9/26/2015

PERFECTION OF AN
INSURANCE CONTRACT

Who may be insurers

partnerships,
associations
or
corporations who are duly

Binding Receipt
Cover Note
Riders
Clauses
Endorsements
POLICY OF INSURANCE

Insurers may be

Contents
As to recovery Kinds of Policy (Open,
Valued, Running)

authorized by the IC to engage in

insurance business - S190 to 193
ICP

The term "insurer" includes

the following:

"Insurers" do not include

"individuals"
so
an
individual
natural
cannot be an insurer.

person

(1)Professional reinsurer
-

Any person, partnership,

association or corporation
that exclusively transacts in
reinsurance
in
the
Philippines.

(2) Mutual insurance companies

- Insurance companies which insure
each other

(3) Cooperatives
(a)
Must
have
sufficient
capital
requirements under regulations issued
by the commission
(b) Must have a certificate of authority
issued by the commission which
should be renewed every year
5

(4)
Foreign
corporations

insurance

The ICP now allows foreign insurance

corporations to conduct business in the
Philippines
provided
the
following
requirements are met:
(a) Appointment of resident agent to serve
notices, proof of loss and summons;
(b) Unimpaired paid-up capital of P1 billion
pesos
(c) Deposit as security for policy holders
and securities to satisfy the commission;
(d) Investments should not exceed 20% of
its net worth or 20% of its capital.
6

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MUTUAL INSURANCE
COMPANY

Certificate of authority

- A cooperative enterprise where the

members are both the insurer and
insured.
- Members contribute, by a system of
premiums or assessments, to the
creation of a fund from which all
losses and liabilities are paid, and
where the profits are divided among
themselves, in proportion to their
interest.

No
insurance
company
can
transact
business
in
the
Philippines until it obtains a
certificate of authority.
It is issued by the insurance
commissioner and expires on the
last day of December,
3 years after issuance and
renewable every three years
thereafter.

Designation of the
beneficiary

Beneficiary
Person
designated
to
receive the proceeds of
the policy when risk
attaches.

General rule When one insures his own life,

he may designate ANY person
as the beneficiary whether or
not
the
beneficiary
has
insurable interest in the life of
the insured.

10

(b) Exceptions
Art. 739 in relation to Art. 2012 NCC.
i) Made between persons guilty of
adultery or concubinage at the time of
donation,
- Actual conviction is not necessary;
ii) Between persons found guilty of the
same
criminal
offense
or
in
consideration of it;
iii) Made to a public officer, his wife,
descendants, ascendants by reason of
his office.
11

Article 2012, NCC disqualification

APPLIES to life insurance and the
insurance contract itself remains
valid, ONLY the designation of
beneficiary is VOID.

12

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Note
that
when
the
insurance
falls
in
the
exceptions,
only
the
designation is void.
The
contract
itself
is
binding and the proceeds
will go to the estate.
13

Forfeiture in life insurance policy

(a) The interest of a beneficiary in a
life insurance policy is forfeited
when
the
beneficiary
is
the
principal, accomplice or accessory
in willfully bringing about the death
of the insured, in which case, the
forfeited share will be disposed in
the following order of priority:
i)
other
beneficiaries,
unless
disqualified;
ii) based on the stipulations in the
policy;
iii) silent policy, estate.
14

Various rules in revocability

and irrevocability

Generally revocable
The
designation
of
a
beneficiary is revocable
unless the right to revoke
is expressly waived in the
policy.

i) The innocent spouse can

revoke the designation of
the
guilty
spouse
notwithstanding stipulated
irrevocability after legal
separation

15

16

ii) When the contract is

IRREVOCABLE,
the
insured cannot assign
the beneficiary as the
beneficiary has a vested
right.

iii) Without waiver of right to

revoke based on Section
181
of
the
ICP,
the
assignment of the policy is
considered
as
IMPLIED
REVOCATION.

17

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Effects of Irrevocable
Designation Of Beneficiary
Insured cannot:
1. Assign the policy
2. Take the cash surrender
value of the policy
3. Allow his creditors to
attach or execute on the
policy;

Effects of Irrevocable
Designation Of Beneficiary
Insured cannot:
4. Add new beneficiary; or
5. Change the irrevocable
designation to revocable,
even though the change is
just and reasonable.

