INSURANCE LAW

ATTY. BARLIS TRANSCRIBED NOTES & SOLIS COMPILED NOTES

❖ INSURANCE CONTRACT indemnify the insured on the happening of a

It is an agreement whereby one undertakes for a specified contingency or event.
consideration to indemnify another against loss B. Insured – person in whose favor the contract is
(property, life, body parts etc.), damage or liability (risk of operative and is indemnified.
creation liability) arising from an unknown or contingent - The insured is not always the person to whom the
event. (Section 2, PD 1460) proceeds are paid.

- A contract of insurance is designed to indemnify. C. Assured/Beneficiary – a person designated by the

Claim only the value of loss, applicable to terms of the policy to receive the proceeds of the
property insurance not life insurance. insurance. He may be the insured or a third party
in the contract for whose benefit the policy is
Illustration: issued and to whom the loss is payable.
House worth = 10 Million
Insurance = 20 Million ❖ ELEMENTS OF INSURANCE CONTRACT
1. Subject matter – thing insured, certain to happen
QUESTION: If the destruction took place, can the insurance be
but uncertain when.
claimed?
ANSWER: NO, you can only claim the amount for which you
QUESTION: Can past events be subject to insurance?
are supposed to be damnified.
ANSWER: YES, as long as you do not know that it happened already.

❖ Parties to the Contract of Insurance: EXAMPLES:

A. Insurer – party who assumes or accepts the risk of - Fire / marine – property
- Health / accident – life / health of the person
loss and undertakes for a consideration to
- Casualty Insurance – insured’s risk of loss / liability

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2. Consideration – “premium paid” (based on the ❖ CHARACTERISTICS OF INSURANCE CONTRACTS

probability of loss & extent of liability of insurer) 1. Personal Contract - each party having in view the
character, credit & conduct of the other;
GENERAL RULE: No valid contract of insurance unless there is a
payment of “Premium”. Payment of which involves a public policy
In property Insurance – the insured cannot assign before the
which means it cannot be subject to a waiver.
happening of the loss, his rights under the property policy
without the consent of the insurer.
3. Consent – An insurance contract is a consensual
contract and is therefore perfected the moment
2. Contract of Indemnity - It is a contract of indemnity
there is a meeting of minds with respect to the
for non-life insurance - get indemnity for loss
object and the cause or consideration.
occasioned by the perils insured against (actual
loss).
What is being followed in insurance contracts is the
cognition theory or acceptance that should come to the
In life Insurance – The contract is more of an investment of the
knowledge of the offerer before he becomes bound.
insured as a measure of economic security for him during his
lifetime & for his beneficiary after his death. Life Insurance is
Note:
Not Contract of Indemnity:
● If acceptance is made through mail or telegram, there is no
contract of insurance until the offerer obtains knowledge - As a rule, it is not a contract of indemnity, but a
thereof. ( Article 1319, Civil Code) contract to pay a certain sum of money in the event of
● The offer becomes ineffective upon the death, civil death for life cannot be the subject of valuation nor
interdiction, insanity or insolvency of either party before the loss adjustable on any principle of indemnity.
acceptance is conveyed. ( Art 1323)
● Offer & acceptance – fill up the proposal form of Ins. Co. &
3. Aleatory - It is an aleatory contract and not a
send it together with a premium.
wagering contract.

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Art. 2010 – by an aleatory contract, one of the parties or both
reciprocally bind themselves to give or to do something in
consideration of what the other shall give or do upon the
happening of an event which is uncertain, or which is to occur
at an indeterminate time.
Example: while applying for life ins. , it becomes the duty of the
applicant to disclose past illnesses. On the other hand, the
insurer cannot hide information about the insurance coverage
of the policy being offered.

- Risk of insurer: that of being compelled to pay the sum ❖ LAW GOVERNING INSURANCE
agreed upon the happening of the contingent event.
1. The Insurance Code of the Philippines (RA No.
- Risk of Insured: that of parting with the money required
10607)
as premium without receiving anything.
2. In the absence of applicable provision, pertinent
provisions of the Civil Code will apply:
4. Risk-Distributing Device - the risk of loss is not
actually transferred to the insurer but to a number
of people constituting the clients of the insurer Special laws
Article 2011. The contract of insurance is governed by
who contribute to a common fund by paying
special laws. Matters not expressly provided for in such special
premiums. The insurer will get the payment from
laws shall be regulated by this Code. (n)
this pool of common funds.

Articles 739 and 2012 on Void Donations

5. Doctrine of Uberrimae Fidei or Doctrine of utmost good
faith – all insurance contracts are based on the
Article 739. The following donations shall be void:
concept of “uberrimae fidei”, or doctrine of
(1) Those made between persons who were guilty of adultery
utmost good faith. It emphasizes the presence of
or concubinage at the time of the donation;
mutual faith from the insured & insurer.
(2) Those made between persons found guilty of the same
criminal offense, in consideration thereof;

