Q. What may insurable interest in property consist of? does not have existing interest on the property of UB.
n the property of UB. But does
A. "An insurable interest in property may consist in:
"(a) An existing interest;
"(b) An inchoate interest founded on an existing interest; or
“(c) An expectancy, coupled with an existing interest in that out of
which the expectancy arises."
Q. What is an inchoate interest? Give an example of insurable
inchoate interest.
A. Inchoate interest is an interest in real estate which is not a present
interest, but which may ripen into a vested estate, if not barred,
extinguished or divested. To constitute insurable interest, such
inchoate interest must be founded on an existing interest. Thus, a
stockholder in a corporation owning a ship, cargo, or other property,
while he has neither a legal title to the corporate property nor any
equitable thereto, has such right of a pecuniary nature growing out of
his situation as stockholder as will give him an insurable interest in
the corporate property to the extent of his shares.
EXAMPLE:
Randy Perez is the owner of 20%of the outstanding
capital stock of UB. UB is the owner of the building worth 200
Million pesos. Randy Perez insured the property of UB building
up to 40 Million pesos with Fortune Insurance company. Randy
Perez is not the owner of the property. The owner is UB ( a
corporation has a personality separate and distinct from the
stockholders and therefore the property of the corporation is
not the proeprty of the stock holder. In this case Randy Perez
he have an inchoate interest?
- YES, HE HAS AN INCHOATE INTERET, because when
the UB (Corporation) is dissolved he is entitled to a share in the
assets of UB after paying all the liabilities
- He will get 20% of the assets of UB upon dissolution.
Therefore he has an incomplete interest in the assets of UB to which
he will be entitled if it is not divested or it is not canceled.
Q. Can the Building of UB be attached to pay
Randy’s Liability?
- UBs property cannot be attach to satisfy the liability of a
stockholder beacause it has a personnality separate and
distinct from that of the stockholder and therefore the
property of a corporation is not the property of a
stockholder.
R. Is the fire insurance taken by Randy on UB’s
Property Valid?
- Randy may insure the property of UB because he has
an inchoate interest in the property of UB which is
founded on an existing interest . When UB is dissolved,
Randy may share in the net assets of UB in proportion
with his stock holdings
Q. When may expectancy be insured? Give examples.
A. Expectancy to be insurable must be coupled with an existing
interest or founded on an actual right to the thing, or upon any valid
contact for it otherwise, it does not constitute insurable interest.
EXAMPLE:
Lucio tan is the owner of the house in Forbes Park His
only son is Lucio Tan JR. When Lucio Tan dies. Lucio Tan JR
will inherit the house. But ( that is a mere expectancy. It is not
coupled with an existing interest. Therefore Lucio Tan insures
the house with Fortune Insurance Co.
- The insurance taken by the son on the property of his
father is not valid because he has a mere expectancy on such
property which is not coupled with an existing interest in that out of
which the expectancy arises.
Examples:
A son has no insurable interest in the property of his father,"
as his interest in such property is a mere expectancy not
founded on an actual right or valid contact for it.
The owner of a parcel of land has insurable interest on
expected crops even before they are sown.
The owner of ship has insurable interest on expected
freightage.
Q. Does a carrier or depositary have insurable interest in the
property under his custody?
A. Any person having custody of the property of another and
responsible for it may insure such property in his own name as he
may suffer pecuniary loss from its destruction or." damage. Thus a
"carrier or depositary has insurable interest in a thing held by him as
such, to the extent of his liability but not to exceed the value thereof.
Q. A person is engaged in the business of dyeing and washing
clothes. Question: Does he have insurable interest on the
clothes delivered to him for dyeing or washing?
A. Yes, because the destruction of the textiles will mean pecuniary
loss to him as he will be deprived of the compensation he would be
entitled to for dyeing the same, not to mention his pecuniary liability
for labor and expenses.
Q. What are the distinctions between insurable interest in life
insurance and insurable interest in property insurance?
A. Insurable interest in life and insurable interest in property may be
distinguished as follows:
1. Insurable interest in property is based on pecuniary interest, while
in life, the interest need not necessarily be strictly and exclusively a
pecuniary one, as in case of consanguinity or affinity.
2. In property insurance, the interest must exist at the time the policy
takes effect and at the time of the loss ; while in the life insurance,
interest need exist only at the time the insurance takes effect except
in life insurance taken by the creditor on the life of debtor wherein
interest must also exist at the time of the loss.
3. Insurable interest in property is limited to the actual value of the
damage the insured may suffer, while in life, there is no limit on the
amount of insurable interest unless it is based on creditor-debtor
relationship.
Q. What is the measure of indemnity in property insurance?