19

20

Effects of Irrevocable
Designation Of Beneficiary
The insured does not even retain
the power to destroy the contract
by refusing to pay the premiums
for the beneficiary can protect his
interest by paying such premiums
for he has an interest in the
fulfillment of the obligation.
21

Minor as beneficiary in life insurance

(1) Who can act in behalf of minor
(a)Generally, the JUDICIAL GUARDIAN.
In the absence of a judicial guardian,
the father, mother without necessity
of a bond when the proceeds do not
exceed 500 thousand or in a
reasonable amount determined by
the commissioner.
23

iv) If the insured refuses to

pay the premiums, the
designated
irrevocable
beneficiary may continue
the policy by paying the
premium.
22

SUBSTITUTE OF PARENTS
- In the absence or incapacity of
father or mother; the grandparent,
eldest brother or sister at least 18
years old, or any relative who has
custody of the minor insured or
beneficiary, shall act as a guardian
without need of a court order of a
judicial appointment as guardian as
long as he is not disqualified or
incapacitated.
- Payment made by the insurer to him,
24
relieves the insurer of any liability.

9/26/2015

Illegitimate
children
as
beneficiary - The designation
of an illegitimate children as
beneficiary in a deceased
father's (perhaps, mother too)
insurance policy is valid since
there is no legal prohibition
that bars
illegitimate c h i l d r e n from
b e i n g d e s i g n a t e d as
beneficiaries
25

SURETYSHIP

- An agreement whereby a party called

the surety, guarantees the performance
by another party, called the principal or
obligor, of an obligation or undertaking
in favor of another party called the
obligee.
- The liability of the surety is joint and
several but is limited to the amount of
the bond.
- Its terms are determined strictly by the
terms of the contract of suretyship in
relation
to
the
principal
contract
between the obligor and the obligee.
26

SURETYSHIP

- American Home Insurance Co. of New

York vs. F.F. Cruz & Co., Inc., 655
SCRA 248, August 10, 2011
- Although the contract of suretyship is, in
essence, secondary only to a valid
principal obligation, the suretys liability
to the creditor is DIRECT, PRIMARY, and
ABSOLUTE; hence, he becomes liable for
the debt and duty of another although he
possesses no direct or personal interest
over the obligations nor does he receive
any benefit therefrom.

A suretyship is different from a

contract of insurance but a
suretyship shall be deemed an
insurance contract only if made
by a surety who or which, as
such, is doing an insurance
business as defined under the
Insurance Code.

27

28

GENERAL CONCEPT

An insurable interest is one of the most

basic and essential requirements in an
insurance contract.

INSURABLE INTEREST

29

is that interest which a person is deemed

to have in the subject matter insured,
where he has a relation or connection
with or concern in it, such that the
person will derive pecuniary benefit or
advantage from the preservation of the
subject matter insured and will suffer
pecuniary loss or damage from its
destruction, termination, or injury by the
happening of the event insured against
30

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REASON FOR THE REQT

Generally, the litmus test is

whether the person is
interested
in
the
preservation of the insured
life despite the insurance.

31

Why must there be an

insurable interest?

The existence of an insurable

interest gives a person the
legal right to insure the subject
matter
of
the
policy
of
insurance.
Section 10 of the Insurance Code indeed
provides that every person has an
insurable interest in his own life.
Section 19 of the same code also states
that an interest in the life or health of a
person insured must exist when the
insurance takes effect, but need not
exist thereafter or when the loss occurs.
32

II IN LIFE INSURANCE

It is essential for validity and

enforceability
of
the
contract or policy.
A policy issued to a person
without
interest
in
the
subject matter is a mere
wagering contract.

Secs. 10, 11, 12 RA 10607

33

SECTION 10

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
35
or interest vested in him depends.

34

The
codal
provision
categorized as follows:

can

be

(a) Mere relationship:

- in the first enumeration.
(b) Pecuniary interest:
- last three enumeration.
- Hence, the interest of the
creditor over the life of the debtor
ceases upon full payment.
36

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In life insurance, Insurable

interest exists where there is
reasonable ground founded on
the relations of the parties
whether
pecuniary,
contractual or by blood or
affinity, and to expect some
benefit or advantage from the
continuance of the life of the
insured.
37

Problem

A takes an insurance policy on his

life and names his friend X as

beneficiary,
and
another
insurance on the life of Y in
consideration
of
love
and
affection with A as a beneficiary.