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ATTY. BARLIS TRANSCRIBED NOTES & SOLIS COMPILED NOTES
(3) Those made to a public officer or his wife, descendants and
ascendants, by reason of his office.
In the case referred to in No. 1, the action for declaration of
nullity may be brought by the spouse of the donor or donee;
and the guilt of the donor and donee may be proved by
preponderance of evidence in the same action. (n)
Article 2012. Any person who is forbidden from
receiving any donation under article 739 cannot be named
beneficiary of a life insurance policy by the person who
cannot make any donation to him, according to said article.
(n)
CAN COMMON-LAW WIFE CLAIM BE CONSIDERED AS
BENEFICIARY IN INSURANCE CONTRACTS? - NO
Insular Life Assurance Co. v. Ebrado, 80 SCRA 181
A common-law wife named as beneficiary in the life insurance
policy in the existence of marriage of a legitimate spouse cannot
claim benefits therefrom.
In essence, a life insurance policy is no different from a civil
donation insofar as the beneficiary is concerned. Both are founded
upon the same consideration: liberality. A beneficiary is like a
donee, because from the premiums of the policy which the insured
pays out of liberality, the beneficiary will receive the proceeds or
profits of said insurance. As a consequence, the proscription in
Article 739 of the new Civil Code should equally operate in life
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insurance contracts. The mandate of Article 2012 cannot be laid
aside: any person who cannot receive a donation cannot be
named as beneficiary in the life insurance policy of the person who
cannot make the donation.
A conviction for adultery or concubinage is not necessary. Article
739 itself provides that the guilt of the donee may be proved by
preponderance of evidence in the same action. In this case, the
common law relationship is already admitted by Carponia herself in
the stipulation of facts they submitted to the court.
CAN ILLEGITIMATE CHILDREN BE CONSIDERED AS
BENEFICIARY IN INSURANCE CONTRACTS? - YES
Heirs of Loreto Maramag v. Maramag, GR No.
181132, 05 June 2009
Section 53 of the Insurance Code states that the insurance
proceeds shall be applied exclusively to the proper interest of the
person in whose name or for whose benefit it is made unless
otherwise specified in the policy. Pursuant thereto, it is obvious that
the only persons entitled to claim the insurance proceeds are either
the insured, if still alive; or the beneficiary, if the insured is already
deceased, upon the maturation of the policy. The exception to this
rule is a situation where the insurance contract was intended to
benefit third persons who are not parties to the same in the form of
favorable stipulations or indemnity. In such a case, third parties may
directly sue and claim from the insurer.
The revocation of Eva as a beneficiary in one policy and her
disqualification as such in another are of no moment considering
that the designation of the illegitimate children as beneficiaries in
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Loreto’s insurance policies remains valid. Because no legal
proscription exists in naming as beneficiaries the children of illicit
relationships by the insured, the shares of Eva in the insurance
proceeds, whether forfeited by the court in view of the prohibition
on donations under Article 739 of the Civil Code or by the insurers
themselves for reasons based on the insurance contracts, must be
awarded to the said illegitimate children, the designated
beneficiaries, to the exclusion of petitioners. It is only in cases where
the insured has not designated any beneficiary, or when the
designated beneficiary is disqualified by law to receive the
proceeds, that the insurance policy proceeds shall redound to the
benefit of the estate of the insured.
Articles 2021 to 2027 on Life Annuities
Article 2021. The aleatory contract of life annuity binds the
debtor to pay an annual pension or income during the life of one or
more determinate persons in consideration of a capital consisting of
money or other property, whose ownership is transferred to him at
once with the burden of the income. (1802a)
Article 2022. The annuity may be constituted upon the life of
the person who gives the capital, upon that of a third person, or upon
the lives of various persons, all of whom must be living at the time the
annuity is established. It may also be constituted in favor of the person
or persons upon whose life or
lives the contract is entered into, or in favor of another or other
persons. (1803a)
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Article 2023. Life annuity shall be void if constituted upon the
life of a person who was already dead at the time the contract was
entered into, or who was at that time suffering from an illness which
caused his death within twenty days following said date. (1804)
Article 2024. The lack of payment of the income due does
not authorize the recipient of the life annuity to demand the
reimbursement of the capital or to retake possession of the property
alienated, unless there is a stipulation to the contrary; he shall have
only a right judicially to claim the payment of the income in arrears
and to require a security for the future income, unless there is a
stipulation to the contrary. (1805a)
Article 2025. The income corresponding to the year in which
the person enjoying it dies shall be paid in proportion to the days
during which he lived; if the income should be paid by installments in
advance, the whole amount of the installment which began to run
during his life shall be paid. (1806)
Article 2026. He who constitutes an annuity by gratuitous title
upon his property, may provide at the time the annuity is established
that the same shall not be subject to execution or attachment on
account of the obligations of the recipient of the annuity. If the
annuity was constituted in fraud of creditors, the latter may ask for the
execution or attachment of the property. (1807a)
Article 2027. No annuity shall be claimed without first proving
the existence of the person upon whose life the annuity is constituted.
(1808)
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Article 2186 on Motor Vehicle Liability Insurance
Article 2186. Every owner of a motor vehicle shall file with the
proper government office a bond executed by a A. The right of the insurer to be subrogated exists by the
government-controlled corporation or office, to answer for damages
to third persons. The amount of the bond and other terms shall be
fixed by the competent public official. (n)
Article 2207 on Subrogation
Article 2207. If the plaintiff's property has been insured, and
he has received indemnity from the insurance company for the injury
or loss arising out of the wrong or breach of contract complained of,
the insurance company shall be subrogated to the rights of the
insured against the wrongdoer or the person who has violated the
contract. If the amount paid by the insurance company does not fully
cover the injury or loss, the aggrieved party shall be entitled to
recover the deficiency from the person causing the loss or injury.
Illustration:
A owns a motor vehicle which is insured by X (insurer).
While A was driving his vehicle, because of the negligence of
B, a collision occurred causing damage to A’s vehicle. A filed
a claim from his insurer, X. X paid A worth Php. 300k (amount
of damage). X as the insurer now will be SUBROGATED and
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assert a claim against B (tortfeasor) by reason of the right of
subrogation.
What to Consider in Connection with Subrogation:
operation of law. Therefore, with or without any
statement of the policy about subrogation, it couldn't
really matter.
B. Subrogation takes place by reason of the insurer’s
payment to the insured.
C. Subrogation is applicable only in connection with
non-life insurances (insurances covering properties or
insurances covering risks).
D. Subrogation is not applicable when the insurer makes
voluntary payments.
E. By the act of the insured himself, the insured releases
the tortfeasor from any liability.
Example:
A is driving a motor vehicle which is insured, by reason
of negligence of B in driving the vehicle there is a collision.
However, upon discussing the liability of B, A forgave B and
released him from any liability.
In this case, the insurer is no longer subrogated and he
can no longer claim reimbursement to B. The remedy of the
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insurer is to demand reimbursement from A since he already

condoned B from his liability.

F. The decision of being subrogated or not depends solely

on the insurer.

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❖ INTERPRETATION OF INSURANCE CONTRACTS
GENERAL RULE: In case there is no doubt as to the terms of an
Insurance Contract, the provisions must be construed in their
plain, ordinary & popular sense.
EXCEPTION: When the terms are ambiguous, uncertain or
doubtful, they should be interpreted strictly & most strongly
against the insurer & liberally in favor of the insured.
*Reason: the insured has no voice in the
selection or arrangement of the words employed
(contract of adhesion) Provisions must be read in its
entirety & be construed together to arrive at their true
meaning. All its parts are reflective of the true intent of
the parties. it cannot be construed piece-meal.
Fine Print rule - a part of an agreement or document spelling
out restrictions and limitations deliberately written in small type
or obscure language will be interpreted strictly against the
party who prepared the same.
Ty V. First National Surety And Assurance Co., Inc.
(1961)
“...we can not go beyond the clear and express conditions of the
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insurance policies, all of which define partial disability as loss of
either hand by amputation through the bones of the wrist." There
was no such amputation in the case at the bar. All that was found
by the trial court, which is not disputed on appeal, was that the
physical injuries "caused temporary total disability of plaintiff's left
hand." Note that the disability of plaintiff's hand was merely
temporary, having been caused by fracture of the index, the
middle and the fourth fingers of the left hand.
We might add that the agreement contained in the insurance
policies is the law between the parties. As the terms of the policies
are clear, express and specific that only amputation of the left
hand should be considered as a loss thereof, an interpretation that
would include the mere fracture or other temporary disability not
covered by the policies would certainly be unwarranted.
De la Cruz v. Capital Insurance
and Surety Co., 17 SCRA 559
The terms "accident" and "accidental", as used in insurance
contracts, have not acquired any technical meaning, and are
construed by the courts in their ordinary and common
acceptance. Thus, the terms have been taken to mean that which
happen by chance or fortuitously, without intention and design, and
which is unexpected, unusual, and unforeseen. An accident is an
event that takes place without one's foresight or expectation — an
event that proceeds from an unknown cause, or is an unusual
effect of a known cause and, therefore, not expected.
“the policy involved herein specifically excluded from its coverage:
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(e) Death or disablement consequent upon the Insured engaging

in football, hunting, pig sticking, steeplechasing, polo-playing,
racing of any kind, mountaineering, or motorcycling.”

Death or disablement resulting from engagement in boxing

contests was not declared outside of the protection of the
insurance contract. Failure of the defendant insurance company to
include death resulting from a boxing match or other sports among
the prohibitive risks leads inevitably to the conclusion that it did not
intend to limit or exempt itself from liability for such death.

