Insurance law

2010 bar examination

X
To secure a loan of P10 million, Mario mortgaged his building to Armando. In accordance with the
loan arrangements, Mario had the building insured with First Insurance Company for P10 million,
designating Armando as the beneficiary.
Armando also took an insurance on the building upon his own interest with Second Insurance
Company for P5 million.
The building was totally destroyed by fire, a peril insured against under both insurance policies. It
was subsequently determined that the fire had been intentionally started by Mario and that in
violation of the loan agreement, he had been storing inflammable materials in the building.
a.How much, if any, can Armando recover from either or both insurance companies? (2%)
b.What happens to the P10 million debt of Mario to Armando? Explain. (3%)
SUGGESTED ANSWER:
(a)
Armando can receive P5M from second insurance company. As mortgagee, he had insurable
interest in the building. Armando cannot collect anything from First Insurance Company. First Insurance
Company is not liable for the loss of the building. First, it was due to a willful act of mario, who committed
arson. Second, fire insurance policies contain a warranty that the insured will not store hazardous materials
within the insured premises. Mario breached this warranty when he stored flammable materials on the
building. These two factors exonerate First Insurance Company from liability to armando as mortgagee even
though it was mario who committed them. (sec. 8 IC)
(b)
Since Armando would have collected P5M from second Insurance Company, this amount should be
considered as partial payment of the loan. Armando can only collect the balance of P5M. Second Insurance
Company can recover from Mario the amount of P5M it paid, because it became subrogated to the rights of
Armando.
XI
Enrique obtained from Seguro Insurance Company a comprehensive motor vehicle insurance to
cover his top of the line Aston Martin. The policy was issued on March 31, 2010 and, on even date,
Enrique paid the premium with a personal check postdated April 6, 2010.
On April 5, 2010, the car was involved in an accident that resulted in its total loss.
On April 10, 2010, the drawee bank returned Enriques check with the notation "Insufficient Funds."
Upon notification, Enrique immediately deposited additional funds with the bank and asked the
insurer to redeposit the check. Enrique thereupon claimed indemnity from the insurer. Is the insurer
liable under the insurance coverage? Why or why not? (3%)
SUGGESTED ANSWER:
The insurer is not liable under the insurance policy. Under article 1249 of the civil code, the delivery of a
check produces the effect of payment only when it is encashed. The loss occurred on April 5, 2010. When
the check was deposited, it was returned on April 10, 2010 for insufficiency of funds. The check was honored
only after enrique deposited additional funds with the bank. Hence, it did not produce the effect of payment.
(vitug, Commercial laws and Jurisprudence, Vol I, pp. 250)
ALTERNATIVE ANSWER:
Yes, the insurer is liable. The insurance policy was issued. In effect, there was a grant of credit for
the payment of the premium. Te insurer can deduct the amount of the check from the proceeds of the
insurance.
XIII
Paolo, the owner of an ocean-going vessel, offered to transport the logs of Constantino from Manila
to Nagoya. Constantino accepted the offer, not knowing that the vessel was manned by an
irresponsible crew with deep-seated resentments against Paolo, their employer.
Constantino insured the cargo of logs against both perils of the sea and barratry. The logs were
improperly loaded on one side, thereby causing the vessel to tilt on one side. On the way to Nagoya,
the crew unbolted the sea valves of the vessel causing water to flood the ship hold. The vessel sank.
Constantino tried to collect from the insurance company which denied liability, given the
unworthiness of both the vessel and its crew. Constantino countered that he was not the owner of
the vessel and he could therefore not be responsible for conditions about which he was innocent.
a.Is the insurance company liable? Why or why not? (3%)
b.What is "barratry" in marine insurance? (2%)
SUGGESTED ANSWERS:
(a)
The insurance company is liable, because there is an implied warranty in every marine insurance
that the ship is seaworthy whoever is insuring the cargo, whether it be the shipowner or not. There was a
breach of warranty, because the logs were improperly loaded and the crew was irresponsible. It is the