A. “The measure of an insurable interest in property is the extent to
which the insured might be damnified by loss or injury thereof.
Property insurance as a rule is a contract of indemnity and,
hence, the measure of insurable interest is the extent to which the
insured might be damnified by the loss or injury of the property
insured. Said principle, however, applies only to property insurance
and not to life insurance which is not regarded as a contract of
indemnity.
Q. Can a person without insurable interest on the property
insured enforce the insurance contract?
A. "No contract or policy of insurance on property shall be
enforceable except for the benefit of some person having an
insurable interest in the property insured."
The rule in property insurance as embodied in this section is
that the beneficiary therein must have insurable interest in the
property insured. A stranger having no insurable interest in the
property insured, could not, therefore, be made a beneficiary in a
policy covering the said property.
This principle, however, does not apply to a life insurance
wherein insurable interest on the part of the beneficiary is not
necessary.
It will be observed that this section did not declare the
property insurance
For the benefit of a person not having insurable interest therein as
invalid. However it could not be enforced by the designated
beneficiary.
Thus, suppose A, the owner of a building, insured the same
against fire and had the proceeds of the policy payable to B, a
person not having insurable interest on the policy insured. In case of
loss, B, could not enforce the policy since he had no insurable
interest in the property insured. But would that mean that the
insurance company could evade liability? It could not be the intention
of Section 18 to exempt the insurer from liability but merely prevent
recovery by a person not having insurable interest in the property
insured. In such case, the owner who insured the property should be
allowed to recover from the insurer as only the designation of B as
beneficiary should be considered unenforceable and not the entire
policy itself.
CHA VS. CA
Q. Spouses Nilo and Stella Cha entered into a contract of lease
with CKS which provided that the lessees "shall not insure
against fire the chattels, merchandise, textiles, goods and
effects placed at any stall or store or space in the leased
premises without first obtaining the written consent and
approval of the LESSOR. If the LESSEE obtain(s) the insurance
without the consent of the LESSOR then the policy is deemed
assigned and transferred to the LESSOR for its own benefit."
Notwithstanding the said stipulation, the Cha spouses insured
against fire the merchandise inside the leased premises for
P500,000 with United Insurance without the written consent of
CKS. On the day the lease was to expire, fire broke out inside
the leased premises and burned the insured merchandise.
When CKS learned of the insurance earlier procured by the Cha
spouses, it wrote the insurer a demand letter asking that the
proceeds of the insurance be paid directly to CKS, based on its
lease contract with the Cha spouses.
ISSUE: Question: Can CKS recover from the insurer the
proceeds of the insurance procured by Cha spouses?
Ruling: In Property INsurance, Insurable interest in the property
insured must exist at the time the insurance takes effect and at the
time the loss occurs. Whille in life insurance, it is ordinariily suffiicient
if an insurable interest exists at the inception of the contract except
when the lie insurance is procured by a creditor on the life of a
debtor. The distinction is based on the fact that property insurance is
a contract of indemnity, while life insurance is not.
A. CKS cannot recover. A non-life insurance policy Such as the fire
insurance policy taken by the Cha spouses over their merchandise is
a contract of indemnity.
Insurable interest in the property insured must exist at the
time the insurance takes effect and at the time the loss occurs.
The basis of such requirement of insurable interest in
property insured is based on sound public policy: to prevent a person
from taking out an insurance olicy on property upon which he has no
insurable interest and collecting the proceeds of said property in
case of loss.
In such a case, the contract of insurance is a mere wager
which is void. It cannot be denied that CKS has no insurable interest
in the goods and merchandise inside the leased premises.
Therefore, CKS cannot be a beneficiary of the fire insurance policy
taken by Cha spouses. The automatic assignment of the policy to
CKS under the provision of the lease contract is void for being
contrary to law and/or public policy. The proceeds of the fire
insurance policy thus rightfully belong to the spouses Cha.
The insurer cannot be compelled to pay the proceeds of the
fire insurance policy to a person (CKS) who has no insurable interest
in the property insured.
EXAMPLE:
R. . A is the owner of the house. He Insured that house with X
insurance company on Jan 15, 2012. A sold that house to B on
March 2, 2012. Then the house was burned
S. Can A recover from the insurer?
- A cannot recover from the insurer because he did not
have insurable interest in the house at the time of the loss and
therefore, he did not suffer any loss.
Q.. What happened to the policy ?
- The policy was suspended because the house insured
was transferred without corresponding transfer of the policy.
Q. What is the difference between a beneficiary in life insurance
and a beneficiary in property insurance?
A. The beneficiary in life insurance need not have insurable interest
in the life insured while the beneficiary in property insurance must
have insurable interest in the property insured.
EXAMPLE:
Derick is the boyfriend of Angelica. Derick obtained a
life insurance and designated his girlfriend as beneficiary.
Derick is also an owner of the house. He insured that house
with Y insurance company and likewise designated Angelica as
beneficiary. The house of Derick was burned which caused the
death of Derick.
Q. May Angelica recover from X Insurance company, the
insurer of the life of Derick? And Y insurance company
the insurer of the property or house of Derick.?
- Aneglica cannot recover from X Ins. Co.., the insurer of the
house of Derick because she did not have insurable interest
on the said house and therefore she could not be validly
designated as beneficiary in the insurance of the house of
Derick.
 - Angelica can recover from Y Ins. Co. The insurer of the life
of Derick even if she did not have insurable interest on the
life of Derick because the beneficiary in life insurance need
not have insurable interest on the life of the insured.
Q. As of what time must insurable interest in property exist?
A. In property insurance, an insurable interest must exist both at the
time of the effectivity of the contract and at the time of the loss, while
in life insurance, it is ordinarily sufficient if an insurable interest exists
at the inception of the contract except when the life insurance is
procured by a creditor on the life of a debtor. This distinction is based
on the fact that property insurance is a contract of indemnity, while
life insurance is not.
Q. Why must insurable interest in property exist at the time of
the effectivity of the contract and at the time of the loss?
A. Insurable interest at the time of the effectivity of the policy is
required to prevent speculative insurances which are against public
policy, "while insurable interest at the time of the loss, in case of
property insurance, is necessary because such kind of insurance is a
contract of indemnity and where the insured has no insurable interest
at the time of the loss, he does not suffer any damage for which he
should be indemnified.
Q. A insured his house for P1 million beginning January 1, 2006.
A sold the house to B for P1.5M on February 10, 2006 without
indorsing or transferring the fire insurance policy to B. On
March 20, 2006, the house was completely destroyed on
account of an accidental fire.
Question: Who can collect the proceeds of the policy from the
insurance company, A or B?
A. Neither A nor B may collect from the insurance company. A may
not collect because although he had insurable interest at the time the
insurance took effect, he did not have insurable interest at the time of
the loss, as he already sold the house. B may not also collect
because he did not have insurable interest at the time the policy took
effect although he had insurable interest at the time of the loss. Since
the transfer of the house to B did not include the transfer of the
policy, said policy is suspended.
Q. What is the consequence of the transfer of interest in the
thing insured unaccompanied by transfer of interest in the
policy? Why?
A. A "change of interest in any part of the thing insured accompanied
by a corresponding change of interest in the policy, suspends the
insurance to an equivalent extent, until the interest in the thing and
the interest in the insurance are vested in the same person. And
where a loss occurs during the period the policy is under suspension,
the insurer is not liable.
The obvious reason for such rule is that insurance is a
personal contract and while the insurer may be willing to insure the
property while owned by the insured, it may not be willing to insure
the same property if owned by another person.