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THE CONTRACT OF INSURANCE
WHAT MAY BE INSURED?
Loss or damage concerning life or property or those
that are allied to life such as health of body parts. It may also
be dealing with risk regarding the creation of liability.
WHO MAY BE INSURED?
Not anyone can be an insurer but anyone can be
insured except a public enemy (a person/citizen of the country
which is at war against the Philippines). Even if any person may
be insured, it doesn't mean that he will be automatically
insured. Insurance is personal and voluntary in nature but an
insurer cannot be compelled.
Q: Do you need to be the owner of the property for you to be
able to insure it?
A: No, a contract of insurance is designed to indemnify which
means that for as long as you will suffer a damage such as
pecuniary loss from the loss or destruction of the thing then that
thing can be a subject of insurance.
Q: Can you insure the property of your parents?
A: NO
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CREDITOR-DEBTOR RELATIONSHIP
SECTION 8&9 OF THE INSURANCE CODE
FACTS:
Creditor granted a loan to the debtor for the amount of 3
MILLION, the debtor has a building amounting to 10 MILLION
which can be a subject of a collateral.
1. When the building is not mortgaged:
Q1.1: Can a creditor insure the property of the debtor?
A: NO
Q1.1: Can a debtor insure the property?
A: YES
2. When the building is mortgaged:
Q2.1: Can a creditor insure the property of the debtor?
A: YES. However, the amount that the creditor may claim is
limited only to his interest over the loan because the contract
of insurance is a contract to indemnify. In this case, the creditor
may insure the building up to 3 MILLION only.
Q2.2: If the DEBTOR insured the building then loss takes place,
why can’t the creditor be entitled for the benefits of the
insurance?
A: Because it is a personal contract.
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Q2.3: If the CREDITOR insured the building and assuming that
he was able to insure it for P10 MILLION given the fact that the
debtor’s obligation is only P3 MILLION then loss takes place. To
whom should the proceeds of the insurance be given and how
much can be the claim?
a. Will you give it to the debtor?
- NO, the contract of insurance is personal in nature. The
creditor is the one insured the property but since the
contract of insurance is for indemnification, he can only
receive P3 MILLION in so far as his interest is concerned.
b.1 If the insurer paid the creditor P3 MILLION, is
the loan extinguished?
- No, because it is the insurer who paid
the obligation and not the debtor. The
effect of payment is RIGHT TO
SUBROGATION. The insurer of the creditor
will now run after the debtor for the
payment of the obligation.
LOSS PAYABLE CLAUSE
➔ SECTION 8&9, RA No. 10607 of the Insurance Code
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Q2.4: The DEBTOR took the insurance but the peculiarity of this
is that in that insurance the debtor makes the loss payable to
the creditor. What would be the consequences?
Loan = 3 MILLION
Building = P10 MILLION
a. The property was destroyed and both the creditor and
the debtor are claiming from the proceeds of the
insurance. If you are the insurer, will you give the
creditor any amount?
- YES, give the creditor the amount of P3 MILLION
since the peculiarity of the insurance is made
payable to the creditor.
GENERAL RULE: Only parties of the contract of insurance shall be
bound by its terms.
EXCEPTION: Unless there is a stipulation in favor of a third person.
b. What is the consequence of the payment made by the
insurer to the creditor?
- The payment made will extinguish the
obligation because the contract of insurance is
still for the benefit of the mortgagor/debtor.
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c. But the insurance is for the amount of P10 MILLION, does
that mean the debtor is still entitled to claim for the
insurer notwithstanding the payable clause?
- Yes, he can claim the remaining P7 MILLION
since the contract of insurance is for his benefit.
d. Suppose the insurer wouldn’t like to pay the creditor
upon claim arguing that the debtor violated part of the
policy (put five fire extinguishers) of the contract. Is the
insurer liable if the facts are proven this way?
- No, the contract of insurance for the benefit of
the mortgagor and he continues to be part of
the contract. Any act of the debtor that will
violate the policy will result in the insurer not
being liable. It doesn’t matter if it is the creditor
who violated.
e. With the same scenario in (d.), if the creditor has seen
the policy that the debtor will violate (fire extinguisher)
and he reminded the latter about this but he can’t do it
so he insisted instead to fulfill the said obligation so the
debtor would not break the policy. Can the insurer
argue that it is the obligation of the debtor and not the
creditor?
- No, any act that is required by the mortgagor to
be done can also be done by the mortgagee
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and it will produce the same effect. (Section 8
of the Insurance Code)
LOSS PAYABLE CLAUSE
SECTION 8 OF THE INSURANCE CODE (RA 10607)
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.
Insurance by mortgagor for benefit of mortgagee,
or policy assigned to mortgagee.
LEGAL EFFECTS:
1. The contract is deemed to be upon the interest of the
mortgagor; hence, he does not cease to be party to
the contract;
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2. Any act of the mortgagor prior to the loss, which would
otherwise avoid the insurance (like storing inflammable
materials in the insured house) affects the mortgagee
even if the property is in the hands of the mortgagee;
3. Any act which under the contract of insurance is to be
performed by the mortgagor (like payment of the
premium) may be performed by the mortgagee with
the same effect;
4. In case of loss, the mortgagee is entitled to the
proceeds to the extent of his credit; and
5. Upon recovery by the mortgagee to the extent of his
credit, the debt is extinguished.
The rule on subrogation by the insurer to the right of the
mortgagee does not apply in this case.
UNION MORTGAGE CLAUSE
SECTION 9 OF THE INSURANCE CODE (RA 10607)
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.
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Note: The operative fact is the imposition of new obligations upon
the mortgagee, that creates an entirely new contract.
Right of mortgagor to assign insurance policy to
mortgagee:
The right of the mortgagor to assign or transfer an
insurance policy is recognized in Section 8 of the Code.
Section 9 only gives the effect if the insurer agrees to the
transfer of the policy and, at the time of his assent, imposes
new obligations on the assignee. However, neither section
makes a distinction as to the kind of insurance policy that is
assignable.
LEGAL EFFECT OF NEW CONTRACT BETWEEN INSURER AND
MORTGAGEE-ASSIGNEE:
The assignment operates merely as an equitable
transfer of the policy so as to enable the mortgagee to recover
the amount due in case of loss subject to the conditions of the
policy. However, where a new and distinct consideration
passes from the mortgagee to the insurer, a new contract is
created between them, (ibid.) A novation of the original
contract takes place. Hence, the acts of the mortgagor
cannot affect the rights of the mortgagee, the assignee. (Sec.
8.)
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❖ INSURABLE INTEREST
An insurable interest is one of the most basic of all require-
ments in insurance. In essence, it is that interest which the law requires
the owner of an insurance policy to have in the person or thing
insured. INSURABLE INTEREST IS AN ESSENTIAL ELEMENT OF CONTRACT
OF INSURANCE, WITHOUT WHICH THE CONTRACT IS NULL AND VOID.
Necessity of insurable interest to validity of contract:
1. The existence of insurable interest gives a person the legal
right to insure the subject of the policy of insurance.
2. The rule is that an insurable interest is necessary to the validity
of an insurance contract whatever the subject matter of the
policy, whether upon property or life. A policy issued to a
person without interest in the subject matter insured is a mere
wager policy or contract and is void for illegality.
Guide Questions:
1. What is insurable interest?
- The reason/foundation/legal reason why a
person takes an insurance contract.
2. Who must have insurable interest?
3. What is the extent of the insurable interest?
4. When should the interest be possessed?
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INSURABLE INTEREST IN LIFE
It can be something moral in nature, no need for a
strict legal basis. There must be a lying basis why you want to
insure the life of a person LEGAL OR MORAL.
INSURABLE INTEREST IN LIFE
SECTION 10 OF THE INSURANCE CODE (RA 10607)
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;
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.
Two general classes of life policies:
Life insurance policies may be divided into two general classes.
1.) Insurance upon one's life. — For the benefit of himself,
or of his estate, in case it matures only at his death, or
for the benefit of a third person who may be
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designated as beneficiary. An application for insurance
on one's own life does not usually present an insurable
interest question.
2.) Insurance upon the life of another. — When one applies
for insurance on the life of another for the former's
benefit, he must have an insurable interest in the life of
that person.
The Insular Life Assur. Co. vs.
Ebrado, 80 SCRA 181 [1977].
A donation is an act of liberality whereby a person disposes
gratuitously a thing or right in favor of another who accepts it. (Art.
725, Civil Code.)
In essence, a life insurance policy is no different from a civil
donation insofar as the beneficiary is concerned. Both are founded
upon the same consideration: liberality. A beneficiary is like a
donee, because from the premiums of the policy which the insured
pays out of liberality, the beneficiary will receive the proceeds or
profits of said insurance. As a consequence, the proscription in
Article 739 (infra.) of the Civil Code should equally operate in life
insurance contracts.
TEST TO DETERMINE INSURABLE INTEREST OVER THE LIFE OF
ANOTHER:
1.) PECUNIARY BENEFIT ESSENTIAL
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— Under our law, there must be an expectation of
pecuniary benefit in the life of the insured to sustain the
insurance, that is, a risk of actual monetary loss from his death.
Hence, "love and affection/' "gratitude," or "friendship," by itself
is not sufficient. The expectation, however, need not have
legal basis whatsoever; it is sufficient that it be actual.
2.) BLOOD RELATIONSHIP SUFFICIENT
— The mere relationship of brother or sister, father or
child is sufficiently close to give either an insurable interest in
the life of the other. The essential thing is this: that the policy
shall be obtained in good faith, and not for the purpose of
speculating upon the hazard of a life in which the insured has
no interest.
Generally, blood or material relationships fit the concept of
insurable interest. In any event, the following have an insurable
interest in each other's life since under the provisions of Article
195 of our Family Code (Exec. Order No. 209.), they are
obliged to support each other:
a. The spouses;
b. Legitimate ascendants and descendants;
c. Parents and their legitimate children and the legiti-
mate or illegitimate children of the latter;
d. Parents and their illegitimate children and the legiti-
mate or illegitimate children of the latter;
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 INSURANCE LAW
ATTY. BARLIS TRANSCRIBED NOTES & SOLIS COMPILED NOTES
e. Legitimate brothers and sisters, whether of the full or
half-blood.
Brothers and sisters not legitimately related, whether of the full
or half-blood, are likewise bound to support each other except
only when the need for support of the brother or sister, being of
age, is due to a cause imputable to the claim- ant's fault or
negligence.
FREQUENTLY ASKED QUESTIONS:
Q: Is the list exclusive?
➔ NO, insurable interest in life need not be founded on a
strict legal basis. Therefore, you can identify persons not
necessary falling under Section 10 but unquestionably
you have insurable interest.
Q: Can you insure the life of your partner that you are engaged
with?
➔ YES
Q: Can you insure the life of your boyfriend/girlfriend?
➔ NO, not sufficient to vest insurable interest.
Q: Can you insure the life of your partner that you are
cohabiting with?
JDROXAS
➔ NO, not sufficient to vest insurable interest. (Atty. Barlis’
opinion)
Q: Should the beneficiary have an interest over the life of the
person being insured?
EX: You insured your life, then you decided to name
another person as beneficiary.
➔ A beneficiary need not possess insurable interest over
the life of the person being insured.
Exception: Article 739 of the Civil Code
Q: What is the extent of the insurable interest in life?
➔ The extent of the insurable interest in life is
IMMEASURABLE. There is no ceiling for an insurable
interest in life. There is no monetary value covering the
life of the person because it is PRICELESS.
Exception: Creditor-debtor relationship - If that
pecuniary interest (debt) has already been satisfied,
there is no more reason for the creditor to be interested
in protecting the life of the debtor. Creditors can only
insure the life of the debtor only to the extent of the
obligation.
Q: When should the insurable interest in life be possessed?
➔ A: It is required to exist only at the time the contract
takes effect. It needs not to exist thereafter.
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ATTY. BARLIS TRANSCRIBED NOTES & SOLIS COMPILED NOTES
RIGHT TO CHANGE THE BENEFICIARY ALREADY DESIGNATED IN THE POLICY
SECTION 11 OF THE INSURANCE CODE (RA 10607)
The insured shall have the right to change the beneficiary he
designated in the policy, unless he has expressly waived this right in
said policy. Notwithstanding the foregoing, in the event the insured
does not change the beneficiary during his lifetime, the designation
shall be deemed irrevocable.
INTEREST OF THE BENEFICIARY WILL BE FORFEITED IF HE
PARTICIPATED TO THE DEATH OF THE INSURED
SECTION 12 OF THE INSURANCE CODE (RA 10607)
The interest of a beneficiary in a life insurance policy shall be
forfeited when the beneficiary is the principal, accomplice, or
accessory in willfully bringing about the death of the insured. In
such a case, the share forfeited shall pass on to the other
beneficiaries, unless otherwise disqualified. In the absence of other
beneficiaries, the proceeds shall be paid in accordance with the
policy contract. If the policy contract is silent, the proceeds shall be
paid to the estate of the insured.
JDROXAS
INSURABLE INTEREST IN PROPERTY
The interest may be in the property itself (e.g., ownership), or
any relation thereto (e.g., interest of a trustee or a commission agent),
or liability in respect thereof (e.g., interest of a carrier or depository of
goods). The principle may be stated generally that anyone has an
insurable interest in property: 1.) who derives a benefit from its
existence or 2.) would suffer loss from its destruction. (Harrison vs.
Fortlege, 161 U.S. 57.)
- Sentimental values are not regarded for purposes of
insurance.
- If the insurance was taken by the person who doesn’t have
insurable interest over it, the contract is VOID.
INSURABLE INTEREST IN PROPERTY
SECTION 13 OF THE INSURANCE CODE (RA 10607)
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, is an
insurable interest.
TESTS TO DETERMINE INSURABLE INTEREST IN PROPERTY:
1. Will the person be benefited by the property’s
continued existence?
2. Will he suffer a direct pecuniary loss by its destruction?
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ATTY. BARLIS TRANSCRIBED NOTES & SOLIS COMPILED NOTES

