INSURANCE NOTES

1. What are the requisites in order that a person may be insured in a

contract of insurance?
a) He must be competent to enter into a contract.
b) He must possess an insurable interest in the subject of insurance.
c) He must NOT be a public enemy.
2. Will any suretyship agreement amount to an insurance contract?
No. In order for a suretyship agreement to come under the purview of the
Insurance Code, the Surety undertaking to ensure the performance of the
obligations must be registered with the Insurance Commissioner and must have
been issued by the latter with a certificate of authority. Furthermore, the person
acting as a surety is habitually engaged as such for a livelihood.
Sec. 2 par 3 and SEC 177 ICP:
Section 2: It shall be deemed to be an insurance contract if made by a surety
who or which, as such, is doing an insurance business.
* Doing an insurance business or transacting an insurance business
"(1) Making or proposing to make, as insurer, any insurance contract;
"(2) Making or proposing to make, as surety, any contract of suretyship as a
vocation and not as merely incidental to any other legitimate business or activity
of the surety;
"(3) Doing any kind of business, including a reinsurance business, specifically
recognized as constituting the doing of an insurance business within the meaning
of this Code;
"(4) Doing or proposing to do any business in substance equivalent to any of the
foregoing in a manner designed to evade the provisions of this Code.
"In the application of the provisions of this Code, the fact that no profit is derived
from the making of insurance contracts, agreements or transactions or that no
separate or direct consideration is received therefor, shall not be deemed
conclusive to show that the making thereof does not constitute the doing or
transacting of an insurance business.
3. A, wanted to open a medicinal herb shop. He placed a long distance
phone call to Taiwan and talked to an exporter who willingly agreed to
consign several tons of ginsengs with him on the condition that he will
come and pick the goods up. A then sent 5 of his cargo vessels to Taiwan.
The ships left on August 9. On August 14, A insured the 5 vessels against
perils of the South China Sea “Lost or Not Lost” with B Insurance Co.
Without the knowledge of both parties, the ships had already sunk on Aug.
14. Is B Insurance Co. liable for the ships?
Yes.
Section 3. Any contingent or unknown event, whether past or future, which may
damnify a person having an insurable interest, or create a liability against him,
may be insured against, subject to the provisions of this chapter.
The contract is valid and B Insurance Co. is liable because he agreed to pay
even though the ship be already lost. An insurance against an unknown past
event is peculiar only to marine insurance.
4. A, B, C and D decided to join a bungee jumping competition. They
contributed P1,000 each to a fund available for the use of any member who
is injured in the contest. Is this insurance or gambling?
This is an insurance contract.
A contract of insurance is an agreement where one undertakes for a
consideration to indemnify another against loss, damage or liability arising from
an unknown or contingent event.
Each member contributes to a common fund, out of which one is reimbursed for
the losses that he may suffer.
Suppose A, B, C, and D agree that the whole amount of 4T would be given
to the one who swings nearest to the ground. Is this insurance or
gambling?
This is now a gambling contract.
In gambling, the parties contemplate a gain through mere chance or the
occurrence of a contingent event.
The parties are now contemplating a gain based upon uncertain events.
5. What is the effect of war on the existing insurance contracts between the
Philippines and a citizen or subject of a public enemy, with respect to
property insurance?
With respect to property insurance, the rule adopted in the Phil is that an
insurance policy ceases to be valid and enforceable as soon as the insured
becomes a public enemy.
6. What is the effect of war on the existing insurance contracts between the
Philippines and a citizen or subject of a public enemy, with respect to life
insurance?
Three doctrines have arisen.
(1) Connecticut Rule – there are two elements in the consideration for which the
annual premium is paid: a. The mere protection for the year; and b. The privilege
of renewing the contract for each succeeding year by paying the premium for that
year at the time agreed upon.
Accdg. to this view, the payments of the premiums are a condition precedent,
the non-performance of which (as when the performance would be illegal)
necessary defeats the right to renew the contract.
(2) New York Rule – apparently followed by the number of decisions. War
between the states in which the parties reside merely suspends the contracts of
life insurance and that upon the tender of premiums due by the insured or his
representatives after the war has terminated revives the contract which becomes
fully operative.
(3) US Rule – declared the contract not merely suspended but is abrogated
by reason of non-payment of premiums, since the time of the payment is
peculiarly of the essence of the contract. However, the insured is entitled to the
cash or reserve value of the policy (if any) which is the excess of the premiums
paid over the actual risk carried during the years when the policy had been in
force.
We follow the US Rule.
7. B is sideswiped by a balut vendor. Because he was previously indicted
for many other crimes including illegal possession of balisongs, he was
declared Metro Manila’s Public Enemy No.1. If A wants to secure insurance
on the life of B, may the insurer refuse on the grounds that B is a public
enemy and therefore may not be insured under Sec. 7 of the IC?