Q. Mr. Simeon Garcia bought a house and lot from Mr. Sixto
Gatchalian. Receiving the agreed price, Mr. Gatchalian delivered
to Mr. Garcia the deed of sale, certificate of title, fire insurance
policy for the building, and other documents. The deed of sale
was registered and a new title was issued in the name of Mr.
Simeon Garcia, but no request was made for the transfer of the
fire insurance policy. After one month, the building was
destroyed by fire of accidental origin which razed the whole
block where the building was located. Question: Under the facts
enumerated above, who had the right to collect the value of the
policy?
A. No one may collect from the insurer because when Gatchalian
sold the house insured to Garcia without effecting the transfer of the
policy, the contract was thereby suspended and since the loss
occurred while the policy was suspended, the insurer was not liable.
Furthermore, an insurable interest must exist when the insurance
take effect and when the loss occurs and neither Garcia nor
Gatchalian had insurable interest both at the effectivity of the policy
and at the time the loss.
Q. What is the meaning of change of "interest that will suspend
the policy unless accompanied by change of interest in the
policy? Give illustrations/examples.
A. The change of interest contemplated by law is an absolute
transfer of the insured's entire interest in the property insured to one
not previously interested or insured.
Illustrations:
(A) The property insured against fire was mortgaged without the
consent of the insurer.
Question: Was there an alienation of the property
insured which would suspend the insurance?
Answer: No, the policy was not suspended since the
interest in the property insured did not pass by mere
execution of a mortgage.
(B) A lease of the insured property is not a case of alienation or
change of title or interest in the property insured that would suspend
the policy.
( C) A judgment debtor whose property has been sold on
execution retains insurable interest therein until the right to
redeem or have the sale set aside has been lost.
D. )A mortgagor whose property has been foreclosed still has
insurable interest on such property for he retains the equity or right of
redemption. Such interest is terminated only by a failure to redeem
within the specified time.
(E. A vendor who has not absolutely parted with all his rights
respecting the property, still has insurable interest on the property
sold to the extent of the interest retained. Thus, the vendor who has
a lien on the property sold until the purchase price is paid or the
conditions of the sale are performed retains insurable interest in such
property.
In the foregoing examples, the policy will not be
suspended since the insured is not divested of his entire
interest in the property insured. The policy subsists to the
extent of the interest retained by the insured.
Q. Ordinarily, transfer of interest in the thing insured
unaccompanied by transfer of interest in the policy, suspends
the insurance. What are the instances when the policy is not
suspend are despite the transfer of the thing insured?
A. The following are the exceptions to the rule that policy is
suspended by the transfer of interest is the thing insured without
corresponding transfer of the insurance:
1. When there is a prohibition against alienation or change of interest
without the consent of the insurer in which case the policy is not
merely suspended but avoided.
2. In case of life, accident, and health insurance.
3. A change of interest in a thing insured, after the occurrence of an
injury which results in a loss.
4. A change of interest in one or more of several distinct things,
separately insured by one policy, does not avoid the insurance as to
others.
5. A change of interest, by will or succession, on the death of the
insured passes the interest in the insurance to the person taking the
interest in the things insured.
6. A transfer of interest by one of several partners, joint owners, or
owners in common, who are jointly insured, to the others.
7. When the policy is so framed that it will inure to the benefit of
whomsoever, during the continuance of the risk, may become the
owner of the interest insured.
Q. Johann is the owner of Unit 27 and Unit 29 in Bulaklak
Townhouse Center. He separately insured both units against
fire with X Ins. Co., on March 9, 2017 for a period of one year. X
Ins. Co., issued one policy for the insurance of both units.
Johann sold Unit 27 to Sebastian on September 27, 2017. On
January 16, both Unit 27 and Unit 29 were completely burned.
May Johann recover the loss from the insurer?
A. Johann cannot recover the loss of Unit 27 because the policy was
suspended insofar as Unit 27 was concerned because Johann sold
it.
He may recover the loss of Unit 29 because change of
interest in one or more of several distinct things, separately insured
by one policy, does not avoid the insurance as to others. The Sale of
Unit 27 did not affect the insurance as to Unit 29.
Q. A transfer, assignment or conveyance of the property
insured does not transfer any right with respect to the
insurance, unless with the insurer's consent. When will transfer
of insured makes an express assignment thereof, interest in the
thing insured carry with it the transfer of interest in the policy?
Give example of each.
2. A change of interest, by will or succession, on the death of the
insured passes the interest in the insurance to the person taking his
interest in the thing insured.

Q. Example: А insured his house against fire. Thereafter, A died

leaving as his only heir, B who inherited the house. The house was
A. A transfer, assignment or conveyance of the property insured burned. Question: May B recover from the insurer?
does not transfer any right with makes an express assignment
thereof, with the respect to the insurance, unless the insured makes
an express assignment thereof, with the insurers consent.
Accordingly, a purchaser of the insured property cannot recover from
A. Answer: B may recover from the insurer because the transfer of
the insurer in case of loss, unless and until the policy is transferred to
the house to B by succession upon death of A carried with it the
him. However, in the following cases a transfer of the interest in the
transfer of the policy.
thing insured carries with it a transfer of the policy:

3. Transfer of interest by one of several partners, joint owners, or

1. Where by express stipulation of the parties, the policy is made to
owners in common who are jointly insured, to the others.
run with the subject-matter, or the contract is so framed as to attach
the risk inseparably to the property, as where the insurance is on
account of the "owners," or for whom it may concern or where the
loss is payable to the "bearer."
Q. Example. Perico and Añonuevo are co-owners of a building. They
insured the building against fire.Perico sold her share in the building
to Añonuevo. Thereafter, the building was burned. Can Añonuevo
recover the insurance proceeds from the insurer? Would your
Q. Example: A fire insurance policy provided that the loss was:
answer be the same if Perico sold her share to Perez?
"Payable to the San Miguel Brewery, mortgagee, as its interest may
appear, the remainder to whosoever, during the continuance of the
risk, may become the owner of the interest insured." The property
insured was sold without transferring the policy to the buyer.
Question: Is the buyer entitled to recover? Answer: Transfer of interest by one of several partners, joint owners,
or owners in common who are jointly insured, to the others will carry
with it the transfer of the policy and therefore, Añonuevo can collect
from the insurer of the building. On the other hand, in case Perico
sold her share in the building to Perez, the policy is suspended.
A. Answer: Yes, because the transfer of the thing insured need not
be accompanied by the transfer of the policy, as it was so framed
that it will inure to the benefit of whomsoever during the continuance
of the risk may become the owner of the interest insured.
Q. When will the suspended policy because of the transfer of
interest in the thing insured unaccompanied by transfer of
interest in the policy be revived?
A. Where a policy is suspended by the transfer of interest in the thing
insured unaccompanied by a corresponding transfer of interest in the
insurance, the policy is revived when the interest in the thing and the
interest in the insurance are vested in the same person again. This
may occur by the assignment of the policy to the transferee of the
property insured or by the reacquisition by the insured of the property
previously transferred.
Q. When is the policy not suspended despite the transfer of
interest in the subject matter of insurance without transfer of
interest in the policy?
A. The following are the exceptions to the rule that the policy is
suspended by the transfer of interest in the subject-matter insured
without corresponding transfer of the insurance:
1. When there is a prohibition against alienation or change of interest
without the consent of the insurer in which case the policy is not
merely suspended but avoided.
2. In case of life, accident, and health insurance.
3. A change of interest in a thing insured, after the occurrence of an
injury which results in a loss.
4. A change of interest in one or more of several distinct things,
separately insured by one policy, does not avoid the insurance as to
others.
5. A change of interest, by will or succession, on the death of the
insured passes the interest in the insurance to the person taking the
interest in the things insured.
6. A transfer of interest by one of several partners, joint owners or
owners, in common, who are jointly insured, to the others.
7. When the policy is so framed that it will inure to the benefit of
whomsoever, during the continuance of the risk, may become the
owner of the interest insured.
Q. When there is a prohibition against alienation or change of
interest without the consent of the insurer, why is the policy not
merely suspended but avoided?
A. A provision of an insurance policy forbidding any alienation of the
property insured or any change in the title or interest insured is valid
and enforceable and a violation thereof is a ground for avoiding the
policy. Since in such case the policy is avoided, a subsequent
reacquisition of the property before the loss will not revive the policy
unless the alienation merely temporary as when the purchaser or
grantee at the same time and as a part of the same is transaction
reconveys the property insured. The policy will not be avoided,
however, where the change of interest is affected with the knowledge
and consent of the insurer.
Q. Why is the insurance not suspended in case of transfer of
interest in life, accident, and health insurance?
A. The reason why a change of interest will not affect an insurance
upon life, health or accident is that such kind of policies are not
regarded as contracts of indemnity and, therefore, insurable interest
need exist only at the time the insurance takes effect. And
accordingly, the loss of insurable interest at the time of the
happening of the event insured against will not affect the right of
recovery from the insurer.
Q. Why is the insurance not suspended when the transfer of the
thing insured occurred after the loss?
A. After the loss occurs, the right of the insured under the policy
becomes fixed and a subsequent conveyance by the insured cannot
affect the insurer's liability.
Example: A insured his house against fire. One month later, one-half
of the house was burned. After filing a claim for the partial loss, A
sold what remained of the house to B. Such transfer will not affect
the right of A to recover from the insurer.
Q. What stipulations in a contract of insurance are void?
A. "Every stipulation in a policy of insurance for the payment of loss
whether the person insured has or has not any interest in the
property insured, or that the policy shall be received as proof of such
interest, and every policy executed by way of gaming or wagering, is
void. Thus, every stipulation in an insurance contract:
(a) for the payment of loss whether the person insured has or has no
insurable interest in the subject matter of insurance, or
(b) that the policy shall be received as proof of such interest, and
(c) every policy executed by way of gaming or wagering is void.
Q. What is gaming or wagering and why can it not be insured?
A. Gaming or wager policy is one which the persons for whose
benefit it was issued had no pecuniary interest in the subject matter
insured.
Wagering or gambling policies of insurance are prohibited
because they have a tendency to create a desire for the event
insured against to happen and furnish strong temptations to the party
interested to bring about, if possible, the event insured against.
Q. Can objection to absence of insurable interest on the part of
the person procuring the insurance be waived?
A. Absence of the insurable interest on the part of the person
procuring insurance, as ground of objection, cannot be waived by the
insurer. Thus, where an insurance agent knew that the person
procuring insurance did not have insurable interest on the subject of
the insurance, and it was contended that lack of insurable interest
was waived by the insurer so as to entitle the insured to the benefits
of the policy, the court denied such contention and ruled that waiver
could not validate the policy so as to permit recovery, since the policy
was illegal as against public policy.
TITLE 4 CONCEALMENT
Q. What is concealment?
A. "A neglect to communicate that which a party knows and ought to
communicate, is called concealment."
Q. Why are contracts of insurance traditionally considered as
contracts uberrimaefider?
A. Contracts of insurance are traditionally contracts uberrimaefidei,
which means “most abundant good faith: absolute and perfect
candor or openness and honesty; the absence of concealment or
deception, however slight. In insurance contracts, each party has the
right to depend on the utmost good faith, uberrimaefidei, of the other
party regarding the nature of the risk to be assumed. It is upon this
principle that the doctrines of warranties, representation and
concealment are based.
Q. Must the insured have knowledge of the fact concealed?
A. A Concealment presupposes knowledge of the fact concealed on
the part of the party charged with concealment. Such knowledge
must be proven by the party claiming the existence of concealment.
Thus, where in the application for life insurance, the statement made
by the insured was "no hereditary taint on either side of the house
(family) to my knowledge," in order to show concealment, it was
necessary for the insurance company to prove that a hereditary taint
alleged to exist was known to the insured.
Q. As of what time must the insured have knowledge of the fact
concealed?
A. To be guilty of concealment, a party must have knowledge of the
fact concealed at the time of the effectivity of the policy. Even if a
party did not know of the existence of a material fact at the time of
the application but acquired knowledge thereof after the application,
but before the effectivity of the policy, he is guilty of concealment
should he fail to communicate such fact to the other party.
Likewise, known changes in conditions material to the risks
which occur between the opening of negotiation for insurance and
the issuance of the policy must be revealed. That is, there is a
continuing duty on the part of an applicant to disclose newly
discovered matters arising between the application for, and the
confirmation and effectivity of the contract, where they come to the
applicant's knowledge and render his former answers no longer true.
Thus, when after applying for life insurance, but before the
issuance of the policy the insured learns that he is afflicted with a
fatal disease, his failure to disclose that information constitutes
concealment of a material fact which will avoid the policy.
Q. Must the insured reveal information about his health which
he acquired after the effectivity of the policy?
A. Where an information was acquired after the effectivity of the
policy, a failure to communicate the same to the other will not entitle
the latter to rescind the contract on the ground of concealment of
material fact. The reason is that after the policy has taken effect,
information subsequently acquired could no longer be material as it
will not influence a party anymore to enter into such contract. Thus,
whether or not the nondisclosure of a fact constitutes concealment is
determined as of the time the contract of insurance takes effect, and
does not depend upon or is affected by subsequent events or facts
after the contract is completed.
Q. Erwin applied for life insurance on January 16, 2018 with X
Ins. Co. At that time Erwin did not know of any ailment that he
has. On January 21, 2018, he had himself physically examined before the effectivity of the policy?
and he found out that he had heart ailment and kidney disease.
On January 28, 2018 the life insurance policy of Erwin was
issued and he did not inform the insurer about his ailment,
believing that he need not reveal the same to the insurer
A. While the general rule is that a party is bound to disclose a
because he acquired knowledge thereof after he applied for life
material change occurring after the application and before the
insurance. Was Erwin guilty of concealment?
effectivity of the contract, however, such rule does not apply:
A. Erwin was quilty of concealment because he failed to inform the
a) where the policy provides that if the application is
insurer of the ailment he acquired knowledge of before the effectivity
approved and the policy is issued, it shall be in force from the date of
of the policy. There is a continuing duty on the part of an applicant to
the application, and
disclose newly discovered matters arising between the application
for, and the confirmation and effectivity of the contract, where they
come to the applicant's knowledge and render his former answers no b) where the change occurs after the consummation of the
longer true. insurance orally although the formal policy has not been issued yet.