obligation of the owner of the cargo to look for a reliable common carrier which keeps its vessel in seaworthy
condition.
(b)
barratry in marine insurance means fraud by a master or crew at the expense of the owners of the
ship or its cargo.
Barratry is any willful misconduct on the part of the master or crew in pursuance of some unlawful or
fraudulent purpose without the consent of the owner and to the prejudice of the interest of the owner.
2009 bar examinations
IV
Antarctica Life Assurance Corporation (ALAC) publicly offered a specially designed insurance policy
covering persons between the ages of 50 to 75 who may be afflicted with serious and debilitating
illnesses. Quirico applied for insurance coverage, stating that he was already 80 years old.
Nonetheless, ALAC approved his application.
Quirico then requested ALAC for the issuance of a cover note while he was trying to raise funds to
pay the insurance premium. ALAC granted the request. Ten days after he received the cover note,
Quirico had a heart seizure and had to be hospitalized. He then filed a claim on the policy.
[a] Can ALAC validly deny the claim on the ground that the insurance
coverage, as publicly
offered, was available only to persons 50 to 75 years
of age? Why or why not? (2%)
[b] Did ALACs issuance of a cover note result in the perfection of an
insurance contract
between Quirico and ALAC? Explain. (3%)
SUGGESTED ANSWER:
[a]
No. By approving the applications of Quirino who disclosed that he was already 80 years old, ALAC
waived the age requirement. ALAC is now estopped from raising such defense of age of the insured.
[b]
The issuance of a cover note by ALAC resulted in the perfection of the contract of insurance. In that
case, it is only because there is delay in the issuances of the policy that the cover note was issued.
The cover note is a receipt whereby the company agrees to insure the insured for 60 days pending
the issuance of a regular policy. No separate premium is to be paid on a cover note. It is not a separate
policy to be subsequently issued.
XIII
Ciriaco leased a commercial apartment from Supreme Building Corporation (SBC). One of the
provisions of the one-year lease contract states:
18. x x x The LESSEE shall not insure against fire the chattels, merchandise, textiles,
goods and effects placed at any stall or store or space in the leased premises without
first obtaining the written consent of the LESSOR. If the LESSEE obtains fire
insurance coverage without the consent of the LESSOR, the insurance policy is
deemed assigned and transferred to the LESSOR for the latters benefit.
Notwithstanding the stipulation in the contract, without the consent of SBC, Ciriaco insured the
merchandise inside the leased premises against loss by fire in the amount of P500,000.00 with First
United Insurance Corporation (FUIC).
A day before the lease contract expired, fire broke out inside the leased premises, damaging
Ciriacos merchandise. Having learned of the insurance earlier procured by Ciriaco, SBC demanded
from FUIC that the proceeds of the insurance policy be paid directly to it, as provided in the lease
contract. Who is legally entitled to receive the insurance proceeds? Explain. (4%)
SUGGESTED ANSWER:
Ciriaco is entitled to receive the proceeds of the insurance policy. The stipulation that the policy is
deemed assigned and transferred to SBC is void, because SBC has no insurable interest in the merchandise
of Ciriaco (cha vs CA, 277 SCRA 690)
2008 bar examinations
VII
Terrazas de Patio Verde, a condominium building, has a value of P50 Million. The owner insured the
building against fire with three (3) insurance companies for the following amounts:
Northern Insurance Corp.

- P20 Million

Southern Insurance Corp. - P30 Million

Eastern Insurance Corp.

- P50 Million

a.Is the owner's taking of insurance for the building with three (3) insurers valid? Discuss.
(3%)
b.The building was totally razed by fire. If the owner decides to claim from Eastern Insurance
Corp. only P50 Million, will the claim prosper? Explain. (2%)