Which of the two insurances, if

any, is valid and which, if any, is
void?
39

ON
the
other
hand,
the
insurance taken by A on the life
of Y is VOID because love and
affection for the insured on the
part of the person insuring is
NOT sufficient ground to qualify
as insurable interest.
41

Person insuring life of

another
If a person will insure the
life of another payable to
himself, he must have
insurable interest on the
life of the person whose
life he is insuring.
38

The Insurance taken on A on his

life is VALID, because the
beneficiary need not have an
insurable interest in the life of
the insured.
It must be the one insuring who
has an insurable interest in the
life of the person he is insuring,
and it goes without saying that
one has an insurable interest in
his own life and health.
40

The requirement of insurable interest

to support a contract of insurance is
based upon consideration of public
policy which renders wager policies
INVALID. To sustain a contract of this
character it must appear that there is
a real concern in the life of the party
whose death would be the cause of
substantial loss to those who are
named as a beneficiary.
Mere relationship of
uncle and
nephew, employer and employee is
NOT sufficient to provide an insurable
interest on the life of the insured.
42

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Friendship or a dating relationship

is not an insurable interest in life
insurance.
A person has insurable interest
over the life of another only if he
has a pecuniary interest over the
life of such person except if the
person is his spouse or child.

43

A husband or wife can recover

the insurance upon the death of
the spouse if he or she is the
designated beneficiary since
one has insurable interest over
the life of one's spouse and it
only needs to exist when the
contract takes effect.

45

When a creditor took out a

life
insurance
over
his
debtor, he cannot recover
anymore when his debt has
been paid in full since he has
no insurable interest by
then;
on partial payment, the insurer
is liable to the outstanding
credit.
47

A parent can insure the life

of his child who is no longer
a minor or married since
insurable interest over the
life of one's children is
unqualified and imposes no
distinction to a minor or
married child.
44

A
decree
of
legal
separation does not divest
insurable interest a spouse
had over the other spouse
so one can still claim the
insurance
proceeds
as
insurable interest needs
only
to
exist
upon
perfection.
46

The heirs of a debtor

whose life has been
insured by the creditor
do
not
have
any
insurance claim as there
is no privity of contract
between them and the
insurer.
48

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There
can
be
recovery
of
insurance in case a husband who
took it, when the policy took
effect and when his wife died a
few days after their annulment
since this is a life insurance so
insurable interest only needs to
exist at the time it takes effect
and need not exist thereafter.
Hence, subsequent annulment is
no bar to recovery.
49

Section 12

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
which
event,
the
NEAREST RELATIVE of the insured
shall receive the proceeds of said
insurance if not otherwise qualified.
51

1. The legitimate children;

2. The father and mother, if living;
3. The grandfather and grandmother; or
ascendants nearest in degree, if living;
4. The illegitimate children;
5. The surviving spouse; and
6. The collateral relatives, to wit:
a. Brothers and sisters of the full blood;
b. Brothers and sisters of the half-blood;
and
c. Nephews and nieces
7. In default of the above, the STATE shall
be entitled to receive the insurance
proceeds.
53

Philamcare Health System vs. Court

of Appeals, 379 SCRA 356, 2002;
Lalican vs. Insular Life Assurance
Company Ltd, 597 SCRA 159,
2009;
El Oriente Fabrica de Tabacos vs.
Posada, 56 Phil 147, 1931

50

Who are the nearest relatives

mentioned here?
Those related to the decedent
in the order mentioned under
the
rules
of
intestate
succession such as: (the order
of the following relatives are
as follows)
52

ED, BK & OI are all creditors of B. All

three are instituted as beneficiaries of
B.
ED fails to qualify since she is Bs
concubine. BK on the other hand, eager
to claim the insurance proceeds, killed
B. OI now claims the proceeds of the
insurance.
However,
her
claim
is
opposed by BB, Bs legitimate daughter
who contends that according to Sec. 12,
it is the nearest relative who should get
the proceeds, meaning her.
Between BB and OI, who is entitled to
get the proceeds?
54

9/26/2015

OI gets the proceeds because it

was stipulated in the contract of
insurance.
Remember that the
insurance contract is the law
between the parties and hence it
must be followed by the insurance
company. Sec. 12 ONLY applies if
there is NO stipulation in the
contract of insurance as to who
are the other beneficiaries of the
proceeds.

