I

a)

What is the so called Incontestable Clause in insurance? Are there exceptions to its applicability? If so, state the exceptions, if any.
Ans. The incontestable clause or incontestability clause in insurance is the provision in life insurance policy that after the lapse of two
years where the policy have been in force and during the lifetime of the insured, it cannot be voided due to concealment or
misrepresentation. In other words, the insurer is estopped from contesting the policy or setting up any defense, except as is
allowed, on the ground of public policy.
There are exceptions to the incontestability of life insurance policy as stated above. These are:
a.
b.
c.
d.
e.
f.
g.

b)

That the person taking the insurance lacked insurable interest as required by law;
That the cause of death of the insured is an excepted risk;
That the premiums have not been paid;
That the conditions of the policy relating to military or naval service have been violated;
That the fraud is of a particularly vicious type, as where the policy was taken out in furtherance of a scheme to murder the
insured, or where the insured substitutes another person for the medical examination, or where the beneficiary feloniously
kills the insured.
That the beneficiary failed to furnish proof of death or to comply with any condition imposed by the policy after the loss
has happened;
That the action was not brought within the time specified.

The person whose life was insured died on November 25, 2007. His beneficiary filed a claim with the Insurer. On May 25, 2008, the
insurer denied the claim and offered to refund the premium paid upon return the policy for the cancellation. More than a month
thereafter, the beneficiary filed a complaint in court. Was there a rescission made with the period provide by law. Decide the case.
If the insurer dies within two years from the issuance of the policy, the rule on incontestability does not apply because the law says
that the policy must have been in force during the lifetime of the insured for a period of two years. Hence, his beneficiary cannot
recover on the policy. But if the insured died two years after the policy have been issued, then the beneficiary can recover provided
that any of the exceptions to the incontestability clause was not committed.

II
a)

i.
ii.

The policy of his life, with the face value of P100,000, was assigned by John, a married man with two (2) children, to his nephew Y, as
a security for a loan of P50,000.00. He did not give the insurer the written notice of such assignment despite the explicit provision to
that effect in the policy. John 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. On the other hand, the heirs of John contended that Y, is not entitled to any amount under the policy
because the assignment without due notice to the insurer was void. What are the issues, and resolved each of them.
Ans: The issues are:
Whether or not the insurer is right in not paying the assignee because they were not notified of the assignment and;
Whether or not the assignment was void because of non-notification to the insurer as alleged by the heirs of John.
The insurer is WRONG in not paying the assignee because of the non-notification of the insured of the assignment of his policy as the
it is provided by law that all life insurance policies are declared be assignable regardless of whether the assignee has an insurable
interest in the life of the insured or not. A provision in a contract of life insurance denying the insured his right to assign without the
consent of the insurer will be void. If there is no waiver on the right of the insured to change the beneficiary of his life insurance, then
the assignment is still valid. On the other hand, if there is a waiver on the right of the insured to change the beneficiary of his life
insurance, he must get the consent of the beneficiary before making the assignment. Otherwise, it is not valid.

b)

Suppose A owns a house worth P400,000.00 he insures it with X Insurance Co. Thereafter, he sells the house to B in a buy back sale
stipulations for 3 years. Suppose further that the house got burned in the meantime. May A or B collect? Explain fully.

c)
Ans. Neither A nor B can collect. In property insurance, it is provided in Section 19 of the insurance code that that insurable interest
must exist when the insurance takes effect and when the loss occurs. In the above case, although the insurable interest of A exist
when he took the insurance that insurable interest did not exist when the fire occurred. In the case of B, although he has insurable
interest when the loss occurred, he didnt have it when the insurance was taken by A. Or in other words, he is not the beneficiary
of the insurance.
III
a)

What maybe insured against? Is the consent of the husband necessary for the validity of an insurance policy taken out by married
woman out of her life or that of her children?

b)

Xs vessel left for a voyage on January 15, 2004 for Australia. On January 17, 2004, the vessel sunk without the knowledge of X and
Y Insurance Co. May X and Y, on January 17, 2004, validly enter into a contract of insurance to indemnify X in case of total loss of
the vessel?

Ans. Any contingent or unknown event, whether past or future, which may damnify a person having an insurable interest, or create a
liability against him, may be insured against. The consent of the husband is not necessary for the validly of an insurance policy taken
out by a married woman on her life or that of her children.
Yes, X and Y insurance company may enter into a contract of insurance to indemnify X in the case of the total loss of the vessel
provided that the loss of the vessel was unknown to both of them even if it happened in the past as provided by the insurance code.
(Section 3)
IV
a)

Give the legal effects where a mortgagor of property gets an insurance in his own name providing that the loss shall be payable to the
mortgagee, or assigns a policy of insurance to a mortgagee.

b)

Leuterio, a housing debtor of DBP applied for membership in a group life insurance between Grepalife and DBP under which
Grepalife agreed to insure the lives of eligible housing loan mortgagors of DBP. He was issued an insurance policy to the extent of his
DBP Mortgage indebtedness. Leuterio died, consequently, DBP submitted claim to Grepalife which refused payment due to ground of
concealment. DBP collected mortgage indebtedness by foreclosing the mortgage. The widow of Leuterio filed an action against
Grepalife for the collection of the insurance proceeds without including DBP as party. Will the action prosper? Decide.