Q. Would your answer be the same if he was physically

examined on February 1, 2018 and did not inform the insurer of
the ailment he came to know about?
A. The answer will not be the same. Erwin is not guilty of
concealment because he acquired information about his illness after
the effectivity of the policy. Where an information was acquired after
the effectivity of the policy, a failure to communicate the same to the
other will not entitle the latter to rescind the contract on the ground of
concealment of material fact. The reason is that after the policy has
taken effect, information subsequently acquired could no longer be
material, as it will not influence a party anymore to enter into such
contract. Thus, whether or not the non-disclosure of a fact constitutes
concealment is determined as of the time the contract of insurance
takes effect, and does not depend upon or is affected by subsequent
events or facts after the contract is completed.
Q. What is the right of the injured party where the other is guilty
of concealment? Must concealment be intentional?
A. "A concealment whether intentional or unintentional entitles the
injured party to rescind a contract of insurance. The party injured by
concealment does not have to prove intention to conceal by the other
party to be able to rescind the contract of insurance.
The restoration in 1985 by B.P. Blg. 874 of the phrase
“Whether intentional or unintentional “ discourages any change in
doctrine underscores the fact that all throughout. (from 1914 to
1985), the statute did not require proof that concealment must be
intentional in order to authorize rescission by the injured party.

Q. Are there instances that a party to an insurance contract

need not reveal information acquired after the application and
Q. Ngo Hing was an authorized insurance agent of Great Pacific
Life Assurance Company. He applied with Great Pacific Life for
a twenty- year endowment policy on the life of his one- year old
daughter, Helen Go. The insurer issued a binding receipt. Ngo
was aware that his daughter was a Mongoloid child but he
withheld such information from the insurer. Later, Helen Go
died of influenza with complication of bronco-pneumonia.
Question: Was the concealment sufficient to relieve the insurer
of liability?
A. The insurer cannot be liable. As an insurance agent, Ngo Hing
ought to know, as he surely must have known his duty and
responsibility to supply a material fact. Had he divulged that Helen
Go was Mongoloid child in the application form, the insurer would
have disapproved the application. When Ngo Hing concealed his
daughter's physical defect which could never be esconced nor
disguised, he was in apparent bad faith. The contract of insurance is
one of perfect good faith, absolute and perfect candor or openness
and honesty. Ngo Hing was guilty of concealment which relieved the
insurer of any liability.
GREAT PACIFIC VS CA
Q. What is the effect of concealment and what is the basis of
such rule?
A. A party applying for insurance is bound to answer truthfully all
questions concerning facts material to the risk. Concealment or
suppression of material fact is a fraud, and as fatal to the contract as
false answer would be.
A policy will be vitiated by the suppression of known material
facts by a party, and the insurer may rescind a policy on the ground
of concealment.
The basis of the rule vitiating the contract in case of
concealment is that it misleads or deceives the insurer into accepting
the risk, or accepting it at the rate of premium agreed upon. The
insurer relying upon the belief that the assured will disclose every
material fact within his actual or presumed knowledge is misled into a
belief that the circumstance withheld does not exist, and he is
thereby induced to estimate the risk upon a false basis that it does
not exist.
The principal question, therefore, must be, was the insurer
misled or deceived into entering a contractual obligation or in fixing
the premium of insurance by a withholding of material information or
facts within the insured's presumed knowledge?
Q. The insured in applying for a reinstatement of a lapsed life
insurance policy, concealed his disease of both kidneys and
enlarged liver. After his death, an action was filed against the
insurer. Question: Was the insurer liable?
A. The insurer was not liable because concealment entitled the other
to rescind the contract.
Q. What are the requisites of facts that must be communicated?
A. "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."
Each party is bound to communicate to the other all facts
that meet the following requisites: (a) such facts must be within his which proves or tends to prove the falsity of the implied warranty of
knowledge; ((b must be material to the contract; (c) the other party seaworthiness of the vessel insured.
has not the means of ascertaining such fact; and (d) he makes no
warranty as to such facts.