II IN PROPERTY INSURANCE
Secs. 13 to 18 RA 10607

55

SECTION 13

56

SECTION 14

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.

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.

57

58

SECTION 15

Problem

A carrier or depository of
any kind has an insurable
interest in a thing held by
him as such, to the extent
of his liability but not to
exceed the value thereof.
59

M/V Mary Jane, a common carrier, insured

Peter Parkers goods, valued at 1M with
AmAY Insurance Company for 2M. The
vessel was hit by lightning, caught fire, and
sank. Mary Jane is now claiming 2M from
AmAY because the policy stated that the
loss due to lightning is compensable. AmAY
denies liability on the ground that:
(1) Mary Jane is not the owner of the goods
and therefore has no insurable interest; and
(2) Mary Jane cannot claim more than the
value of the goods lost. Decide.
60

10

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According to Sec. 15, a carrier has

insurable interest in a thing held
by him as such. Hence, Mary Jane
has insurable interest over the
goods of Peter Parker. However,
the same provision also states
that such insurable interest is
only up to the extent of his
liability and not to exceed the
value of the thing. Since the value
of the goods is only 1M, then
Mary Jane can only collect 1M.
61

SECTION 17
The
measure
of
an
insurable
interest
in
property is the extent to
which the insured might be
damnified by loss or injury
thereof.
63

What if the one who caused the

damage, B paid A P80,000?
What is the liability of the
Insurance Company?
The insurance claim is reduced
in the same amount of 80K.
Anything
that
reduces
or
diminishes the loss, reduces
and diminished the amount
which the insurer is bound to
pay. Hence the insurer is liable
for 20K.
65

SECTION 16
A
mere
contingent
or
expectant
interest
in
anything, not founded on
an actual right to the thing,
nor upon any valid contract
for it, is not insurable.
62

A insured his property valued

at P100,000 for P120,000. A
suffered a total loss. How
much is he entitled to
recover?
A is entitled to recover only
the value of his loss which is
100K and not 120K because
it is against public policy to
profit from a loss.
64

Under
a
building
contract,
A
constructed a house in Ayala Alabang
for 4M for Z who made an advance
payment of 1M, the balance to be paid
upon deliver of the house on Aug. 13,
xxxx. A finished the house on July 13,
xxxx so he insured the house against
fire for 4M. Before delivery of the
house in August, the house burned
down. What is the extent of the
insurable interest of A?
66

11

9/26/2015

It is still 4M, notwithstanding the

fact that he has received from Z
1M as advance payment. The
reason why he is entitled to the
whole 4M is, he has to replace the
house destroyed with another
house worth 4M as per the
contract, not one valued at only
3M. In other words, 4M was the
extent to which A was damnified
by the loss of the house.

SECTION 18
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.

67

68

Kinds of II in Property

Simplified, the provision states

that ------

NO insurable interest
=
NO
contract
of
Insurance.

69

Examples of Insurable
Interest in Property

Existing Interest
May be legal title or
equitable
title
(e.g.
Trustee/Mortgagor/Lesso
r/Mortgagee)
71

What does insurable interest in

property consist?
Insurable interest in property is
any interest therein, or liability in
respect thereof, and it may
consist in an existing interest, an
inchoate interest founded on an
existing
interest,
or
any
expectancy coupled with an
existing interest.
70

Insurable interest in property need

not be an existing interest. It can
exist as an inchoate or expectant
interest.
Inchoate Interest* - Stockholders
inchoate interest in properties of the
corporation
* Inchoate a legal right or entitlement
that is only partial and incomplete,
which may later develop into a full
property right.
72

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However, the expectancy must be

coupled
with
an
existing
interest
in
which
such
expectancy arises.
Example.
An owner of a business can
insure against a contingency
which may cause loss of profits
resulting from the cessation or
interruption of his business.

Expectancy
not
insurable unless coupled
with an interest in the
thing from which it shall
arise.

73

74

Insurable interest in
property, generally
(a) In general, a person has an
insurable interest in the property, if:
i) he derives pecuniary benefit or
advantage from its preservation;
ii) would suffer pecuniary loss, damage
or prejudice by its destruction;
iii) whether he has or has no title in it or
possession of the property.
75

(c) The principle of estoppel

cannot be invoked against
the insurer because the
requirement of the existence
of
insurable
interest
in
property
insurance
is
a
matter of public policy.