CHARACTERISTICS OF INSURABLE INTEREST IN PROPERTY: existence or would suffer loss from its destruction.
1. Occurrence of loss may be uncertain
2. Title or right to possession is not essential, it is enough WILLFUL ACT OF THE INSURED WILL NOT SUBJECT THEM TO CLAIMS:
Section 89 of the Insurance Code (Republic Act No. 10607) is clear -
that he is so situated with respect to the property that
an insurer is not liable for a loss caused by the willful act of the
he will suffer loss as the proximate result of its damage insured, viz.:
or destruction.
Section 89. An insurer is not liable for a loss caused by the willful act
or through the connivance of the insured; but he is not exonerated
UCPB GENERAL, INSURANCE CO., V. ASGARD by the negligence of the insured, or of the insurance agents or
others.
CORRUGATED BOX MANUFACTURING CORP.,
The insurer is not liable for a loss caused by the intentional act of the
Section 13 of the Insurance Code defines insurable interest as
insured or through his connivance. Such damage/loss is not an
"every interest in property, whether real or personal, or any relation
insurable risk because the occurrence of the loss was subject to the
thereto, or liability in respect thereof, of such nature that a
control of one of the parties and not merely caused by the
contemplated peril might directly damnify the insured."
negligence of the insured.
Parenthetically, under Section 14 of the same Code, an insurable
interest in property may consist in: (a) an existing interest, like that of
an owner or lienholder; (b) an inchoate interest founded on existing
interest, like that of a stockholder in corporate property; or (c) an INSURABLE INTEREST IN PROPERTY MAY CONSIST THE FOLLOWING
expectancy, coupled with an existing interest in that out of which SECTION 14 OF THE INSURANCE CODE (RA 10607)
the expectancy arises, like that of a shipper of goods in the profits
he expects to make from the sale thereof.87
An insurable interest in property may consist in:
(a) An existing interest;
Therefore, an insurable interest in property does not necessarily
imply a property interest in, or a lien upon, or possession of, the (b) An inchoate interest founded on an existing interest; or
subject matter of the insurance, and neither the title nor a (c) An expectancy, coupled with an existing interest in that out of
beneficial interest is requisite to the existence of such an interest. It which the expectancy arises.
is sufficient that the insured is so situated with reference to the
property that he would be liable to loss should it be injured or
destroyed by the peril against which it is insured. Anyone has an Insurable interest in property need not be an existing interest. It
insurable interest in property who derives a benefit from its may consist merely of an inchoate interest or an expectancy:

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ATTY. BARLIS TRANSCRIBED NOTES & SOLIS COMPILED NOTES

1.) An existing interest — The existing interest in a property may

A carrier or depository of any kind has an in- surable interest in a
be a legal title or equitable title. Undoubtedly, the absolute
thing held by him as such, to the ex- tent of his liability but not to
owner of property has an insurable interest thereon.
exceed the value thereof
2.) An inchoate interest — Such inchoate interest must be
founded on an existing interest. Such a stockholder has an
inchoate interest in the property of the corporation of which
MERE CONTINGENT OR EXPECTANT INTEREST IS NOT INSURABLE
he is stockholder, which is founded on an existing interest
SECTION 16 OF THE INSURANCE CODE (RA 10607)
arising from his ownership of shares in the corporation. His
insurable interest is limited to the extent of the value of his
A mere contingent or expectant interest in anything, not founded
interest or to his share in the distribution of the corporate
on an actual right to the thing, nor upon any valid contract for it, is
assets upon dissolution,
not insurable.
3.) An expectancy — The expectancy must be coupled with an
existing interest in that out of which such expectancy arises. ➢ A mere hope or expectation of benefit which may be
Such as: frustrated by the happening of some event uncoupled with
a. a farmer may insure future crops if they are to be any present legal right will not support a contract of
grown on land owned by him at the time of the insurance.
issuance of the policy, or although the crops are to
be raised by him on the land of another, provided
MEASURE OF INSURABLE INTEREST IN PROPERTY
the crops will belong to him when produced.
b. an owner of a business can insure against a SECTION 17 OF THE INSURANCE CODE (RA 10607)
contingency which may cause loss of profits resulting
The measure of an insurable interest in property is the extent to
from the cessation or interruption of his business.
which the insured might be damnified by loss or injury thereof.