SUGGESTED ANSWER:
1. Yes, as a general rule, the owner's taking of insurance for the building with three (3) insurers is valid. This
is a case of double insurance where the same person is insured by several insurers separately in respect to
the same subject and interest.
Under the Insurance Code, such an arrangement is not prohibited per se, although parties may agree upon
an "other insurance" clause, in which case the insured may be prohibited from taking additional insurance
without the insurer's consent.
In the present case, it does not appear that the parties agreed on an other insurance clause. Hence, in the
absence of any showing that such a restriction exists, there is nothing to prevent the insured from taking
another insurance over the same property, subject only to the caveat that he cannot recover more than the
value of his interest in the thing insured.
2. Yes, the claim will prosper.
In case double insurance, the insured has the option to go after any one of the insurers unless the policy
itself provides that insurers contribute ratably to the loss. In either case, he cannot recover more than the
value of his insurable interest.
In the case at bar, the insured, as owner, has an insurable interest up to P50 Million, the value of the
building. That being the case, he can therefore claim the entire P50 Million from Eastern Insurance Corp. In
turn, by the principle of contribution which applies in case of over-insurance due to double insurance,
Eastern Insurance Corp. may require the other insurers to contribute ratably to the loss, considering that they
separately insure the same interest against the same peril.
2007 bar examinations
IV.
Alfredo took out a policy to insure his commercial building against fire. The broker for the insurance
company agreed to give a 15-day credit within which to pay the insurance premium. Upon delivery of
the policy on May 15, 2006, Alfredo issued a postdated check payable on May 30, 2006. On May 28,
2006, a fire broke out and destroyed the building owned by Alfredo.
a.May Alfredo recover on the insurance policy?
b.Would your answer in (a) be the same if it was found that the proximate cause of the fire was an
explosion and that fire was but the immediate cause of loss and there is no excepted peril under the
policy?
c.If the fire was found to have been caused by Alfredo's own negligence, can he still recover on the
policy?
Reason briefly in (a), (b) and (c).
SUGGESTED ANSWERS:
(a)
Yes, Alfredo can recover on the insurance policy. Although Section 77 of the Insurance Code
provides that in fire insurance, payment of premium is necessary for validity of the policy (also known as
cash and carry provision), nonetheless, the rule has been modified by the decisions of the Supreme Court
after the promulgation of the Insurance Code. Thus, in UCPB General Insurance v. Masagana Telemart, G.R.
No. 137172, April 4, 2001, it was held that the insured should be allowed to recover on losses sustained
even when premium was paid after the fact of loss, provided payment was received by the insurer during the
credit period given to the insured. (See also South Sea Surety v. Court of Appeals, G.R. No. 102253, June 2,
1995; American Home Assurance v. Chua, G.R. No.130421, June 28, 1999) where the Supreme Court ruled
that is the check payment for premium was received by the insurer prior to the loss or within the credit
period, the insured was allowed to recover.
(b)
Yes, recovering under an insurance contract is allowed if the cause of the loss was either the
proximate or the immediate cause as long as an expected peril was not the proximate cause of the loss.
(Section 86, Insurance Code of the Philippines.) The fire being the immediate cause for the loss of the
commercial building, would warrant recovery under the policy.
(c)
Yes, he can still recover. The doctrine of contributory negligence does not in any way apply to rights
under contract of insurance, unless it is a case of willful act. (Section 87, Insurance Code of the Philippines)
2006 bar examinations
V
The Peninsula Insurance Company offered to insure Francis' brand new car against all risks in the
sum of P1 Million for 1 year. The policy was issued with the premium fixed at P60,000.00 payable in 6
months. Francis only paid the first two months installments. Despite demands, he failed to pay the