Q. When is the insured bound to reveal information concerning

matters covered by a warranty?
Q. A When the insurer conducts an investigation of the subject-
matter being insured, is the insured relieved of responsibility to
reveal information?
A. "An intentional and fraudulent omission, on the part of one
A. The fact that the insurer makes investigation of its own relative to insured, to communicate information of matters proving or tending to
the insurability of the applicant does not absolve the latter from prove the falsity of a warranty, entitles the insurer to rescind."
speaking the truth or lessen the right of the insurer to rely on
insured's statement as to his physical condition, especially where the
Matters covered by a warranty need not be revealed except
investigation failed to disclose falsity or any suspicious circumstance.
facts which prove or tend to prove the falsity of a warranty. The
insured must not conceal facts or information which he knows falsify
a warranty. It is on the truth of the warranty, not merely on the fact
that it is given, that the insurer relies. Had the insurer believed it to
Q. Why is the insured not bound to reveal information be false, it would not consent to the insurance and incur the hazard
concerning matters covered by a warranty in the contract of of being made the victim of a fraud.
insurance?
Under the present law, fraudulent intent is not necessary to
entitle to other to rescind an insurance contract on the ground of
concealment But where the fact concealed proves or tends to prove
A. The facts that a party is bound to communicate are those of which the falsity of a warranty. concealment must be intentional and
he makes no warranty. it is not necessary to communicate or fraudulent to entitle the other to rescind.
disclose matters concerning which the insured makes a warranty,
express or implied. Thus, where no inquiry is made, the assured
need not disclose matters affecting the seaworthiness of the vessel,
since seaworthiness is a warranty implied in marine insurance.

The reason is that where a fact is covered by a warranty, Q. What matters need not be communicated except in answer to
express or implied, it is superfluous to require disclosure. However, inquiries?
when a fact proves or tends to prove the falsity of a warranty, it must
be revealed to the other. Thus, the insured's concealment of facts or
A. "Neither party to a contract of insurance is bound to communicate
information that falsifies a warranty is in all cases to be deemed a
information of the matters following, except in answer to the inquiries
fraud that vitiates the policy, such as the concealment of an incident
of the other:
 "(a) Those which the other knows;
"(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;
"(c) Those of which the other waives communication;
"(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. Are matters known by the other party required to the
revealed?
Α. A party is under no duty to disclose to the other what the latter
already knows or ought to know. Such rule is not limited to facts
known personally to a party but extends to matters known to his
agent. Thus, any information material to the transaction either
possessed by the agent at the time of transaction or acquired by him
before its completion, is deemed to be knowledge of the principal at
least so far as the transaction is concerned even though in fact
knowledge is not communicated to the principal at all. Knowledge,
therefore, of the insurer's agent is knowledge of the insurer 345 345
However, where the agent of the insurer fraudulently conspired with
the insured, knowledge of the agent will not bind the insurer.
Q. A applied for a fire insurance contract. The insurer's agent
and surveyor viewed the premises and the neighboring
buildings. Question: Will omission of the insured to mention the
neighboring buildings to the insurer entitle the latter to rescind?
А. Such omission will not avoid the policy for the insurer's agent
knew the fact not revealed.
R. Sibya, Jr. applied for life Insurance with Sun Life. In
his application for insurance, he indicated that he had
sought advice for kidney problems. He indicated in his
application: "Last 1987, had undergone lithoripsy due to
kidney stone under Dr. Jesus Benjamin Mendoza at
National Kidney Institute, discharged after 3 days, no
recurrence as claimed." On February 5, 2001, Sun Life
approved Sibya's application and issued the life
insurance policy. On May 11, 2001, Sibya died of
gunshot wound. Sun Life sought to rescind the policy
on the ground of concealment. Sun Life claimed that
Sibya did not disclose his previous medical treatment at
the NKI in May and August 1994. The beneficiaries
claimed that the insured did not commit concealment or
misrepresentation and he even authorized Sun Life to
inquire further into his medical history for verification
purposes.
Issue: Was the insured guilty of concealment or
misrepresentation?
A. The insured did not commit concealment or misrepresentation.
Sibya admitted in his application his medical treatment for kidney
ailment. He even executed an authorization in favor of Sun Life to
conduct investigation about his medical history. It cannot be said that
he concealed his medical history. The insurer was aware of the
medical condition of Sibya and further information need not be by fair inquiry and due diligence he may learn from ordinary
communicated. sources, Thus, the peace and order situation in a certain
locality need not be communicated by the insured to the
insurer.”

Q. What are the matters each party ought to know and need not
be communicated to the other? Give examples of each.

Q. What is the effect of waiver of information? How may

A. Matters supposed to be known by the other party need not be information be waived?
communicated. The facts each party ought to know are: (a) all the
general causes which are open to his inquiry, equally with that of the
other, and which may affect either the political or material perils
contemplated, or (b) all general usages of trade. A. Information need not be revealed to the other where
communication thereof was waived.
Thus information or facts which, are of public knowledge, so
notorious that presumption may reasonably exist that the insurer has Waiver of the information may either be: (a) express when
knowledge thereof need not be disclosed. made by the terms of the insurance or contained in the policy; or (b)
implied, when there was neglect to make inquiries as to such facts
Examples: distinctly implied in other facts of which information was
communicated.
(a) The insurer is presumed to have knowledge of
the political or disturbed condition of the country at the time
the policy was effected, and cannot claim that such fact was
concealed. Q. When is there an implied waiver of information?