77

(b) In property insurance,

pecuniary interest over
the property is always
necessary.

76

A person having mere right of

possession of a property can
insure its full value in his own
name, even if he is not
responsible for its safekeeping
nor paying rentals. This is
because the existence of the
thing benefits him which is
pecuniary in character.
78

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An heir has no insurable

interest over properties he
will inherit because the
execution of a will do not
vest
its
heir,
even
compulsory
ones,
an
insurable interest.
79

The
carrier
has
insurable interest over
the
goods
being
shipped.

81

Mere hope or expectancy is

uninsurable as it must be
coupled
with
existing
interest based on such
expectancy; and moreover,
founded on an actual right
to the thing or upon a valid
contract.
83

During the redemption period over

a property levied upon in an
execution sale:
- the
original
owner
has
an
insurable interest during such
period as he is still the owner
during that time
- the buyer has an interest over the
subject property if the property is
not redeemed since he acquires
insurable interest at time of
purchase
80

A purchaser of goods in a
perfected
contract
of
sale,
pending delivery already have
interest
over
such
property
notwithstanding
that
the
ownership is not yet transferred
via delivery; this is because
insurable interest attaches before
actual receipt of the goods.

82

A depositary can insure the

things deposited to him since
he is responsible for the
property deposited to him and
he is liable in case of its
damage or destruction; thus,
this
connotes
insurable
interest
as
he
will
be
damnified by its loss.
84

14

9/26/2015

Gaisano Cagayan Inc. vs.

Insurance
Company
of
North America, GR No.
147839, June 8, 2006;
Malayan Insurance Company
vs.
PAP
Co.
(PHIL.
BRANCH). G.R. No. 200784,
August 07, 2013
85

II in case of mortgaged
property

Spouses Nilo Cha and Stella Uy

Cha vs. Court of Appeals, G.R.
No. 124520. August 18, 1997
- The lessor cannot be validly a
beneficiary of a fire insurance
policy taken by a lessee over his
merchandise, and the provision
in the lease contract providing
for such automatic assignment
is void for being contrary to law
and public policy.
86

Separate insurable interest

of mortgagor and mortgagee

Both the mortgagor and the

mortgagee have an insurable
interest
in
the
property
mortgaged and this interest is
separate and distinct from the
other. They may take out
separate policies at the same or
separate times.
87

What is the extent

of
the
insurable
interest
of
the
mortgagor?
89

Sec. 53 and 95, RA

10607

88

Mortgagor.
- Since the mortgagor is the
owner,
he
has
insurable
interest to the extent of the
value of the property, even
though the mortgage debt
equals (or maybe even higher)
such value; because loss of
the
property
will
not
extinguish the debt.
90

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The mortgagee may be made

the beneficial payee in the
following ways:
(a) As assignee with the
consent of owner;
(b) As pledgee without consent
of insurer;
(c) When the policy contains a
mortgage clause;
91

(f) When the contract,

though payable to the
mortgagor,
is
PROCURED
UNDER
CONTRACT to insure to
the
mortgagee's
interest;
hence,
the
latter
acquires
an
equitable lien.
93

Mortgagee (as insured)

- The mortgagee has an
insurable interest in the
mortgaged property to
the extent of the debt
secured which continues
until it is extinguished.
95

(d) A rider making the policy

payable to the mortgagee, as his
interest may appear, can be
attached as a loss payable clause;

(e) A standard mortgage clause

containing
a
collateral
independent contract between
the mortgagor and the insurer,
may be attached;

92

What is the extent of the

insurable interest of the
mortgagee?

94

(2) A mortgagee may procure a

policy but the mortgagor pays the
premium. In this case, though the
mortgagee is the insured as he
applied for the policy, informs the
agent of
his interest, pays
premiums and obtains the policy
on the assurance that it insures
him, it is a form used to insure a
mortgagor with "loss payable
clause.
96

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Sec. 8-9, RA 10607

Is it alright if both the
mortgagor
and
the
mortgage insure the same
property?