WAGERING POLICY IS VOID:

INSURABLE INTEREST OF CARRIER OR DEPOSITORY
SECTION 15 OF THE INSURANCE CODE (RA 10607)
➢ Any contract of property insurance that gives to the insured
more than indemnity against his actual loss that may be
suffered by the happening of the event insured against is in
the nature of a wagering policy contrary to public policy and
void.

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ATTY. BARLIS TRANSCRIBED NOTES & SOLIS COMPILED NOTES
ALWAYS FOR THE BENEFIT OF SOME PERSON
SECTION 18 OF THE INSURANCE CODE (RA 10607)
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.
EFFECT OF ABSENCE OF INSURABLE INTEREST IN PROPERTY INSURED:
1. An insurance taken out by a person on property in which he
has no insurable interest is VOID.
➢ Where the insurance is invalidated on the ground
that no insurable interest exists, the premium is
ordinarily returned to the insured unless he is in pari
delicto with the insurer.
2. Doctrine of waiver or estoppel not applicable — This doctrine
cannot be invoked since the public has an interest in the
matter independent of the consent or concurrence of the
parties.
WHEN MUST INSURABLE INTEREST EXIST
SECTION 19 OF THE INSURANCE CODE (RA 10607)
An interest in property insured must exist:
1. when the insurance takes effect, and
2. when the loss occurs, but need not exist in the meantime;
and
JDROXAS
interest in the life or health of a person insured must exist:
1. when the insurance takes effect,
2. but need not exist thereafter or when the loss occurs.
Insurable interest in PROPERTY must exist at two distinct times:
1. on the date of execution of the contract of insurance; and
2. on the date of the occurrence of the risk insured against,
otherwise, the policy is VOID. Thus, if a fire occurs after the sale or
alienation of the property, the former owner cannot recover on the
policy.
ILLUSTRATION:
A. NO INSURABLE INTEREST AT THE TIME OF THE LOSS
D insured his house on May 15, 2002 for a period of one year.
Without assigning the policy, he sold the house to B on July 10, 2002. If
the house was accidentally burned on September 15,2002, D cannot
recover because his insurable interest was no longer existing when
the loss occurred. However, if on September 11, 2002, D reacquired
the house from B, D may recover on the policy because insurable
interest need not exist during the intervening period from July 10, 2002
when he sold the house, to September 10, 2002.
B. NO INSURABLE INTEREST AT THE TIME THE CONTRACT TOOK
EFFECT
Suppose in the same example, C is an unsecured creditor of
D for the amount of P100,000.00 and he insured D's house on
September 12, 2002 for the same amount. The house burned
accidentally on September 15, 2002.
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 INSURANCE LAW
ATTY. BARLIS TRANSCRIBED NOTES & SOLIS COMPILED NOTES
Has C the right to collect the proceeds of the insurance? No, because
being a general creditor without any lien on D's house, C had no
insurable interest when he insured it. (see Sec. 16.) But, suppose D sold
the house to C before September 15, 2002 when the loss occurred.
Not even then. C did not have insurable interest in the house when
the insurance took effect.
Insurable interest in LIFE:
The insurable interest requirement is satisfied if the interest
exists at the time the policy is procured, even if it has ceased to exist
at the time of the insured's death.
SUSPENSION OF INSURANCE
SECTION 20 OF THE INSURANCE CODE (RA 10607)
Except in the cases specified in the next four sections, and in the
cases of life, accident, and health insurance, a change of interest
in any part of a thing insured unaccompanied by a corresponding
change of interest in the insurance, 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.
EFFECT OF CHANGE/LOSS OF INTEREST:
GENERAL RULE:
The mere transfer of a thing insured does not transfer the
policy but SUSPENDS it until the same person becomes the owner of
both the policy and the thing insured. (Sec. 58.) This rule is embodied
in Section 20 and is in accordance with Section 19 that an insured
must have an insurable interest in the property insured at the time of
JDROXAS
loss. Note that the contract is not rendered void but is merely
suspended by a change of interest.
EXCEPTIONS: (Change of interest that does not affect the right of the
insured to be indemnified for the loss.)
1. In life, health, and accident insurance (Sec. 20.)
2. A change of interest in the thing insured after the occurrence
of an injury which results in a loss (Sec. 21.)
EXAMPLE: X owns a house value of 10M, insures for 10M. The house
was partially destroyed by fire. X convinced Y after the destruction,
the latter became the owner. Then X filed a claim against the insurer
= YES, X CAN CLAIM.
3. A change of interest in one or more of several things,
separately insured by one policy (Sec. 22.)
EXAMPLE: A owns five town houses. All the townhouses were insured
by A in only one policy. Town house 2 was sold, then it was destroyed
by fire. A is claiming against the insurer = A CANNOT CLAIM WITH
REGARDS TO TOWN HOUSE 2 BUT CAN CLAIM TO ALL THE OTHERS.
4. A change of interest by will or succession on the death of the
insured (Sec. 23.)
EXAMPLE: A owns a house, insured it and he died. X (Son of A) inherits
the house and insurance in case it gets destroyed.
5. A transfer of interest by one of several partners, joint owners,
or owners in common, who are jointly insured, to the others
(Sec. 24.)
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ATTY. BARLIS TRANSCRIBED NOTES & SOLIS COMPILED NOTES

EXAMPLE: X, Y and Z are partners. They own a 60M building, they share repurchase the property, A became the owner again then it was
profits and losses. Can X alone insure the building? = YES, to the extent destroyed. Can A recover? = NO, because of the stipulation of the
for which he should be damnified but not 60M (Only X, Y and Z property.
altogether can insure the building for 60M).

WAGERING OR GAMING POLICY IS VOID

COMPLICATED SCENARIO: For whatever reasons, X alone was able to
insure the property for 60M. Subsequently, X sold his interest to his SECTION 25 OF THE INSURANCE CODE (RA 10607)
partner Y. Y now owns ⅔ of interest over the building. At that time, the
Every stipulation in a policy of insurance for the payment of loss
property was destroyed. Can Y claim the proceeds of insurance? =
whether the person insured has or has not any interest in the
NO, because the insured is X and Y is not a party to the contract.
property insured, or that the policy shall be received as proof of
When X sold the property to Y, there was a loss of interest. Then
such interest, and every poli- cy executed by way of gaming or
suspension of claims exist. X AND Y MUST BE “JOINTLY INSURED” IN
wagering, is void,
ORDER FOR EITHER OF HIM TO HAVE A CLAIM OVER THE PROCEEDS OF
THE INSURANCE. ★ A contract of insurance is VOID for illegality unless the insured
has an insurable interest in the subject matter insured.
6. When a policy is so framed that it will inure to the benefit of
whomsoever, during the continuance of the risk, may STIPULATIONS PROHIBITED IN AN INSURANCE POLICY:
become the owner of the interest insured (Sec. 57.); and 1. Stipulation for the payment of loss whether the person insured
EXAMPLE: A insured his property but he later on sold it to B = B CAN has or has not any interest in the subject matter of the
CLAIM BECAUSE IT WAS FRAMED IN THE POLICY THAT IT WILL INSURE THE insurance.
BENEFIT OF WHOEVER IS THE OWNER THEREOF. 2. Stipulation that the policy shall be received as proof of insur-
able interest.
7. When there is an express prohibition against alienation in the
policy, in case of alienation, the contract of insurance is not INSURABLE INTEREST IN LIFE & PROPERTY DISTINGUISHED:
merely suspended but is avoided. (Art. 1306, Civil Code; see
IN LIFE IN PROPERTY
Sec. 24.)
EXAMPLE: A takes insurance for the property that he owns. The policy BASIS Need not be founded on Should be founded on a strict
requires no transfer unless with the consent of the insurer otherwise it is a strict legal basis. legal basis.
void. A sold the property to B without consent but A pleaded to

