemed sufficient by
law for the insurer to ascertain the veracity of
the representations made by the insured.
● If the insurer will not rescind within the 2-
year period, then there could be no more
invocation of the right to rescind by reason of
concealment or misrepresentation.
● If you are dealing with Property insurance,
you do not speak of incontestability. There is
no incontestability in property insurance
unless the policy itself will provide for that
and therefore, it becomes contractual in
nature.
● By law, incontestability deals with Life
insurance and proceeds are payable at the
moment of death. This will also mean that if
the nature of your insurance is a health
insurance, by law we do not speak of
incontestability. If ever this has been
provided in the policy, that is by contract. It is
more of an ‘offshoot’ of a contract and not a
legal consequence.
Q: If the policy had already attained incontestability,
would this mean that the insurer no longer has a
defense?
A: No, that is not the consequence of incontestability.
In incontestability, what is gone is the defense or
right to rescind based concealment or
misrepresentation. But there are still available
defenses for as long as they are not grounded on
concealment or misrepresentation.
Example: If the defense is anchored on failure to pay
premium, the insurer would say “I am not liable
because insured did not pay premium”, it has
nothing to do with concealment or misrepresentation.
If the reason for the loss is an excluded risk, the
insured died by reason of drowning, the policy
speaks of exclusion due to death by drowning. If that
is the reason for the defense, it has nothing to do
with concealment or misrepresentation, and that can
be invoked by the insurer.
In other words, any defense which is not anchored
on concealment or misrepresentation, can still be
invoked.
Q: What if the insurer would claim the defense will
claim the defense that the insured committed fraud?
Can that be invoked?
A: In our laws, there are many types of fraud. For an
ordinary person, if you speak of fraud, it is nandaya,
mandayara ka. In law, we classify things.
❖ Simple fraud
- this is barred by incontestability; we do
not speak of incontestability in this instance
Example: Concealment- If you committed acts of
concealment, let’s say you were sick and you knew
of such fact but you did not disclose to your insurer,
that is actually fraud. There is some degree of fraud
there.
❖ Vicious fraud
- this is NOT barred by incontestability; the
insurer can still invoke the defense
Example: If a person who is healthy is substituted for
a person who is sick and applies for an insurance.
This was done so that the sick person’s insurance
would be approved during the moment of physical
examination. Kung titignan niyo diyan, ang tindi at
talagang plinano ang pandaraya, that is vicious
fraud. Since this instance involves vicious fraud and
it is something that cannot be accepted, even if there
was already incontestability of the policy, the insurer
can still deny liability.
WARRANTIES
In our previous discussion, we made mention of the
3 devices in an insurance contract designed for
purposes of compliance with the duty to disclose. We
mentioned them to be concealment, representation
and warranties.
Definition
● A Warranty is a written statement or
stipulation on the face of the contract itself,
or clearly incorporated therein as a part
thereof by proper words of reference,
whereby the insured expressly contracts as
to the existence of certain facts,
circumstances or conditions, the literal truth
of which is essential to the validity of the
contract of insurance
Important considerations about warranties
● Warranties are written statements or
stipulations found in the policy or in the
contract itself or incorporated by way of
reference.
● You can have a warranty that is specifically
mentioned in the contract itself and you can
also have a warranty which is incorporated
by reference to that particular policy.
● If it is forming part of the policy itself, then it
becomes part of the policy by way of explicit
statement. It may also become part of the
policy by way of reference.
● There are certain situations where the
parties agree on adding additional
stipulations, which may not be found in the
policy itself, but may be referred to by way of
reference. They can become an excess to
the contract for as long as they are
incorporated there as if they were made part
of the policy, then they become warranties.
In a warranty, the insured expressly contract as
to:
1. Existence of certain facts, circumstances or
conditions
Note: The literal truth is essential to the
validity of the contract of insurance.
Nature and Form
a. Part of the contract/ incorporated
● Warranties are part of the contracts
themselves or incorporated by way of
reference.
b. Written
● While the law mentions that there need not
be a prescribed form as to the statement of a
warranty or there is no particular form of
words necessary to create a warranty, it
does not mean that there could be verbal
warranties. Warranties are written
