Insurable Interest; Life vs.

Property Insurance (2002)

Distinguish insurable interest in property insurance from insurable interest in life insurance. (5%)
SUGGESTED ANSWER:
a) In property insurance, the expectation of benefit must have a legal basis. In life insurance, the
expectation of benefit to be derived from the continued existence of a life need not have any legal basis.
b) In property insurance, the actual value of the interest therein is the limit of the insurance that can validly
be placed thereon. In life insurance, there is no limit to the amount of insurance that may be taken upon
life.
c) In property insurance, an interest insured must exist when the insurance takes effect and when the loss
occurs but need not exist in the meantime. In life insurance, it is enough that insurable interest exists at
the time when the contract is made but it need not exist at the time of loss.
Insurance; Life Insurance; Assignment of Policy (1991)
The policy of insurance upon his life, with a face value of P100th was assigned by Jose, a married man
with 2 legitimate children, to his nephew Y as security for a loan of P50th. He did not give the insurer any
written notice of such assignment despite the explicit provision to that effect in the policy. Jose died. Upon
the claim on the policy by the assignee, the insurer refused to pay on the ground that it was not notified of
the assignment. Upon the other hand, the heirs of Jose contended that Y is not entitled to any amount
under the policy because the assignment without due notice to the insurer was void. Resolve the issues.
SUGGESTED ANSWER:
A life insurance is assignable. A provision, however, in the policy stating that written notice of such an
assignment should be given to the insurer is valid (Secs 181-182 Ins Code). The failure of the notice of
assignment would thus preclude the assignee from claiming rights under the policy. The failure of notice
did not, however, avoid the policy; hence, upon the death of Jose, the proceeds would, in the absence of
a designated beneficiary, go to the estate of the insured. The estate, in turn, would be liable for the loan of
P50,000 owing in favor of Y.
Insurable Interest; Life vs. Property Insurance (1997)
a) A obtains a fire insurance on his house and as a generous gesture names his neighbor as the
beneficiary. If A‘s house is destroyed by fire, can B successfully claim against the policy?
b) A obtains insurance over his life and names his neighbor B the beneficiary because of A‘s secret love
for B. If A dies, can B successfully claim against the policy?
SUGGESTED ANSWER:
a) No. In property insurance, the beneficiary must have insurable interest in the property insured. (Sec 18
Ins Code). B does not have insurable interest in the house insured.
b) Yes. In life insurance, it is not required that the beneficiary must have insurable interest in the life of the
insured. It was the insured himself who took the policy on his own life.
Insurable Interest; Property Insurance (2001)
JQ, owner of a condominium unit, insured the same against fire with the XYZ Insurance Co., and made
the loss payable to his brother, MLQ. In case of loss by fire of the said condominium unit, who may
recover on the fire insurance policy? State the reason(s) for your answer. (5%)
SUGGESTED ANSWER:
JQ can recover on the fire insurance policy for the loss of said condominium unit. He has the insurable
interest as owner-insured. As beneficiary in the fire insurance policy, MLQ cannot recover on the fire
insurance policy. For the beneficiary to recover on the fire or property insurance policy, it is required that
he must have insurable interest in the property insured. In this case, MLQ does not have insurable
interest in the condominium unit.

Insurance; Life Insurance; Assignment of Policy (1991)