(b) Knowledge of the state of the world, of the

allegiance of particular countries, of the risks and
embarrassments affecting commerce, or the course and
incidents of the trade, on which they insure, must be imputed
to the insurers,
(c) The insurer is presumed to know the various
usages and customs pertaining to maritime matters.
(d) The insured is not obliged to disclose matters
which are equally within the reach of the insurer and which
A. Where an application for insurance is made in writing, and the
questions therein as to material facts are unanswered or
incompletely answered, and the insurer without further inquiry, issues
the policy, it thereby waives all right to a disclosure, or to a more
complete answer with respect to the fact to which the unanswered
question relates, and the policy cannot thereafter, in the absence of
clear proof of a fraudulent intention of suppression of the fact, be
avoided on the ground of concealment
 Therefore, answers as to the insured's physical condition or
disease, which are such as ought to put a reasonably prudent on
inquiry which would have resulted on ascertaining the fact, are
equivalent to actual notice. Thus, "where the insured exhibited to the
insurer an extract from a letter, and the latter, knowing of the fact that
it was such extract, does not ask to see the whole letter, there is no
material concealment of a fact contained in the part not shown. "
However, where the answer of the applicant to a direct
question of the insurer purports to be a complete answer to the
question, any substantial misstatement or omission in the answer
avoids a policy issued on the faith of the application.
The distinction between an apparently complete, but in fact
incomplete and therefore untrue, and an answer manifestly
incomplete and as such accepted by the insurer, may be illustrated
by two cases of fire insurance, which are governed by the same rules
in this respect as in cases of life insurance. If one applying for
insurance upon a building against fire is asked whether the property
is encumbered, and for what amount, and in his answer discloses
only one mortgage when in fact there are two, the policy issued
thereon is avoided. But if to the same question he merely answers
that the property is encumbered, without stating the amount of
encumbrance, the issuance of the policy without further inquiry is a
waiver of the omission to state the amount.
Q. In the application for life insurance, the insured was asked if
he had ever submitted himself to any infirmary, sanitarium or
hospital for consultation and treatment. He answered that he
was confined for 5 days at the Quezon Memorial Hospital for
influenza in 1947. It turned out that he had been twice confined
at the Alzona Clinic in Lucena City, the first was on July 19-23,
1959, and the second was from January 29, 1960 which were not
mentioned by the insured. Question: Was there a waiver of
information as to the confinement at Alzona Clinic?
A. NO. There was no waiver of information. The answer of the
insured to the question propounded by the insurer was complete and
the latter had the right to rely on the correctness thereof. The insurer,
having been informed that the insured had been confined at the
Quezon Memorial Hospital in 1947, without mentioning his
confinement at the Alzona Clinic, had the right to rely that the insured
had not been confined in any other hospital or clinic. There would
have been a waiver of further information if., on its face, the answer
appeared to be incomplete or ambiguous; if the insured had merely
answered "Yes", to the question "Have you ever been to any
infirmary, sanitarium or hospital for consultation and treatment? and
the insurer did not make any further inquiry.
Q. On May 12, 1962, Kwang Nam obtained a 20-year endowment
policy and readily paid the premium thereon. Kwang Nam
informed the insurer's medical examiner as follows: "Operated
on for tumor (myoma) of the stomach. Claims that tumor has
been associated with ulcer of stomach. Tumor taken out was
hard and of a hen's egg size. Operation was (2) years ago in
Chinese General Hospital by Dr. Yap. Now, claims he is
completely recovered The insurer made no further inquiry or
investigation. It turned out that the insured was operated on for
"peptic ulcer" and not a mere tumor. On Dec. 6, 1963, Kwang
Nam died of cancer of the liver with metastasis. The insurer
denied the beneficiary's claim on the ground that the answer
given by the insured to the question appearing in his
application for life insurance was untrue. Question: Was Kwang
Nam guilty of concealment?
A. NO! There was no concealment since the insurer impliedly waived
the information. The information communicated by Kwang Nam was
imperfect and sufficient to have induced the insurer to make further l
inquiries about the ailment and operation of the insured. The failure
of the insurer to make further inquiries constituted a waiver of
imperfection of the answer and rendered the omission to answer
more fully immaterial. Kwang Nam had informed the insurer's
medical examiner that the tumor for which he was operated on was
"associated with ulcer of stomach". In the absence of evidence that
the insured had sufficient knowledge as to enable him to distinguish
between "peptic ulcer" "tumor", his statement that said tumor was
associated with ulcer of stomach" should be construed as an
expression made in good faith of his belief as to the nature of his
ailment and operation.
Q. Is waiver of medical examination tantamount to waiver of
information?
A. Waiver of medical examination of the applicant for life insurance
should not be construed as a waiver of material information, since
the waiver of medical examination is made where the insured
represents himself to be of good health. It is reasonable to assume
that had the insured revealed material information concerning his
health, the insurer would not have waived the medical examination.
In a non-medical life insurance which dispenses with medical
examination, waiver of such medical examination renders even more
material the information required of the applicant concerning
previous condition of health and diseases suffered, for such
information necessarily constitutes an important factor, which the
insurer takes into consideration in deciding whether to issue the
policy, or not.
Q. A obtained a "non-medical" life insurance policy, which
dispensed with the medical1 examination. In the policy A stated
that she never had cancer nor tumor nor undergone operation
notwithstanding the fact that two months before the issuance of
the policy, she was operated on for cancer. A died. The
beneficiaries claimed that there was no material
misrepresentation in view of the waiver of medical examination
by the insurer. Question. Was the beneficiaries' contention
meritorious?
A. The contention was without merit. The information required of the
insured concerning her previous condition of health constituted an
important factor, which the insurer took into consideration in deciding
whether to issue the policy or not. It was because the insured had
given herself a clean bill of health that the insurer had no longer
considered an actual medical check-up necessary.
Q. Bacani obtained a "non-medical" life insurance. When asked
in his application for life insurance if he had consulted any
doctor or health practitioner, the insured limited his answer to a
consultation with Dr. Raymundo of Chinese General Hospital for
cough and flu complications. The insurer waived medical
examination. It turned out however, that two weeks before the
application, the insured was examined and confined in the Lung
Center of the Philippines, where he was diagnosed tor renal
failure. The insured died and the insurer refused to pay the
claim on the ground that the insured did not disclose material
facts. The beneficiaries on the other hand, maintained that
waiver of medical examination debunk the materiality of the
facts concealed. Question: Was it necessary for the insured to
reveal material information?
A. Yes. It was necessary for the insured to reveal material
information even if there was a waiver of medical examination. Since
the waiver of a medical examination renders even more material the
information required of the applicant concerning previous condition of
health and diseases suffered because such information constitutes
an important factor which the insurer takes into consideration
whether to issue the policy or not.
though otherwise they might not be regarded as material and,
therefore, the insured is required to make full and redisclosure to the
questions asked.