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ATTY. BARLIS TRANSCRIBED NOTES & SOLIS COMPILED NOTES

WHO MUST A person needs to to Both the insured and the As to the expectation of an expectation of benefit, to
POSSESS possess insurable interest beneficiary should have expectation benefit to be derived be derived from the continued
over the life of another insurable interest. of benefit to from the continued existence of the property
but need not in case of be derived existence of life need not insured, however likely and
a beneficiary. have any legal basis morally certain of realization it
whatever. A reasonable may be, will not afford a
Anyone can be made as probability is sufficient sufficient insurable interest
beneficiary except those without more. unless that expectation has a
disqualified under basis of legal right. If such a
donations (Article 739). legal basis exists, an expected
benefit, however remote,
EFFECT OF The insurance is VOID The insurance is VOID even if constitutes an insurable
LACK OF even if the beneficiary the beneficiary designated has interest.
INSURABLE designated has an an insurable interest.
INTEREST insurable interest.
If a person who has insurable FREQUENTLY ASKED QUESTIONS:
interest over a property insures
the same and then designates
it to the beneficiary without Q: Do you need to be the owner of the property to have
insurable interest. The insurable interest over it?
designation of the beneficiary
is UNENFORCEABLE, he cannot ➔ No
claim from the insurer.

WHEN it is enough that it is necessary that insurable Q: Can a child insure the property of his parents?
SHOULD IT BE insurable interest exists at interest "must exist when the ➔ No, children cannot by the mere parent and child
POSSESSED the time the policy takes insurance takes effect and
relationship be able to insure the property of their
effect and need not exist when the loss occurs, but need
at the time of the loss not exist in the meantime. parents.

As to extent Insurable interest in life Insurable interest is limited to

of insurable (save in life insurance the actual value of the interest Q: Who should possess incurable interest over the property?
interest effected by creditor on thereon. ➔ Both the insured and beneficiary should have insurable
life of debtor) is
UNLIMITED. interest in the property.

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ATTY. BARLIS TRANSCRIBED NOTES & SOLIS COMPILED NOTES

Q: Insurer without insurable interest takes insurance over the - Y cannot claim because he is not a party in the
property of his neighbor and names the latter as the contract. Insurance and house are separate property,
beneficiary? Can they claim benefits over the insurance? in this case, only the house is sold.
➔ No, the contract is void because it was entered into
without insurable interest. Q: What happens to the insurance contract upon losing the
insurable interest by selling the same to another?
Q: The insurance contract was taken by the person with ➔ Suspended
insurable interest but named a beneficiary who doesn’t have
an insurable interest.
➔ It is unenforceable with regards to the designation of
the beneficiary and not the insurance contract itself.
Therefore, the contract remains to be valid and the
designation of beneficiary is unenforceable.

Q: When should the insurable interest be possessed?

➔ Insurable interest needs to exist both:
1. at the time the contract takes effect and
2. at the time of the loss although it did not exist in
the meantime.

ILLUSTRATION:
X is the owner of the insured property, he later on sold it to Y.
Afterwards, destruction takes place:
- X cannot claim because he has no insurable interest at
the time the destruction takes place.

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ATTY. BARLIS TRANSCRIBED NOTES & SOLIS COMPILED NOTES
❖CONCEALMENT
SECTION 26 OF THE INSURANCE CODE (RA 10607)
CONCEALMENT
A neglect to communicate that which a party knows and ought to
communicate, is called a concealment.
SECTION 27 OF THE INSURANCE CODE (RA 10607)
A concealment whether intentional or unintentional entitles the
injured party to rescind a contract of insurance.
UBERRIMAE FIDEI
- literally means "utmost good faith" in Latin. It requires parties
to certain contracts to exercise the highest standard of full
disclosure of any relevant conditions, circumstances, or risks
to their counterparties.
- This doctrine is essential on account of the fact that the full
circumstances of the subject matter of insurance are, as a
rule, known to the insured only, and the insurer, in deciding
whether or not to accept a risk, must rely primarily upon the
information supplied to him by the applicant.
REQUISITES OF CONCEALMENT
Read together with Section 28, there can be no concealment unless:
1. a party knows the fact which he neglects to communicate or
disclose to the other;
JDROXAS
2. such party concealing is duty bound to disclose such fact to
the other;
3. such party concealing makes no warranty of the fact
concealed; and
4. the other party has not the means of ascertaining the fact
concealed.
NOTE: Where a warranty is made of the fact concealed, the
non-dis-closure of such fact is not concealment but constitutes a
violation of warranty.
WHEN DO WE TEST THE EXISTENCE OF KNOWLEDGE
ILLUSTRATION
August 1- The application for insurance was sent
August 10 - Received by the insurer
August 15 - X was hospitalized for serious ailment
August 20 - Insurance was approved and communicated to him: REFERENCE POINT
If prior to August 20, X never communicated with the insurer the fact that he was hospitalized, is
he guilty of concealment?
➔ YES, Knowledge is to be tested at the time when the contract of insurance takes
effect. There is a neglect to communicate which the party knows. Section 26, RA
10607.
WHAT IF THE KNOWLEDGE KNOWS BY THE PARTY TURNED OUT TO BE FALSE?
ILLUSTRATION
Based on a routine examination, X was diagnosed with AIDS. X applied for insurance but he
never revealed that he was diagnosed with AIDS. After the insurance was approved underwent
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a second opinion testing of his diagnosis which turned out to be negative. He again underwent a
third opinion and tested negative again. Thereafter, he died.
Suppose that he never reveals his diagnosis before he applied for insurance, is he guilty of
concealment?
➔ No, a party must know facts which are TRUE. Hence, there was no fact concealed.
(Opinion of Atty. Barlis)
NOTE: If an essential element of the contract is affected then the insurer can
still invoke the fact that there was concealment even if there is no connection
anymore with the cause of the loss and the fact that has been concealed.
2. Facts that needs to be disclosed only when asked
SECTION 30 OF THE INSURANCE CODE (RA 10607)

Neither party to a contract of insurance is bound to communicate

CERTAIN FACTS THAT THE INSURED NEEDS TO REVEAL:
information of the matters following, except in answer to the inquiries of the
1. Facts that needs to be disclosed even if not asked
other:
SECTION 28 OF THE INSURANCE CODE (RA 10607)
"(a) Those which the other knows;
MATERIAL FACTS
Each party to a contract of insurance must communicate to the other, in "(b) Those which, in the exercise of ordinary care, the other ought to know,
good faith, all facts within his knowledge which are MATERIAL to the and of which the former has no reason to suppose him ignorant;
contract and as to which he makes no warranty, and which the other has
not the means of ascertaining. "(c) Those of which the other waives communication;

"(d) Those which prove or tend to prove the existence of a risk excluded by
SECTION 31 OF THE INSURANCE CODE (RA 10607) a warranty, and which are not otherwise material; and

MATERIALITY "(e) Those which relate to a risk excepted from the policy and which are not
Materiality is to be determined not by the event, but solely by the probable otherwise material.
and reasonable INFLUENCE OF THE FACTS upon the party to whom the
communication is due, in forming his estimate of the disadvantages of the
3. Facts that do not needs to be disclosed even if asked
proposed contract, or in making his inquiries.
4. Even if there is a wrongful revelation, there is no concealment
A FACT IS MATERIAL IF:
SECTION 35 OF THE INSURANCE CODE (RA 10607)
a. It will affect the decision of the insurer whether or not to
accept the risk.
Neither party to a contract of insurance is bound to communicate, even
b. It will affect the determination of the premium.
upon inquiry, information of his own JUDGMENT upon the matters in question.

