Name: GEAROMME B.

DEPOSITARIO Year & Section: JD-3A

LAW ON INSURANCE
Directions: Answer the following concisely. Do not forget to cite your basis based on law,
principle or jurisprudence. Each item is worth 5 points. Submit this tonight by 9:30 P.M. at
christelletio@gmail.com. Late submission shall not be considered.

I
A, the mortgagor took out an insurance for his house which provides that in case of loss, the
proceeds of the insurance shall be payable to the mortgagee. At whose interest the insurance was
deemed to be taken upon?

Under sec. 8 of the Insurance Code, it will be for the benefit of the mortgagee. It is the usual
practice for a mortgagor to take out insurance for the benefit of the mortgagee, where he pays the
insurance premium, making the loss payable to the mortgagee.

II
During the effectivity of the above-mentioned policy, the house was destroyed by fire. It was
later on discovered that the loss was due to an act of the mortgagor which avoids the insurance
policy. The debt was not yet paid at the time of loss. Now, the mortgagee seeks to claim from the
insurance. Is he entitled?
No. Under sec. 8 of the Insurance Code, the insurance claim by the mortgagee over the property
will be affected even if the property is in the hands of the mortgagee. It the defeat the good faith
that between the mortgagor and the insurer.

III
B insured his house for five (5) million pesos. He later mortgaged this house to C for a loan
amounting to three (3) million pesos. C took out an insurance for the same house. Is there double
insurance?

No. Under sec. 8 of the Insurance Code, B and C have each an insurable interest in the property
mortgaged, and this interest is separate and distinct from the other. Insurance taken by one in his
own name only and in his favor alone, does not inure to the benefit of the other.

IV
Based on the problem above, to what extent is the insurable interest of B? How about C?
Under sec. 8 of the Insurance Code, B as owner, has an insurable interest to the extent of the
value of his property which is 5 million pesos because the destruction of his property will not
extinguish his mortgage debt. While C has an insurable interest in the mortgaged property to the
extent of the debt only for 3 million pesos, not exceeding the value of the property for 5 million
pesos.

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 V
The insurance provides that in case of loss the proceeds shall be payable to the mortgagee. The
house is insured for five (5) million pesos. The debt taken by the mortgagor is three (3) million
pesos. How much may the mortgagee recover?

Under sec. 8 of the Insurance Code, the mortgagee’s insurable interest is prima facie the value
mortgaged and extend only to the amount of the debt, not exceeding the value of the mortgaged
property. Hence, he may only recover for the amount of 3 million pesos which is the full amount
of the debt.
VI
E took out a loan of 1 million pesos from F. To secure this loan, he executed a mortgage
agreement over his house worth 2 million pesos. This house is covered with insurance with the
mortgagee as beneficiary. After 6 months and while the insurance is in effect, E paid fully his
loan. The following day, the house was completely destroyed. May F recover from the
insurance? May E recover?
Yes. Under sec. 8 of the Insurance Code, F may still recover for the amount insured because the
destruction of his property insured will not extinguish his mortgage debt. On the other hand, E
cannot recover anymore because the house was destroyed after F has already paid his loan on E.
His insurable interest over property mortgaged has already ceased at the time the house was
destroyed because insurance is merely a contract of indemnity.
VII
Ariel is a married man. He took out an insurance and made Mariel his beneficiary. Mariel is his
mistress and they have been living together at the time the insurance was taken out. Ariel died.
Who shall be entitled to the insurance proceeds?

Under sec. 11 of the Insurance Code, his designation of Mariel as his beneficiary is void because
Mariel is his mistress and is disqualified under the provisions of the Civil Code. A life insurance
policy, in essence, is no different from a civil donation insofar as beneficiary is concerned.
Hence, Ariel’s legal heirs and not Mariel will be entitled to the insurance proceeds.
VIII
Mario and Maria agreed that Mario will supply parts of the machine which Maria is using for the
production of certain products for Mario’s business. They also agreed that Maria will sell the
product to Mario at a discounted rate. They wanted to insure the machine, but the insurance
agent claimed that only Maria can insure it. The agent told them that Mario has no insurable
interest in the machine because he is not the owner. Is this correct?

No. under sec. 12 of the Insurance Code, Mario has an insurable interest over the machine
because the right to possession is not essential. In property insurance, one’s interest is not
determined by concept of title, but whether the insured has substantial economic interest in the
property where Mario will suffer loss as the proximate result of its damage or destruction of the
machine which Maria is using.
IX

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Tyron insured his property for P500,000. The value of the property is P300,000. How much is
the insurer liable to pay should the property be destroyed completely?

The insurer will be only liable to Tyron for the full amount of the property which is P300,000
because under section 8 of the Insurance Code, Tyron cannot recover upon the insurance beyond
the full amount of his loss.
X
Supposed in the above example, the person who caused the loss paid Tyron P100,000. Will
Tyron still recover from the insurance? If so, how much will he recover?

Yes. Under sec. 8 of the Insurance Code, Tyron will still recover from the insurance with the
amount of 300,000 pesos because there is no stipulation in his insurance policy that the payment
by the person who caused the loss will discharge or reduce the amount payable by the insurer
over insured property.

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