Distinguish insurable interest in property insurance from insurable interest in life
insurance
(1) In property insurance, the expectation of benefit must have a legal
basis. In life insurance, the expectation of benefit to be derived from
the continued existence of a life need not have any legal basis.
(2) In property insurance, the actual value of the interest therein is the
limit of the insurance that can validly be placed thereon. In life
insurance, there is no limit to the amount of insurance that may be
taken upon life.
(3) In property insurance, an interest insured must exist when the
insurance takes effect and when the loss occurs but need not exist in
the meantime. In life insurance, it is enough that insurable interest
exists at the time when the contract is made but it need not exist at the
time of loss.
May a member of the Moro Islamic Liberation Front (MILF) or its breakaway group,
the Abu Sayaf, be insured with a company licensed to do business under the
Insurance Code of the Philippines (PD 1460)? Explain.
A member of the MILF or the Abu Sayaf may be insured with a company
licensed to do business under the Insurance Code of the Philippines. What is
prohibited to be insured is a public enemy. A public enemy is a citizen or
national of a country with which the Philippines is at war. Such member of the
MILF or the Abu Sayaf is not a citizen or national of another country, but of the
Philippines.
BD has a bank deposit of half a million pesos. Since the limit of the insurance
coverage of the Philippine Deposit Insurance Corporation Act (RA 3591) is only one
tenth of BD’s deposit, he would like some protection for the excess by taking out an
insurance against all risks or contingencies of loss arising from any unsound or
unsafe banking practices including unforeseen adverse effects of the continuing crisis
involving the banking and financial sector in the Asian region. Does BD have an
insurable interest within the meaning of the Insurance Code of the Philippines (PD
1460)?
Yes. BD has insurable interest in his bank deposit. In case of loss of said
deposit, more particularly to the extent of the amount in excess of the limit
covered by the Philippine Deposit Insurance Corporation Act, BD will be
damnified. He will suffer pecuniary loss of Php 400,000.00, that is, his bank
deposit of half a million pesos minus Php 100,000.00 which is the maximum
amount recoverable from the PDIC.
Name at least three instances when an insured is entitled to a return of the premium
paid.
Three (3) instances when an insured is entitled to a return of the premium paid
are:
(1) To the whole premium, if no part of his interest to the thing insured be
exposed to any of the perils insured against.
(2) Where the insurance is made for a definite period of time and the
insured surrenders his policy, to such portion of the premium as
corresponds with the unexpired time at a pro rata rate, unless a short
period rate has been agreed upon and appears on the face of the
policy, after deducting from the whole premium any claim for loss or
damage under the policy which has previously accrued.
(3) When the contract is voidable on account of the fraud or
misrepresentation of the insurer or of his agent or on account of facts
the existence of which the insured was ignorant without his fault; or
when, by any default of the insured other than actual fraud, the insurer
never incurred any liability under the policy.
What warranties are implied in marine insurance?
The following warranties are implied in marine insurance:
(1) That the ship is seaworthy to make the voyage and/or to take in certain
cargoes;
(2) That the ship shall not deviate from the voyage insured;
(3) That the ship shall carry the necessary documents to show nationality
or neutrality and that it will not carry document which will cast
reasonable suspicion thereon;
(4) That the ship shall not carry contraband, especially if it is making a
voyage through belligerent waters.
IS, an elderly bachelor with no known relatives, obtained life insurance coverage for
Php 250,000.00 from Starbrite Insurance Corporation, an entity licensed to engage in
the insurable business under the Insurance Code of the Philippines (PD 1460). He
also insured his residential house for twice that amount with the same corporation. He
immediately assigned all his rights to the insurance coverage to BX, a friend-
companion living with him. Three years later, IS died in a fire that gutted his insured
house two days after he had sold it. There is no evidence of suicide or arson or
involvement of BX in these events. BX demanded payment of the insurance proceeds
from the two policies, the premium for which IS had been faithfully paying during all
the time he was alive. Starbrite refused payment, contending that BX had no
insurable interest and therefore was not entitled to receive the proceeds from IS’s
insurance coverage on his life and also on his property. Is Strabrite’s contention
valid? Explain.
Starbrite is correct with respect to the insurance coverage on the property of
IS. The beneficiary in the property insurance policy or the assignee thereof
must have insurable interest in the property insured. BX, a mere friend-
companion of IS, has no insurable interest in the residential house of IS. BX is
not entitled to receive the proceeds from IS’s insurance on his property.
As to the insurance coverage on the life of IS. BX is entitled to receive the
proceeds. There is no requirement that BX should have insurable interest in the
life of IS. It was IS himself who took the insurance on his own life.
A obtains a fire insurance on his house and as a generous gesture names his
neighbor as the beneficiary. If A’s house is destroyed by fire, can B successfully claim
against the policy?
No, in property insurance, the beneficiary must have insurable interest in the
property insured. (Sec. 18, Insurance Code). B does not have insurable interest
in the house insured.
A obtains insurance over his life and names his neighbor B the beneficiary because of
A’s secret love for B. If A dies, can B successfully claim against the policy?
Yes. In life insurance, it is not required that the beneficiary must have insurable
interest in the life of the insured. It was the insured himself who took the policy
on his own life.
Juan de la Cruz was issued Policy No. 888 of the Midland Life Insurance Co. On a
whole life plan for Php 20,000.00 on August 19, 1989. Juan de la Cruz is married to
Cynthia with whom he has three legitimate children. He. However, designated Purita,
his common-law wife, as the revocable beneficiary. Juan de la Cruz referred to Purita
in his application and policy as the legal wife.
Three years later, Juan de la Cruz died. Purita filed her claim for the proceeds of the
policy as the designated beneficiary therein. The widow, Cynthia, also filed a claim as
the legal wife. To whom should the proceeds of the insurance policy be awarded?
The proceeds of the insurance policy shall be awarded to the estate of Juan de
la Cruz. Purita, the common-law wife, is disqualified as the beneficiary of the
deceased because of illicit relation between the deceased and Purita, the
designated beneficiary. Due to such illicit relation, Purita cannot be a done of
the deceased. Hence, she cannot also be his beneficiary.
Renato was issued a life insurance policy on January 2, 1990. He concealed the fact
that three years prior to the issuance of his life insurance policy, he had been seeing
a doctor about his heart ailment.
On March 1, 1992, Renato died of heart failure. May the heirs file a claim on the
proceeds of the life insurance policy of Renato?
Yes. The life insurance policy in question was issued on January 2, 1990. More
than two (2) years had elapsed when Renato, the insured, died on March 1,
1992. The incontestability clause applies.
The assured answers “NO” to the question in the application for a life policy: “Are you
suffering from any form of heart illness?” In fact, the assured has been a heart patient
for many years. On September 7, 1991, the assured is killed in a plane crash. The
insurance company denies the claim for insuranceproceeds and returns the
premiums paid.
Is the decision of the insurance company justified?
Assuming that the incontestability clause does not apply because the policy
has not been in force for 2 years from the date of issue, during the lifetime of
the insured, the decision of the insurance company not to pay is justified.
There was fraudulent concealment. It is not material to the insured died of a
different cause than the fact concealed. The fact concealed, that is heart
ailment, is material to the determination by the insurance company whether or
not to accept the application for insurance and to require the medical
examination of the insured.
However, if the incontestability clause applies to the insurance policy covering
the life of the insured had been in force for 2 years from issuance thereof, the
insurance company would not be justified in denying the claim for the proceeds
of the insurance and in returning the premium paid. In that case, the insurer
cannot prove the policy void ab initio or rescindable by reason of fraudulent
concealment or mere misrepresentation of the insured.
Juan procured a “non-medical” life insurance from Good Life Insurance. He
designated his wife, Petra, as the beneficiary. Earlier, in his application in response to
the question as to whether or not he had ever been hospitalized, he answered in the
negative. He forgot to mention his confinement at the Kidney Hospital.