97

PROBLEM

A is the owner of a house worth

10K which he mortgaged to B to
secure a loan of 5K. What is the
insurable interests of each?
Insurable
interest
of
A,
mortgagor is P10K, while the
insurable
interest
of
B,
mortgagee is P5K.
99

B,
the
mortgagee
may
receive the 1M but is
entitled only to the extent
of his credit of P750T, and
he shall hold as trustee for
A, mortgagor, the excess
of P250T.
101

YES. The mortgagor and the mortgagee

have each an insurable interest in the
property mortgaged, and this interest is
separate and distinct from the other.
Consequently, insurance taken by one in
his own name only and in his favor alone
does not inure to the benefit of the
other.
And in case both of them take out
separate insurance policies on the same
property, or one policy covering their
respective interests, the same is not
open to the objection that there is
double insurance.
98

PROBLEM

A insured for 1M her house with

the policy providing that the loss

shall be payable to B. The house
was mortgaged to B as security
for a loan of P750K. It was
totally destroyed by accidental
fire. Who may recover on the
policy?
100

Supposing before the fire occurred

B had already been paid, who, if
at all, will receive the proceeds?
A will receive the proceeds. The
reason is that A effected the
insurance in his own name and he
did NOT cease to be a party to
the contract although it was
provided that the indemnity be
paid to B.
102

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Suppose it was B, mortgagee

who insured the house for 1M.
If the loss occurred before B
was paid who is entitled to
receive the proceeds?
B. But B can only recover
P750K, the amount of her
credit.

What if the loss occurred after B

was paid, can he still receive the
proceeds?
No. Upon payment of the debt, B
lost his insurable interest in the
property.

Will A get the proceeds?

No. Because A was never a party
to the contract. It is important to
note that it was B, mortgagee
who effected the insurance.

103

104

1. Acts or mortgagor

Standard
or
union
mortgage clause
COMPARED TO
loss payable mortgage
clause

(a)Standard or union mortgage clause

- The subsequent acts of the
mortgagor
do
not
affect
the
mortgagee
(b) Loss payable mortgage clause.
- The mortgagor does not cease to be
a party to the contract.

105

106

(2) Nature of loss payable

clause

(2) Nature of loss payable

clause

(a) In the policy obtained by the

mortgagor with loss payable clause in
favor of the mortgagee as his interest
may appear,
i) the mortgagee is only a beneficiary
under the contract, and recognized
as such by the insurer,
but not made a party to the contract
itself.

ii) This kind of policy

covers
only
such
interest
as
the
mortgagee has at the
issuance of the policy.

107

108

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Both
mortgagor
and
mortgagee have insurable
interest over a mortgaged
property. The mortgagor, to
the extent of the value of the
house since loss will not
extinguish the loan. The
mortgagee, to the extent
that he can be damnified.
109

When the mortgagor and the

mortgagee
procures
insurance
contracts
independent of each other,
for
their
respective
individual
benefits,
the
independent contracts do
not inure to the benefit of
the other. This is because
insurance is a personal
contract.
110

The
mortgagee
loses
insurable interest when the
obligation of the mortgagee
have
been
fulfilled;
he
cannot recover from the
insurance anymore since he
is not a party to the
insurance contract.

When a property is insured

for the purpose of securing a
mortgage and the mortgage
is extinguished, the insured
cannot recover anymore as
he has no insurable interest
anymore.

111

112

When interest retained by

mortgagor
a) Codal provision, Section 8
(1) UNLESS THE POLICY OTHERWISE
PROVIDES,
(a)where a mortgagor of property
effects insurance in his own name
providing that:
i) the loss shall be payable to the
mortgagee, or
ii) assigns a policy of insurance to a
mortgagee,
113

When interest retained by

mortgagor
(b) the insurance is deemed to be upon
the interest of the mortgagor,
i) who does not cease to be a party to
the original contract, and
ii) any act of his, prior to the loss,
which would otherwise avoid the
insurance, will have the same effect,
(1) although the property is in the
hands of the mortgagee,
114

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When interest retained by

mortgagor
(c) 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.
115

Indorsed insurance to mortgagee,

cannot be garnished or levied to the
extent of debt.
-If the mortgagor takes an insurance
over
the
mortgaged
property
endorsing the same to the mortgagee,
apply Section 53 of ICP. In this case,
the
insurance
proceeds
apply
exclusively to the person whose
benefit it was made, tersely, to the
beneficiary-mortgagee. To that end,
the insurance cannot be levied or
garnished to the extent of the debt to
the mortgagee.
116

When must insurable

interest in property exist
Geagonia vs. CA, February 6, 1995
RCBC vs. CA, 289 SCRA 292

117

In property insurance, the

insured
must
have
insurable interest in the
property at two points in
time, both must concur or
one cannot recover:
(a)upon the perfection, and
(b)time of loss.