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ATTY. BARLIS TRANSCRIBED NOTES & SOLIS COMPILED NOTES
EXAMPLE:
a. How long will you live?
b. Can you rate the state of your help?
SECTION 27 OF THE INSURANCE CODE (RA 10607)
EFFECT OF CONCEALMENT
A concealment whether intentional or unintentional entitles the injured
party to rescind a contract of insurance.
SECTION 29 OF THE INSURANCE CODE (RA 10607)
EFFECT OF CONCEALMENT
An intentional and fraudulent omission, on the part of one insured, to
communicate information of matters proving or tending to prove the falsity
of a warranty, entitles the insurer to rescind.
EFFECT OF CONCEALMENT
1. By the insured. — As a rule, failure on the party of the insured
to disclose conditions affecting the risk, of which he is aware,
makes the contract voidable at the insurer's option. The
reason is that insurance policies are traditionally contracts
uberrimae fidei, that is, contracts of the utmost good faith.
2. By the insurer. — The contractual duty of disclosure imposed
by utmost good faith is not required of the insured alone, but
is imposed with equal stringency upon the insurer; in fact, it is
more upon the latter, since his dominant bargaining position
carries with it stricter responsibility.
JDROXAS
The duty of utmost good faith is breached by concealment or
misrepresentation. Section 27 "entitles" the injured party to rescind a
contract of insurance by reason of concealment, implying that it is
optional on his part whether or not to exercise his right of rescission.
ADDITIONAL NOTES:
THE INSULAR LIFE INSURANCE CO. V. HEIRS OF ALVAREZ
G.R. NO. 207526 | 03 OCTOBER 2018
The statutory text is unequivocal. Insular Life correctly notes that proof of
fraudulent intent is unnecessary for the rescission of an insurance contract
on account of concealment.
This is neither because intent to defraud is intrinsically irrelevant in
concealment, nor because concealment has nothing to do with fraud. To
the contrary, it is because in insurance contracts, concealing material facts
is inherently fraudulent: "if a material fact is actually known to the [insured],
its concealment must of itself necessarily be a fraud." When one knows a
material fact and conceals it, "it is difficult to see how the inference of a
fraudulent intent or intentional concealment can be avoided." Thus, a
concealment, regardless of actual intent to defraud, "is equivalent to a false
representation."
In the present case, UnionBank approved Alvarez's loan and real estate
mortgage, and endorsed the mortgage redemption insurance to Insular
Life. Fully aware of considerations that could have disqualified Alvarez, it
nevertheless acted as though nothing was irregular. It itself acted as if, and
therefore represented that, Alvarez was qualified. Yet, when confronted
with Insular Life's challenge, it readily abandoned the stance that it had
earlier maintained and capitulated to Insular Life's assertion of fraud.
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ATTY. BARLIS TRANSCRIBED NOTES & SOLIS COMPILED NOTES

UnionBank's headlong succumbing casts doubt on its own confidence in

the information in its possession. This, in turn, raises questions on the
soundness of the credit investigation and background checks it had
conducted prior to approving Alvarez' loan.

The foreclosure here may well be a completed intervening occurrence, but

Great Pacific Life's leaning to an irremediable supervening event cannot
avail. What is involved here is not the mortgagor's medical history, as in
Great Pacific Life, which the mortgagee bank was otherwise incapable of
perfectly ascertaining. Rather, it is merely the mortgagor's age. This
information was easily available from and verifiable on several documents.
UnionBank's passivity and indifference, even when it was in a prime position
to enable a more conscientious consideration, were not just a cause of
Insular Life's rescission bereft of clear and convincing proof of a design to
defraud, but also, ultimately, of the unjust seizure of Alvarez's property. By
this complicity, UnionBank cannot be allowed to profit. Its foreclosure must
be annulled.

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ATTY. BARLIS TRANSCRIBED NOTES & SOLIS COMPILED NOTES

or life insured, will be deemed a mere expression of opinion

❖REPRESENTATION which will avoid a contract only when made in bad faith.
A representation is a factual statement made by the insured
(Bryant vs. Ocean Ins. Co., 22 Pick [Mass.] 200.)
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
KINDS OF REPRESENTATION
insurance contract.
1. Affirmative - if it relates to something that is true at the time
SECTION 37 OF THE INSURANCE CODE (RA 10607) the contract takes effect. It is any allegation as to the
existence or non-existence of a fact when the contract
A representation may be made at the time of, or before, issuance of the
begins, (see Sec. 42.) Thus, the statement of the insured that
policy.
the house to be insured is used only for residential purposes is
an affirmative representation.
“COLLATERAL INDUCEMENT” 2. Promissory - is any promise to be fulfilled after the contract
- It does not form part of the contract. It is said in order to has come into existence or any statement concerning what is
induce the insurer. to happen during the existence of the insurance.
- May be oral or written.

SECTION 36 OF THE INSURANCE CODE (RA 10607) In case of doubt: We rule the representation to be mere affirmative. A
more onerous type of representation is never presumed.
HOW COLLATERAL INDUCEMENT IS DONE?
A representation may be oral or written.
EFFECTS:
1. REPRESENTATION
- The manner by which we interpret this is in relation to how we
SECTION 39 OF THE INSURANCE CODE (RA 10607)
interpret contracts in general.
A representation as to the future is to be deemed a promise, unless it
SECTION 38 OF THE INSURANCE CODE (RA 10607)
appears that it was merely a statement of belief or expectation.

The language of a representation is to be interpreted by the same rules as

the language of contracts in general.
When representation is deemed a mere expression of opinion.
➔ An oral representation as to a future event or condition, over NOTES::
which the insured has no control, with reference to property

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ATTY. BARLIS TRANSCRIBED NOTES & SOLIS COMPILED NOTES

- If the factual circumstances would not correspond to the 2. MISREPRESENTATION

truth as promised or as represented then there is - If there was a material misrepresentation, it entitles the insurer
MISREPRESENTATION. to rescind or deny liability.

SECTION 45 OF THE INSURANCE CODE (RA 10607)

ILLUSTRATION
Insured: Represented that they are lacking manpower.
Insurer: Issued a policy that states the vessel must always be
seaworthy. He advised the insured to read it carefully.
IF REPRESENTATION IS FALSE IN A MATERIAL POINT
If a representation is false in a material point, whether affirmative or
promissory, the injured party is entitled to rescind the contract from the time
when the representation becomes false.

Despite the said policy, the insured still accepted the contract.
Later on the vessel sank. Can the insured still claim from the DISTINCTION
proceeds of the insurance?
➔ NO, the insurer is not liable because it is part of the CONCEALMENT MISREPRESENTATION

contract.
There was a failure to disclose. There was a statement that was
made but it did not correspond to
the truth.

REMEDY: Rescind the contract or deny liability.

RESCISSION

SECTION 48 OF THE INSURANCE CODE (RA 10607)

In the same scenario: supposed policy of seaworthiness is not in the
contract: Note that it is actually one of the IMPLIED WARRANTIES in
MARINE INSURANCE. Is the insurer liable?
➔ YES, because the representation made by the insured
effectively qualified the implied warranty of seaworthiness.
COMMENCEMENT OF AN ACTION FOR RESCISSION
Whenever a right to rescind a contract of insurance is given to the insurer by
any provision of this chapter, such right must be exercised previous to the
commencement of an action on the contract.