After Juan died in a plane crash, Petra filed a claim with Good Life. Discovering
Juan’s previous hospitalization, Good Life rejected Petra’s claim on the ground of
concealment and misrepresentation. Petra sued Good Life, invoking good faith on the
part of Juan.

Will Petra’s suit prosper? Explain.

No, Petra’s suit will not prosper (assuming that the policy of life insurance has
been in force for a period of less than two years from the date of its issue). The
matters which Juan failed to disclose were material and relevant to the
approval and issuance of the insurance policy. They would have affected Good
Life’s action on his application, either by approving it with the corresponding
adjustment for a higher premium or rejecting the same. Moreover, a disclosure
may have warranted a medical examination on Juan by Good Life in order for it
to reasonably assess the risk involved on accepting the application. In any
case, good faith is no defense in concealment. The waiver of a medical
examination in the “non-medical” life insurance from Good Life makes it even
more necessary that Juan supply complete information about his previous
hospitalization for such information constitutes an important factor which
Good Life takes into consideration in deciding whether to issue the policy or
not.

If the policy of life insurance has been in force for a period of two years or more
from the date of its issue (on which point the given facts are vague) then Good
Life can no longer prove that the policy is void ab initio or is rescindable by
reason of the fraudulent concealment or misrepresentation of Juan.