The policy of insurance upon his life, with a face value of P100th was assigned by Jose, a married man
with 2 legitimate children, to his nephew Y as security for a loan of P50th. He did not give the insurer any
written notice of such assignment despite the explicit provision to that effect in the policy. Jose died. Upon
the claim on the policy by the assignee, the insurer refused to pay on the ground that it was not notified of
the assignment. Upon the other hand, the heirs of Jose contended that Y is not entitled to any amount
under the policy because the assignment without due notice to the insurer was void. Resolve the issues.
SUGGESTED ANSWER:
A life insurance is assignable. A provision, however, in the policy stating that written notice of such an
assignment should be given to the insurer is valid (Secs 181-182 Ins Code). The failure of the notice of
assignment would thus preclude the assignee from claiming rights under the policy. The failure of notice
did not, however, avoid the policy; hence, upon the death of Jose, the proceeds would, in the absence of
a designated beneficiary, go to the estate of the insured. The estate, in turn, would be liable for the loan of
P50,000 owing in favor of Y.
Loss: Actual Total Loss (1996)
RC Corporation purchased rice from Thailand, which it intended to sell locally. Due to stormy weather, the
ship carrying the rice became submerged in sea water, and with it the rice cargo. When the cargo arrived
in Manila, RC filed a claim for total loss with the insurer, because the rice was no longer fit for human
consumption. Admittedly, the rice could still be used as animal feed. Is RC‘s claim for total loss justified?
Explain.
SUGGESTED ANSWER:
Yes, RC‘s claim for total loss is justified. The rice, which was imported from Thailand for sale locally, is
obviously intended for consumption by the public. The complete physical destruction of the rice is not
essential to constitute an actual total loss. Such a loss exists in this case since the rice, having been
soaked in sea water and thereby rendered unfit for human consumption, has become totally useless for
the purpose for which it was imported (Pan Malayan Ins Co v CA gr 95070 Sep 5, 1991)
Loss: Constructive Total Loss (2005)
M/V Pearly Shells, a passenger and cargo vessel, was insured for P40,000,000.00 against ―constructive
total loss.‖ Due to a typhoon, it sank near Palawan. Luckily, there were no casualties, only injured
passengers. The ship owner sent a notice of abandonment of his interest over the vessel to the insurance
company which then hired professionals to afloat the vessel for P900,000.00. When re-floated, the vessel
needed repairs estimated at P2,000,000.00. The insurance company refused to pay the claim of the ship
owner, stating that there was ―no constructive total loss.‖
a) Was there ―constructive total loss‖ to entitle the ship owner to recover from the insurance company?
Explain.
b) Was it proper for the ship owner to send a notice of abandonment to the insurance company? Explain.
(5%)
SUGGESTED ANSWER:
a)No, there was no "constructive total loss" because the vessel was refloated and the costs of refloating
plus the needed repairs (P 2.9 Million) will not be more than three-fourths of the value of the vessel. A
constructive total loss is one which gives to a person insured a right to abandon. (Sec, 131, Insurance
Code) There would have been a constructive total loss had the vessel MN Pearly Shells suffer loss or
needed refloating and repairs of more than the required three-fourths of its value, i.e., more than P30.0
Million (Sec. 139, Insurance Code, cited in Oriental Assurance v. Court of Appeals and Panama Saw Mill,
G.R. No. 94052, August 9, 1991) However, the insurance company shall pay for the total costs of
refloating and needed repairs (P2.9 Million).

b)No, it was not proper for the ship owner to send a notice of abandonment to the insurance company
because abandonment can only be availed of when, in a marine insurance contract, the amount to be
expended to recover the vessel would have been more than three-fourths of its value. Vessel MN Pearly
Shells needed only P2.9 Million, which does not meet the required three-fourths of its value to merit
abandonment. (Section 139, Insurance Code, cited in Oriental Assurance v. Court of Appeals and
Panama Saiv Mill, G.R. No. 94052, August 9, 1991)
Loss: Total Loss Only (1992)
An insurance company issued a marine insurance policy covering a shipment by sea from Mindoro to
Batangas of 1,000 pieces of Mindoro garden stones against ―total loss only.‖ The stones were loaded in
two lighters, the first with 600 pieces and the second with 400 pieces. Because of rough seas, damage
was caused the second lighter resulting in the loss of 325 out of the 400 pieces. The owner of the
shipment filed claims against the insurance company on the ground of constructive total loss inasmuch as
more than 3⁄4 of the value of the stones had been lost in one of the lighters. Is the insurance company
liable under its policy? Why?
SUGGESTED ANSWER:
The insurance company is not liable under its policy covering against ―total loss only‖ the shipment of
1,000 pieces of Mindoro garden stones. There is no constructive total loss that can claimed since the 3⁄4
rule is to be computed on the total 1,000 pieces of Mindoro garden stones covered by the single policy
coverage (see Oriental Assurance Co v CA 200 s 459)
Marine Insurance; Implied Warranties (2000)
What warranties are implied in marine insurance?
SUGGESTED ANSWER:
The following warranties are implied in marine insurance:
1) That the ship is seaworthy to make the voyage and/or to take in certain cargoes
2) That the ship shall not deviate from the voyage insured;
3) That the ship shall carry the necessary documents to show nationality or neutrality and that it will not
carry any document which will cast reasonable suspicion thereon;
4) That the ship shall not carry contraband, especially if it is making a voyage through belligerent waters.
Marine Insurance; Peril of the Ship vs. Peril of the Sea (1998)
A marine insurance policy on a cargo states that ―the insurer shall be liable for losses incident to perils of
the sea.‖ During the voyage, seawater entered the compartment where the cargo was stored due to the
defective drainpipe of the ship. The insured filed an action on the policy for recovery of the damages
caused to the cargo. May the insured recover damages? (5%)
SUGGESTED ANSWER:
No. The proximate cause of the damage to the cargo insured was the defective drainpipe of the ship. This
is peril of the ship, and not peril of the sea. The defect in the drainpipe was the result of the ordinary use
of the ship. To recover under a marine insurance policy, the proximate cause of the loss or damage must
be peril of the sea.