statements; they cannot be verbal.
● Unlike a representation which could be
written (they could also be written in saliva),
in a warranty, they are and must be written
statements.
c. May refer to the past, present or future
● Warranties may refer to the past, present or
future.
● If an insured would state a fact as to the
past, then that can serve as a warranty;
● A statement of what is true at the present,
that can be a warranty
● A statement of what may be true in the
future
Examples of facts which relate to the past:
1. My property has been used for residential
purposes
2. I have never hospitalized
3. I have never sick of a fatal ailment
Examples of facts which relate to the present:
1. My property is used for residential purposes
2. I am of sound mind
- A statement of what may be true in the
future
Examples of facts which relate to the future:
1. My property will always be used for
residential purposes
2. I cannot guarantee to my insurer that I will
always be of sound mind because there is
no way for me to ensure that. I cannot
mention to my insurer that I will always be of
perfect health because there is no way for
me to assure that, no matter how I may try to
protect my health. But if it relates to
something that I am assuring as true in the
future, then that can serve as a warranty.
Kinds
1. Affirmative
2. Promissory
❖ Just like in representation, they may be
affirmative or promissory, and it’s much the
same way as representations.
Example:
If the statement in the policy relates to something
that is present or existing as of the present, then it is
an affirmative warranty.
❖ It may be something that relates to that
which exists at or before the issuance of a
policy.
Example:
a. Affirmative warranty: My property has never
been leased to any other person
b. Promissory warranty: One in which the
insured undertakes that something shall be
done or omitted after the policy takes effect
and during its continuance. You are making
a promise or stating something that will be
true in the future.
c. Promissory warranty: A warranty that the
contract of the present lessees will not be
renewed after the current lease contract has
expired
❖ In case of doubt, the warranty shall be
construed to be merely affirmative.
EXPRESS WARRANTY
Are statements in a policy of a matter relating to a
person, thing or to the risk insured as a fact. In other
words, it is there written in the policy, contained in
the policy or incorporated by way of reference.
Example:
A statement in the policy that the insured will not
place flammable materials in the premises
IMPLIED WARRANTY
An agreement or stipulation that is not expressed in
the warranty but the existence of which is admitted
or presumed from the fact that the contract has been
executed
This is not inconsistent with the statement that
warranties should be explicitly stated or incorporated
by way of reference. You can infer or presume them
from the very fact that you execute that kind of
contract.
Ex. Implied warranties in marine insurance
● The most common kind of implied warranty
in marine insurance is the implied warranty
of seaworthiness.
● Sea worthiness is implied in every marine
insurance. When you take a marine
insurance, automatically, there is a warranty
or promise that there will be compliance with
the requirement of seaworthiness. Even if
you do not place that in the policy itself, by
the very fact that you are executing a marine
insurance contract over a vessel, that is
already an assurance to your insurer that
your vessel is seaworthy and you will be
complying with the implied warranty of
seaworthiness. Thus, this does not need to
be stipulated as it is already implied by the
very execution of that kind of contract.
Representation item (d) – The mere fact that a
representation turns out to be false, but without any
fraudulent intent on the part of the insured will not
cause the avoidance of that particular policy
Example-situation: You represented to your insurer
that you have been hospitalized for 6 or 7 times
already but it turns out that you have forgotten and it
was actually 8 times (but there was never an
intention to defraud). In reality, the representation is
not correct, you committed misrepresentation but it is
not intended to defraud, therefore it will not entitle
the insurer to the same. There will be no avoidance
in this instance.
Representation item (e) – Good faith is considered
because what you need to avoid in a policy is
material representation with intent to defraud.
Therefore if there is Good Faith, it shall be
considered.
EFFECTS OF BREACH OF WARRANTY
- The violation of a material warranty or other
material provision of a policy, on the part of
either party thereto, entitles the other to
rescind
EXCEPTIONS
Q; Are there situations where there is non-
performance of a promissory warranty, and yet it will
not cause the avoidance of the policy?
A; Yes. Seemingly the insured has not complied, but
notwithstanding the noncompliance, the insured may
be excused from the effects of the non-compliance.
There are situations like those.