Example:

Q. How is materiality of concealment determined?

In an application for life insurance, the insured was asked,

A. 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.
"Have you ever been to any infirmary, sanitarium or hospital for
consultation and treatment? " Question: Was the information sought
by the insurer material?

Answer: YES. The information sought was material. The

insurer had asked specific question not a general one. Matters
The fact concealed must be material to entitle the other to subject of special inquiries are deemed conclusively material.
rescind the policy. A fact is immaterial where the knowledge or
ignorance of it will naturally influence the judgment of the Insurer in
deciding Whether he will enter into the contract, or in estimating the
degree and character of the risk., or in fixing the rate of premium. It
Q. What is the test of materiality of information? Give examples.
operates as an inducement to the usurer to enter into the contract,
where, except for such inducement, it would not have done so, or
would have charged a higher premium.

A. The test of materiality is whether knowledge of the true facts

Q. Are matters subject to special inquiry material? Give an
example.
A. YES. Matters subject of special inquiries are deemed conclusively
material, and the failure of an apparently complete answer to make
full disclosure will avoid the policy. Such principle is applicable even
would have influenced a prudent insurer in determining whether to
accept the risk or in fixing the amount of premiums. That is, if
answers to questions propounded by the insurer are such as may
influence it in determining whether to accept risk and what premium
to charge, such answers are material and must be truthful. Thus,
every fact is material which increases the risk or which, if disclosed,
might have led the company to decline the risk, or to accept the risk
only for higher premium.

Examples:
(a) Material illness:
1. Operation for removal of infected cyst from abdomen,
attacks of "acute cholicystitis" or serious infection of the gall from
bladder.
2 Cerebral congestion and Bell's palsy, cancer and disease
of the kidneys.
(b) Immaterial illness:
1. A mere cold or slight attack of influenza.
2. Attack of diarrhea about two years previously.
Q. Is causal connection between the fact concealed and the
cause of the loss or death necessary?
A. Concealment need not, in order to be material, be of facts which
bring about, or contribute to, or are connected with, insured's loss. It
is immaterial that there is no causal relationship between the fact
concealed and the loss sustained. The insured, therefore, peed not
die of the very disease he failed to reveal to the insurer. It is sufficient
that his non-revelation has misled the its estimate of the insurer in
forming disadvantages of the proposed policy or in making its
inquiries in order to entitle the insurance company to avoid the
contract.
Q. In applying for reinstatement of a lapsed life insurance
policy, A concealed his disease of both kidneys and of an
enlarged liver. Later, after reinstatement of the policy, the
insured died of thrombosis. Question: Was the insurer liable?
A. The insurer was (not) liable since the fact concealed was material
although the insured did not die of the fact concealed.
Q. Bacani applied for a non-medical life insurance. Despite the
fact that he was asked if he consulted health practitioner any
doctor or within the past 5 years, the insured did not inform the
insurer that two weeks prior to his application for insurance, he
was examined and confined at the Lung Center of the
Philippines, where he was diagnosed for renal failure. The
insured died in a plane crash. The beneficiaries contended that
since the fact concealed had no bearing with the cause of death
of the insured, the insurer was liable Question: Was such
contention correct?
A. NO! The contention of the beneficiaries was not correct. The
insured need not die of the disease he failed to disclose to the
insurer, It is sufficient that his non-disclosure misled the insurer in
forming his estimates of the risk of the proposed insurance policy or
in making inquiries. The insurer was not liable.
EXAMPLE:
Q. Seigfred applied for a life insurance with X insurance
company. He concealed venereal disease. The policy
was issued but Seigfred was shot by the terrorist.
R. . May the beneficiary of Seigfred hold the insurer
liable?
 Answer: The insurer cannot be made liable because A. NO! "Information of the nature or amount of the interest of one
Seigfred was guilty of concealment of material fact. insured need not be communicated unless in answer to an inquiry,
Even if the insured did not die of the ailmment except as prescribed by Section 51."
concealed, such information is still material because
causal connection between the fact concealed and the
cause of death is not necessay. Had the insurer be
informed of the insured ailments, the insurer would not
have accepted the application for insurance or if it will, The insured need not communicate the nature or amount of
it we at a higher rate of premium his interest except: (a) when the insurer makes an inquiry thereon,
and (b) where the insured is not the absolute owner of the property
insured.
Q. Philip applied for an insurance. He was asked by the
Doctor of the insurer. “HOw long do you expect to live?”
Philip Answered , :Till the end of time: The policy was
issued and one week later, Philip died. The insurer
refused to pay on the ground that Philip gave wrong
information about his health/
Q. Must opinion or judgment be communicated?
May the insurer be held liable?

- The insurer is liable because the statement of

Philip about the length of his life is a mere opinion. A
party is not bound to communicate information of his
own opinion, or judgment upon the matter in question
even when asked. And in case a party advances his
opinion or judgment to the other, an untrue statement
will not avoid the policy if made in good faith without
intention to deceive.
Q. Must information of the nature or amount of the interest of
one insured be communicated?
A. "Neither party to a contract of insurance is bound to communicate,
even upon inquiry, information of his own judgment upon the matters
in question."
A party is not bound to Communicate information of his own
opinion, or judgment upon the matter in question even when asked.
And in case a party advances his opinion or judgment to the other,
an untrue statement will not avoid the policy if made in good faith
without intention to deceive. Thus, where the insured expresses an
opinion that his house is of certain value, the insurer cannot for a
moment be justified in thinking that the value of the house is really
just what the owner estimates it to be for he must be deemed to
know that the value of the property ordinarily capable of exact
ascertainment only by a sale.
Q. When must opinion be communicated?

A. In marine insurance, "information of the belief or expectation of a

third person, in reference to a material fact, is material" and must be
communicated. The opinion therein referred to is that of a third
person and not that of the insured.