“INCONTESTABILITY”

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ATTY. BARLIS TRANSCRIBED NOTES & SOLIS COMPILED NOTES

- If the policy has already attained INCONTESTABILITY, the

"After a policy of life insurance made payable on the death of the insured
shall have been in force during the lifetime of the insured for a period of two insurer cannot invoke concealment or misrepresentation to
(2) years from the date of its issue or of its last reinstatement, the insurer avoid the contract. Requisites are the following:
cannot prove that the policy is void ab initio or is rescindable by reason of 1. It must be life insurance
the fraudulent concealment or misrepresentation of the insured or his agent. 2. The proceeds should be payable at the time of
death
3. The policy has been effective for the period of at
INSTANCES OF RESCISSION
least 2 years from the date of issuance or last
TIME TO RESCIND
reinstatement in case there is a lapse of policy.
- Should be exercised prior to the commencement of an
action on the contract. ILLUSTRATION

Jason committed a concealment (that he was sick), he paid the

NOTE: Commencement of an action happens at the time when the
premiums but after 2 ½ years he died from the ailment he is
initiatory pleading is filed before a court or body of competent
suffering. Can the insurer rescind the contract?
jurisdiction. The mere filing of a claim with an insurer is not considered ➔ NO, the policy has already attained incontestability.
as commencement of an action.

What if the insured committed fraud? Can that be invoked?

FAILURE TO RESCIND BEFORE COMMENCEMENT OF ACTION
➔ Simple fraud such as concealment is barred by
- If the insurer failed to exercise the right to rescind prior to the
incontestability. If the context is VICIOUS FRAUD, that is not
commencement of action on the contract: IT CAN STILL
barred by incontestability, example is if the person is healthy is
INVOKE CONCEALMENT OR MISREPRESENTATION AS A
substituted by a person who is sick and applied for insurance.
DEFENSE.

WAIVER OF RIGHTS TO RESCIND

- A possibility of a waiver can take place if an insurer continues
to receive premiums notwithstanding the knowledge of the
fact that has been misrepresented/concealed.

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ATTY. BARLIS TRANSCRIBED NOTES & SOLIS COMPILED NOTES

KINDS OF WARRANTIES
❖WARRANTIES
- Warranty is a statement or promise by the insured set forth in SECTION 67 OF THE INSURANCE CODE (RA 10607)
the policy itself or incorporated in it by proper reference, the
A warranty is either expressed or implied.
untruth or nonfulfillment of which in any respect and without
reference to whether the insurer was in fact prejudiced by 1. EXPRESS WARRANTY
such untruth or nonfulfillment, renders the policy voidable by - is an agreement contained in the policy or clearly
the insurer. incorporated therein as part thereof whereby the
insured stipulates that certain facts relating to the risk
NATURE AND FORM OF WARRANTIES are or shall be true or certain acts relating to the
1. It must be INCORPORATED same subjects have been or shall be done.
2. It must be WRITTEN 2. IMPLIED WARRANTY
3. May refer to the PAST, PRESENT or FUTURE - is a warranty which from the very nature of the
contract or from the general tenor of the words,
SECTION 68 OF THE INSURANCE CODE (RA 10607)
although no express warranty is mentioned, is

A warranty may relate to the past, the present, the future, or to any or all of
these.
EXAMPLES:
a. A stipulation in the policy that the insured never suffered any heart
ailment is a warranty that relates to the past, while a stipulation that a
building is occupied as a dwelling is a warranty that relates to the
present.
b. Where the insured makes a stipulation that he would employ a
watchman, or install appliances for extinguishing fires, or that he
would not store or keep for sale hazardous goods in the building
insured during the pendency of the policy, the warranty is one that
relates to the future.
necessarily embodied in the policy as a part thereof
and which binds the insured as though expressed in
the contract.
Example: requirement of seaworthiness in MARINE INSURANCE.
3. AFFIRMATIVE WARRANTY
- is one which asserts the existence of a fact or
condition at the time it is made. The warranty is
continuing if it is one that must be satisfied during the
entire coverage period of the insurance.
4. PROMISSORY WARRANTY
- not infrequently called "executory" warranty, is one
where the insured stipulates that certain facts or
conditions pertaining to the risk shall exist or that

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certain things with reference thereto shall be done or
omitted, It is in the nature of a condition subsequent.
REPRESENTATION AND WARRANTY DISTINGUISHED
WARRANTY
Part of the contract whether stated
explicitly or incorporated by way of
reference.
Must be strictly complied with.
Mere falsity of the warranty is
enough to avoid the contract.
Materiality is presumed.
Good faith is IMMATERIAL.
Mere non fulfillment amounts to
breach.
Warranties are committed by the
insured.
JDROXAS
INSURANCE LAW
ATTY. BARLIS TRANSCRIBED NOTES & SOLIS COMPILED NOTES
REPRESENTATION
Collateral inducement which are
not part of the contract nor
incorporated but designed to
collaterally induce the other party to
enter the contract of the insurance.
Substantial compliance is enough.
For it to cause avoidance,
misrepresentation should be made
with intent to defraud.
It should be shown that what has
been misrepresented is material.
Good faith can be considered.
Misrepresentation must amount to
fraud before there is breach.
Can be made by both the insured
and the insurer.
EFFECTS OF VIOLATION OF WARRANTY
SECTION 74 OF THE INSURANCE CODE (RA 10607)
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.
EXCEPTION:
1. If before the time arrives for the performance of the warranty
relating to the future, a loss insured against happens.
2. If before the time arrives for the performance of the warranty
relating to the future, performance has become unlawful.
3. If before the time arrives for the performance of the warranty
relating to the future, performance becomes impossible.
BREACH OF IMMATERIAL PROVISION
SECTION 75 OF THE INSURANCE CODE (RA 10607)
A policy may declare that a violation of specified provisions thereof shall
avoid it, otherwise the breach of an immaterial provision does not avoid the
policy.
Ordinarily a violation of an immaterial provision does not
avoid the policy. However, if the parties 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.
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ATTY. BARLIS TRANSCRIBED NOTES & SOLIS COMPILED NOTES

BREACH OF WARRANTY WITHOUT FRAUD WARRANTIES VS. CONDITIONS IN INSURANCE

SECTION 76 OF THE INSURANCE CODE (RA 10607) WARRANTY CONDITIONS IN INSURANCE

A breach of warranty without fraud merely exonerates an insurer from the Warranties do not affect the Condition precedent affects such
time that it occurs, or where it is broken in its inception, prevents the policy attachment of the risk. attachment.

from attaching to the risk.

Violation of warranty entitles the Violation of condition subsequent
1. If it existed or was committed at the effectivity of the policy, it insurer to rescind. does not cause the rescission of a
policy but may result in denial of
prevented the policy from attaching to the risk; hence, the
insured’s claim.
insurer is not liable from the beginning.
2. If it occurred after the effectivity of the policy, the insured is
EXCEPTIONS IN INSURANCE
exempted from liability for losses incurred after the breach.
Exceptions are specific risks which are removed from the
general risks undertaken by the insurer. In other words, they are risks
CONDITIONS IN INSURANCE
which the insurer is not willing to undertake.
Conditions are events signifying either an occurrence or
nonoccurrence that alters the previously existing legal relations of the
WARRANTIES VS. CONDITIONS AND EXCEPTIONS
parties to the contract.
WARRANTY EXCEPTIONS CONDITIONS IN
1. Conditions precedent INSURANCE
- Those which call for the happening of some event or
Statement as a fact or Refer to the risks which Conditions refer to acts
performance of some act before the contract shall be something to be done the insurer is not willing which are to be done
binding on the parties. or not to be done to undertake. or not to be done
which does not affect which would affect the
the policy from taking effectivity of the policy
2. Conditions subsequent into effect.
- Those which pertain not to the attachment of the risk and the
inception of the policy but to the contract itself after the
attachment of the risk.

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