119

Sec. 19, RA 10607

An interest IN PROPERTY insured
must exist when the insurance takes
effect, AND when the loss occurs, but
need not exist in the meantime

118

A buyer of goods have insurable

interest after perfection of sale
but before delivery because upon
perfection,
equitable
title
is
vested to the vendee which is a
sufficient
basis
of
insurable
interest. This is regardless of the
mode of delivery as this issue is
immaterial.

120

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the original owner, in cases

where
his
property
is
levied,
he
only
has
insurable interest during
the redemption period over
such property and he loses
such, after that period.

121

Insurable Interest in Life

and Health
Sec. 19, RA 10607

General Rule :
Must
exist
when
the
insurance takes effect,
but
need
not
exist
thereafter or when the
loss occurs.
122

BC insured her house for

Insurable Interest in Life

and Health
Exceptions:
1. When the insurance is taken by the
creditor on the life of the debtor, the
creditor is required to have insurable
interest not only at the contract but
also at the time of the debtors death.
2. When the insurance is taken by the
employer on the life of the employee.
123

A week later, BC realized how

much she missed the house

and bought it from Bill for 3M.
The next day, the house
burned down. Is the Insurer
liable
notwithstanding
the
transfer of interest from BC to
Bill during the effectivity of
the policy?
125

1M. At that time, she was

the owner of the house.
During the effectivity of the
policy, she sold the house
to Bill for 2M, but did not
transfer the policy. Because
of the effects of Sec. 20,
the
insurance
was
suspended.
124

Yes. BC had insurable

interest on the house as
she was the owner at the
time the insurance took
effect.
She
also
had
insurable interest on the
house at the time of the
loss since she had already
reacquired it from Bill.
126

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The law says BC need not have

insurable
interest
in
the
meantime,
or
during
the
intervening period between the
time
of
effectivity
of
the
insurance, and the time of the
loss. Therefore, notwithstanding
the ownership of Bill during the
intervening period, as BC had
insurable interest at the two
points in time required by law,
then the insurer is liable.

Insurable interest of
beneficiary in property, life
insurance

(1)In
property
insurance,
the
beneficiary must have
insurable interest in
the property.

127

128

(1) Extent

(a)Insurable interest in life

is unlimited, unless taken
by the creditor on the life
of the debtor.

Insurable
interest in property
COMPARED TO
insurable
interest in life insurance

(b) In property, it is limited

to its actual value.
129

130

(2) Time when insurable interest

must exist

(3) Expectation of the benefit to be

derived

(a) In LIFE INSURANCE, it is sufficient

that insurable interest exist at the
time the policy takes effect and need
not exist at the time of loss.
(b) In PROPERTY, it must exist at the
time the insurance takes effect AND
when loss occurs, but need not exist
in the meantime.

(a)In life, expectation of the

benefit to be derived need
not have any legal basis.

131

(b) In property, there must

be a legal basis.
132

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(4) As to beneficiary's interest

(a) IN LIFE INSURANCE,

i) if the insured himself secured the
policy, the beneficiary need not
have insurable interest over the
life of the insured;
ii) if the life insurance was
obtained by the beneficiary, the
latter
must
have
insurable
interest over the life of the
insured.

(4) As to beneficiary's interest

(b) In property, the

beneficiary
is
absolutely required to
have insurable interest
over the property.

133

Effect of change of interest

in the thing insured
READ
Sec. 20-24, 57&58, RA 10607;
Art. 1306, NCC

134

Change of Interest

Sections 20 24, Insurance Code

Rules when insurable interest
changes during the course of an
insurance policy
What may be transferred or
assigned:
1. Thing insured (section 20)
2. The Policy itself (section 58)
3. The claim itself (section 83)

135

SECTION 20

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,
S U S P E N D S the insurance to an
equivalent extent, until the interest in
the thing and the interest in the
insurance are vested in the same
person.
137

136

SECTION 21
A change in interest in a
thing insured, after the
occurrence of an injury
which results in a loss,
does not affect the right
of
the
insured
to
indemnity for the loss
138

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SECTION 22

SECTION 23

A change of interest in one

or more several distinct
things, separately insured
by one policy, does not
avoid the insurance as to
the others.