NO. Sec. 7 speaks of a public enemy only in reference to a nation with whom the
Phil is at war and every citizen and/or subject thereof.
8. Is it alright if both the mortgagor and the mortgage insure the same
property?
YES. The mortgagor and the mortgagee have each an insurable interest in
the property mortgaged, and this interest is separate and distinct from the
other. Consequently, insurance taken by one in his own name only and in
his favor alone does not inure to the benefit of the other. And in case both of
them take out separate insurance policies on the same property, or one policy
covering their respective interests, the same is not open to the objection that
there is double insurance.
9. A insured for 1M her house with the policy providing that the loss shall
be payable to B. The house was mortgaged to B as security for a loan of
P750T. It was totally destroyed by accidental fire. Who may recover on the
policy?
B, the mortgagee may receive the 1M but is entitled only to the extent of his
credit of P750T, and he shall hold as trustee for A, mortgagor, the excess of
P250T.
The rule is that, a policy with for an agreement that the loss shall be payable to
the mortgagee is valid, but limited only to the value of his interest as a creditor.
Supposing before the fire occurred B had already been paid, who, if at all,
will receive the proceeds?
A will receive the proceeds. The reason is that A effected the insurance in his
own name and he did NOT cease to be a party to the contract although it was
provided that the indemnity be paid to B.
Suppose it was B, mortgagee who insured the house for 1M. If the loss
occurred before B was paid who is entitled to receive the proceeds?
B. But B can only recover P750T, the amount of her credit.
The rule is that if the mortgagee is the one who secures an insurance over the
subject property, he shall be entitled to receive the proceeds equal to the amount
of the mortgage credit. Hence, B is entitled to receive the proceeds to the extent
of 750T.
What if the loss occurred after B was paid, can he still receive the
proceeds?
No. Upon payment of the debt, B lost his insurable interest in the property.
Will A get the proceeds?
No. Because A was never a party to the contract. It is important to note that it
was B, mortgagee who effected the insurance. Principle relativity.
10. Pao and Jane are husband and wife. Jef and Jojo are also husband and
wife. Jane engaged in adulterous relations with Van. Jef secured a life
insurance and named Jane as beneficiary. When Jef dies, who will get the
insurance proceeds?
Jane. The law prohibits the situation wherein a person who is forbidden from
receiving a donation under Art. 739 is named a beneficiary of a life insurance
policy by the person who cannot make any donation to him, according to said
article. In other words, notwithstanding the fact that Jane is guilty of adultery,
Jane can still be a beneficiary of Jef since the law provides that Jane cannot be a
beneficiary of a life insurance policy if the person who names her as beneficiary
is forbidden to give her a donation under Art. 739. Art. 739 is therefore not
applicable in the situation at bar.
11. Pao and Jane are husband and wife. Jef and Jojo are also husband and
wife. Jef and Pao become lovers. Jef thereafter secures a life insurance
policy and names Pao as his beneficiary. When Jef dies who will get the
insurance proceeds?
Pao. Since there is no law prohibiting Jef from donating to Pao, because both of
them are neither guilty of adultery nor concubinage, then the only solution to this
problem is to consider the designation of the beneficiary as a contract which is
valid and binding between the insurer and the insured.
12. B procured a life insurance in Jan 2000. He attested that he was in
good health which was true. Before 2000 ended, B defaulted in the payment
of the premium and thereafter the insurance company cancelled his policy.
In Mar 2001, B applied for the reinstatement of his life insurance policy
tendering the overdue amounts. As required, B submitted that a certificate
stating that he is still in good health. The truth however was that in Feb.
2001, B was diagnosed with cancer and only had 2 years to live. The
insurance was reinstated on April 2001. B died on Feb. 2003 and C, his
beneficiary filed a claim against the insurance company. The latter refused
claiming that B concealed the fact that he was afflicted with cancer. C
contends that the 2 years counting from Jan 2000 had already lapsed and
therefore the insurance company cannot contest the concealment made by
B. Is C correct?
No. Sec. 48 provides that the two years are counted from the time the date of its
issue or of its last reinstatement. Since the reinstatement was made in Apr.
2001, the counting of the two-year period should start from there. The
concealment that B made when he applied for the reinstatement is not
incontestable. The insurer is once again given two years from the date of
reinstatement to investigate the veracity of the facts represented by the insured
in the application for reinstatement. (Soliman v. US Life) Counting from Apr.
2001, it is approximately 1 year and 10 mos up until the death of B, and the
insurer can raise the defense of concealment.
Same facts. But instead, B died on December 2003. Is the answer still the
same?
This time, C can now collect from the insurance company. Since the date of
reinstatement was April 2001, and B died in December 2003, the two year period
has lapsed and the policy has become incontestable.