subsequent installments. Five months after the issuance of the policy, the vehicle was carnapped.
Francis filed with the insurance company a claim for its value. However, the company denied his
claim on the ground that he failed to pay the premium resulting in the cancellation of the policy.
Can Francis recover from the Peninsula Insurance Company? 5%
SUGGESTED ANSWERS:
Yes, when insured and insurer have agreed to the payment of premium by installments and partial payment
has been made at the time of loss, then the insurer becomes liable. When the car loss happened on the 5th
month, the six months agreed period of payment had not yet elapsed (UCPB General Insurance v.
Masagana Telamart, G.R. No. 137172, April 4, 2001). Francis can recover from Peninsula Insurance
Company, but the latter has the right to deduct the amount of unpaid premium from the insurance proceeds.
VII
1. What is a mutual insurance company or association? 2.5%
SUGGESTED ANSWERS:
A mutual life insurance corporation is a cooperative that promotes the welfare of its own members,
with the money collected from among themselves and solely for their own protection and not for profit.
Members are both the insurer and insured. A mutual life insurance company has no capital stock and relies
solely upon its contributions or premiums to meet unexpected losses, contingencies and expenses (Republic
v. Sunlife, G.R. No 158085, October 14, 2005).
SUGGESTED ANSWERS:
A mutual insurance company is a cooperative enterprise where the members are both the insurer
and insured. In it, the members all 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 of their interest.
2005 bar examinations
IX
#1 What are the effects of an irrevocable designation of a beneficiary under the Insurance Code?
Explain. (2%)
#2 Jacob obtained a life insurance policy for P1 Million designating irrevocably Diwata, a friend, as
his beneficiary. Jacob, however, changed his mind and wants Yob and Jojo, his other friends, to be
included as beneficiaries considering that the proceeds of the policy are sufficient for the three
friends.
Can Jacob still add Yob and Jojo as his beneficiaries? Explain. (2%)
SUGGESTED ANSWERS:
#1
The irrevocable designation gives the beneficiary a vested right over Life Insurance. The Insured
cannot act to divest the irrevocable beneficiary, in whole or in part, without the beneficiary's consent. To be
specific:
(1) The beneficiary designated in a life insurance contract cannot be changed without the consent of
the beneficiary because he has a vested interest in the policy (Philamlife v. Pineda, G.R. No. 54216, July
19,1989, citing Gcrcio v. Sun Life, G.R. No. 23703, September 28,
1925; and Go v. Redfern, G.R. No. 47705, April 25, 1841);
(2) Neither can the Insured take the cash surrender value, assign or even borrow on said policy
without the beneficiary's consent (Nario v. Philamlife, G.R. No. 22796, June 26, 1967);
(3) The Insured cannot add another beneficiary because that would reduce the amount which the
first beneficiary may recover and therefore adversely affect his vested right (Go v. Redfem, G.R. No.
47705, April 25, 1941);
(4) Unless the policy allows, the Insured cannot even designate another beneficiary should the
original beneficiary predecease him. His estate acquires the beneficiary's vested right upon his
death;
(5) The Insured cannot allow his creditors to attach or execute on the policy. (Philamlife v. Pineda,
G.R. No. 54216, July 19, 1989)
#2
No, Jacob can no longer add Yob and Jojo as his beneficiaries in addition to Diwata. As the
irrevocable beneficiary, Diwata has acquired a-vested right over Jacob's life insurance policy. Any additional
beneficiaries will reduce the amount which Diwata, as the first beneficiary, may recover, which will adversely
affect her vested right. (Go v. Redfern, G.R. No. 47705, April 25, 1941)
X
(1.)
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 shipowner 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 shipowner, stating that there was no constructive total loss.
a) Was there constructive total loss to entitle the shipowner to recover from the insurance
company? Explain.

(2.)

b) Was it proper for the shipowner to send a notice of abandonment to the insurance
company? Explain. (5%)
a) When does double insurance exist? (2%)
b) What is the nature of the liability of the several insurers in double insurance? Explain.
(2%).

SUGGESTED ANSWERS:
(1) 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).
(1) 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)
(2) a) Under Section 93 of the Insurance Code, there is double insurance when there is over-insurance with
two or more companies, covering the same property, the same insurable interest and the same risk. Double
insurance exists where the same person is insured by several insurers separately in respect of the same
subject matter and interests. (Geagonia v. Court of Appeals, G.R. No. 114427, February 6, 1995)
(2) b) The nature of the liability of the several insurers in double insurance is that each insurer is bound to
the contribute ratably to the loss in proportion to the amount for which he is liable under his contract as
provided for by Sec 94 of ICP par. The ratable contribution of each of each insurer will be determined based
on the following formula:
AMOUNT OF POLICY divided by TOTAL INSURANCE TAKEN multiplied by LOSS = LIABILITY OF THE
INSURER.
ALTERNATIVE ANSWER:
Each insurer is bound, as between himself and other insurers, to contribute ratably to the loss in proportion
to the amount for which he is liable under his contract. (Sec. 94, Insurance Code).