A change of interest, by will or

succession, on the death of the
insured, does not avoid an
insurance; and his interest in
the insurance passes to the
person taking his interest in the
thing insured.

139

140

SECTION 24

SECTION 25

A transfer of interest by one of

several partners, joint owners,
or owners in common, who are
jointly insured, to the others,
does not avoid an insurance
even though it has been agreed
that the insurance shall cease
upon an alienation of the thing
insured.

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.

141

TRANSFER OF POLICY
1. Life Insurance

142

TRANSFER OF POLICY

It can be transferred EVEN

WITHOUT the consent of
the insurer EXCEPT when
there
is
a
stipulation
requiring the consent of
the insurer before transfer.
143

2. Property insurance

It cannot be transferred
without the consent of
the insurer.

144

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TRANSFER OF POLICY

3. Casualty insurance

It
cannot
be
transferred
without
the consent of the
insurer.

The mere (absolute) transfer

of the 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.

145

146

General rule

Exceptions

A change in 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.

(1)Life, health, accident insurance

(2) Change of interest:
(a) after occurrence of injury
resulting in loss,
(b) one or more several distinct
things
which
is
separately
insured,
(c) via will or succession upon
death of the insured

147

Exceptions

(3) Transfer of interest by one or

several partners, or co-owners,
jointly insured, to the others;
(4) The policy is framed in a
manner that it benefits whoever is
exposed in the continuance of a
defined risk
- In this case, those who are
exposed are the owners of the
insured interest.
149

148

Assignee in life, property

insurance
Sec. 184, RA 10607 life or health
insurance policy may pass by transfer,
will or succession to ANY person,
whether he has an insurable interest
or not, and such person may recover
upon it whatever the insured might
have recovered
Sec. 18, RA 10607 property
insurance - except for the benefit of
some person having an insurable
interest in the property insured
150

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Insurable interest of
beneficiary and assignee of
policy
a) PROPERTY INSURANCE (1) The beneficiary and
assignee
must
have
insurable interest.
(2) The consent of the
insurer must be secured
before the assignment.
151

An provision in a contract of
lease, making the lessee the
automatic
owner
of
an
insurance contract procured
by the lessee is void because
it is contrary to law and public
policy. Hence, the lessee auto assignee (if such a term
exists), cannot recover
153

However, if a creditor takes

an insurance policy over
the life of his debtor, he
only has insurable interest
to the extent of his credit
and can only recover to
such extent.

155

Insurable interest of
beneficiary and assignee of
policy

b) LIFE INSURANCE
(1) If the INSURED takes the insurance
on his own life, he can designate
anybody who does not have insurable
interest.
(2) If a THIRD PERSON takes the policy,
the beneficiary must have insurable
interest.
(3) In case of assignment, the assignee
need not have insurable interest.
152

An insured, taking an insurance in

his own lifecan designate any
person as his beneficiary.
In this case, the beneficiary can
recover
the
entire
amount,
regardless of their relationship.
Hence, when a debtor makes a
life
insurance,
making
the
creditor
the
beneficiary,
the
creditor can take the entire
amount.
154

Spouses Cha vs. CA, (August 18,

1997);
Geagonia vs. CA,
February 6,
1995);
RCBC vs. CA (289 SCRA 292);
Gaisano
Cagayan,
Inc.
vs.
Insurance
Company of
North
America, G.R. No. 147839 (June 8,
2006).
156

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Malayan Insurance Co., Inc.,

vs. Philippine First Insurance
Co.,
Inc.
and
Reputable
Forwarder Services, Inc., G.R.
No. 184300, July 11, 2012;
Great Pacific Life vs. Court of
Appeals, 316 SCRA 677, 1999

157

Stipulation against alienation,

effect

Freedom to stipulate applied in

insurance contracts
- When there is an EXPRESS
PROHIBITION
AGAINST
ALIENATION in the policy, in
case
of
alienation,
the
contract of insurance is not
merely
suspended
but
AVOIDED. -Art. 1306 NCC
158

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