Situation # 1:
If for example, before the time arrives for the
WARRANTY REPRESENTATION performance of a warranty relating to the future, a
loss insured against happens.
Part of the contract itself Mere collateral
inducements which are
Example: The warranty is that the insured will place
not part of the contract
at least 10 fire extinguishers within 1 month from the
issuance of the policy. This is a promissory warranty;
Must be strictly complied Substantial compliance
it relates to something that requires something to be
is enough
done in the future. 2 weeks later, the property was
destroyed by fire.
To avoid a contract, a The misrepresentation
mere falsity of a warranty should be made with
Q: Did the insured comply with the warranty?
is sufficient the intent to defraud
A: Not yet. However, the period for him to comply
Materiality is presumed It must be shown that it has not yet expired.
is material
Q: The loss has already taken place. What is the
Good faith is immaterial Good faith is consequence?
considered A: His non-compliance is excused. The insurer
cannot deny liability or rescind. This is an excusable
Non-fulfillment is a Misrepresentation situation. The period for him to comply is not yet
breach of contract amounts to fraud finished

Made only by the insured May be made by both Situation # 2:

(as to commission of a the insured and insurer Before the time arrives for the performance of a
breach of warranties) (as to warranty relating to the future, performance becomes
misrepresentations and unlawful at the place of the contract.
representations)
Example: The warranty is that the property shall only
be for residential purposes. At the time when the
contract took effect, the property was really being
Additional Discussion on distinctions: used for residential purposes. A zoning ordinance
Warranty item (c) - If you do not comply with the was executed, stating that all properties in the area
contract, the warranty, then there is a breach. shall be used only for industrial purposes.
Because in a warranty there must be literal
compliance The insured is now left with no other choice. In the
policy, it states that he shall use the property for
residential purposes and the zoning ordinance states
that these properties affected shall only be used for
industrial purposes.
Q: Insured used his property for industrial purposes.
Did he comply with his warranty?
A: No
Q: Is he excused for non-compliance?
A: Yes, because the performance of the warranty is
unlawful. If he continues to use the property for
residential purposes, that shall be unlawful.
Situation # 3:
Before the time arrives for the performance of a
warranty relating to the future, performance becomes
impossible.
Example: The warranty is that within a period of 1
month from the effectivity of the policy, the insured
will place at least 10 fire extinguishers of Brand X.
After 5 days, before the insured can even comply,
Brand X closed its operations and there are no more
Brand X extinguishers.The insured, for purposes of
substantial compliance, then placed 10 Brand Y
extinguishers.
Q: Did he comply with his warranty?
A: No, because his warranty is to 10 fire
extinguishers of Brand X. He committed a breach.
Q: Is his breach excused?
A: Yes, because compliance is impossible.
● Side note: Be careful when buying fake fire
extinguishers. Buy from reputable sources*
BREACH OF MATERIAL PROVISIONS
What if you committed a breach of warranty, but it
refers to something immaterial?
Take note that a policy may declare that a violation
of the provision shall avoid such policy; otherwise the
breach of an immaterial provision does not avoid
Rule: Ordinarily, a violation of an immaterial
provision does not avoid the policy. However, if the
parties so stipulate that such violation of such
immaterial provision would avoid the policy, then the
immaterial provision shall be converted into a
material one, in which case, the policy shall be
avoided
In other words, there is a possibility of converting a
non-material fact into something material. This is
done by making a warranty out of that fact.
● Testing the materiality is done in the same
manner in testing the materiality of
concealment or representation.
Example:The existence of another insurer in a Life
insurance
Q: Is it Material? (Use Test of materiality) Will it
affect the decision of an insurer to accept or not to
accept? Will it affect the decision of an insurer
concerning the determination of premium?
A: No. The existence of another insurer in a life
insurance is immaterial. This does not affect the
decision of the insurer as to the acceptance or not,
nor the decision of an insurer concerning the
determination of premium. Insurers make
independent judgments with regard to acceptance
and to the determination of premium. “Bandwagon
effect” does not apply.
● The fact that insurers make independent
judgments is applicable to life or property.
Even for property insurance, the existence of
another insurer in a life insurance is
immaterial.
Q: If you did not disclose the existence of another
insurer to the insurer, are you guilty of concealment?
A: No, that is immaterial.
Q: What if the policy states- that you have been
insured by another insurer, please disclose to us,
what or who are those other insurers and the extent
of their respective insurances or the risk that they are
covering? You did not disclose such information,
thus, you committed a breach. Will this entitle the
insured to rescind?
A: No. This is because it is immaterial.
● If the policy explicitly says that-if you had
been already insured, you are warranting
that you will disclose that fact to your insurer
and failure to disclose shall result in the
policy being avoided.
● The provision and warranty is supposed to
be immaterial BUT because you have
explicitly stated in the policy that failure to
disclose shall amount to the avoidance of
the policy, you have effectively converted an
immaterial provision into something material
by making a warranty out of that fact.
BREACH OF WARRANTY WITHOUT FRAUD
● If it existed or was committed at the
effectivity of the policy, it prevented the
policy from attaching to the risk; hence, the
insurer is not liable from the beginning
● If it occurred after the effectivity of the policy,
the insured is exempted from liability for
losses incurred after the breach.
Example: The warranty is to place at least 10 fire
extinguishers in the insured premises. Naturally, if
you warrant and placed at least 10 fire extinguishers
in the insured premises, you are ensuring that these
are all working.
● What happened was at the onset, you never
placed the fire extinguishers. Hence, a
breach of warranty without fraud has been
committed. This is because it does not
involve fraud; you just failed to place fire
extinguishers in the insured premises.
● As a consequence, this prevented the policy
from attaching; therefore, the insurer is not
liable from the beginning (there will be no
liability).
Q: What if, you placed at least 10 fire extinguishers
in the insured premises but partial loss took place
after 5 months. You filed a claim with your insurer.
While your claim was pending, partial loss took place
once again in the 6 month period. You filed another
claim with your insurer. During the investigation of
your claims, your insurer found out that one of your
fire extinguishers had already expired. This expired
after the occurrence of the first loss, but before the
occurrence of the second loss. What rule applies?
A: If the breach occurred after the effectivity of the
policy, the insured is exempted from liability for
losses incurred after the breach.
● Meaning, with respect to the first partial loss
that happened on the 5th month, the insurer
is liable. With respect to the second partial
loss that happened after the breach, there is
no more liability on the part of the insurer.
CONDITIONS IN INSURANCE
Conditions are events signifying either an
occurrence or non- occurrence that alters the
previously existing legal relations of the parties to the
contract
They may be of 2 kinds:
1. Conditions precedent; or
2. Conditions subsequent.
CONDITIONS PRECEDENT
● those which call for the happening of some
event or performance of some act before the
contract shall be binding on the parties
Example: The condition that the policy shall not take
effect until after payment of the first premium during
the good health of the insured.
Example: The condition states that the insured
should give notice to the insurer in case of loss. The
notice shall be done within 15 days after the
occurrence of such loss.
Situation: The insured never gave notice within 15
days of the occurrence of the loss. He took several
months, without valid reason, to give notice to the
insurer. Hence, the insurer may deny liability.
EXCEPTIONS IN INSURANCE
Exceptions are specific risks which are removed
from the general risks undertaken by the insurer. In
other words, they are risks which the insurer is not
willing to undertake
Example: If an insurance which was taken by an
insured concerns life, an insurer can actually
prescribe that certain types of risks may not be
involved or covered. The insurer may state that
death by drowning, death by assault on the part of
the person insured, death by violence means, etc.
may not be involved or covered. These are within the
discretion of the insurer to define. If the insured does
not agree to these statements, then he should not
accept the insurance. If it is, he should get the
insurance.
WARRANTIES V. CONDITIONS AND
EXCEPTIONS

This is because some may apply for insurance when

they are of good health. But in the interim, before WARRANTIES CONDITIONS EXCEPTIONS
their application is approved, they are diagnosed of a
particular ailment. Warranties Conditions Exceptions,
refer to refer to acts however, refer
At that time, no payment of premium was made. The statements as which are to be to the risks
policy was approved (this was after the diagnosis of a fact or done or not to which the
ailment) and the insured paid the premium. But the something to be done which insurer is not
insurer learned that even prior to that time, the be done or not would affect willing to
insured was diagnosed with an ailment. In this to be done or the effectivity undertake
particular instance, there was a violation of a not to be done of the policy.
condition precedent. which do not [Like the
affect the conditions
CONDITIONS SUBSEQUENT policy from precedent]
Those which pertain not to the attachment of the risk taking into
and the inception of the policy but to the contract effect;
itself after the attachment of the risk.
● These are different matters and serve
Example: Condition that in case of loss, the insured different purposes.
should give notice thereof to the insurer within 15 ● The breach in one will result in another
days after the occurrence of such loss probable consequence, but necessarily as to
the other.
● In condition precedent, it entails a situation
that will lead to the non-attachment of the ● These are the important considerations for
risk. Therefore, there can be no valid and warranties.
binding contract to speak of because of a
failure to comply with a condition precedent. Next session, we will be dealing with policies.
On the other hand, if it is a condition
subsequent, the contract/policy is already Recitation of Cases:
there and this has already become effective. 1. Insular Life v. Heirs of Alvarez
BUT there was non-compliance with a Misrepresentation: Fraud is not inherent. There is
condition that takes place AFTER the still a need to prove fraud and fraudulent intent.
occurrence of the risk. Here, there is DISCLOSURE. The question is, “is the
fact disclosed corresponding to the truth or not?
WARRANTIES V. CONDITIONS IN INSURANCE
Warranties do not affect the attachment of the risk. ● Moreover, in misrepresentation, the insurer
On the other hand, conditions precedent affect such is not entitled to rescission. The fraudulent
attachment. Violation of a warranty entitles the intent must be proved by clear and
insurer to rescind; while violation of a condition convincing evidence.
subsequent does not cause the rescission of a policy
but may result to a denial of insured’s claim. Concealment: Fraud is inherent. There is knowledge
of facts that must be communicated. The question is
“Was there disclosure? Is he/she supposed to
disclose? If yes, there is concealment.

● A single piece of evidence cannot establish

fraud. In the case, why did the insurers not
use Alvarez's application for insurance
where he put his birthdate? Why did they
merely rely on one document? They should
have looked at the other documents.

2. Manila Bankers v. Aban Discussion

Compare with CA v. Tan