Ans, The owner of the property, or the mortgagor, can get an insurance to his own property and provide that the loss shall be payable to the
mortgagee or assign the policy of insurance to a mortgagee. But the mortgagor cannot insure the property above his insurable interest
or the value of the property, and the mortgagee cannot recover more than the amount of the mortgage debt.
No, the action will not prosper because the widow is not named as the beneficiary of the life insurance of Leuterio as the contract is
entered into for the benefit of DBP to the extent of Leuterios mortgage indebtedness. The widow should have run after DBP for
foreclosing the mortgage not because of default in the payment of mortgage but on the non-payment of Grepalife of the insurance
proceeds. DBP should have waited until the widow cannot pay the mortgage. Until such time occurs, DBP have no right to foreclose
the property.
V
a)

State the insurable interest in the life and health of a person. Distinguish insurable interest in the life and health from that of property.

b)

When the property insured was destroyed by fire, it turned out that there were other insurance policies taken out on the property
insured by the mortgagee on the insured with no notice given to the insurance company. Can the insured still recover on the policy?
Explain briefly.

Ans. Section 10 of the Insurance Code state: 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.
Insurable interest in life and property Distinguish
Basis
As to extent of insurable interest
As to time when insurable
interest must exist
As to expectation of benefit to be
derived

Life Insurance
Unlimited
Must exist at the time the policy takes
effect and need not exist at the time of
the loss
The expectation of benefit to be derived
from the continued existence of life
need not have any legal basis whatever.
A reasonable probability is sufficient
without more.

Property insurance
Limited to the actual value of interest thereon
Must exist when the insurance takes effect
and when the loss occurs but need not exist
in the meantime
An expectation of benefit, to be derived from
the continued existence of the property
insured, however likely and morally certain
of realization it may be, will not afford a
sufficient insurable interest unless that
expectation has a basis of legal right. If such
legal basis exists, an expected benefit,
however remote, constitutes an insurable
interest.

If a house was destroyed by fire where there were several fire insurance policies were taken but without notice to the insurance
company, the mortgagor or owner/insured can still recover especially if it is the mortgagee who took out the multiple insurance
policies. The insurable interest of the mortgagor/owner is different from that of the mortgagee. The mortgagee is not obligated to give
notice to the mortgagor/owner of any insurance he has taken on the property. But where the insurance company of the mortgagee is
concerned, he may rescind the contract due to non-notification of the mortgagee of the several insurance policies that the mortgagee
has taken out on the properties.

VI
a)

Bunny Pacman, a non professional boxer, was a holder of an accident insurance policy. He participated in a boxing contest with
another person, who like his was also a non-professional boxer, of the same weight, height and size. During the boxing, Bunny
slipped and was his opponent on the left portion at the back of his head causing Bunny to fall and his head was hit the rope of the
ring. Bunny died, and in the death certificate, it showed that he died in hemorrhage intracranial, left. The insurer refused
payment of the policy on the ground that the death of Bunny, in participating the boxing, was not an accident, therefore not
covered by the insurance. Decide with reasons.

b)

On January 15, 2008, Lito Dimayuga procured a life insurance policy from Phil-Am Life Insurance, and designated his wife and
children as irrevocable beneficiaries. The wife died while the children were still minors. Consequently, Lito file a petition in
court to change beneficiaries with the consent of his minor children. Should the court grant the petition? Decide with reasons.

Ans.
Interpretation of insurance contracts
SIMON DE LA CRUZ vs. THE CAPITAL INSURANCE AND SURETY CO., INC.
G.R. No. L-21574, June 30, 1966
17 SCRA 599
FACTS:
Eduardo de la Cruz, the son of herein petitioner, was the holder of an accident insurance policy. In connection with the celebration of the New
Year, the insured, a non-professional boxer, participated in a boxing contest. In the course of his bout with another person, likewise a nonprofessional, of the same height, weight, and size, Eduardo slipped and was hit by his opponent on the left part of the back of the head, causing
Eduardo to fall, with his head hitting the rope of the ring. The insured died with the cause of death reported as hemorrhage intercranial, left.
The insurer refused to pay the proceeds of the policy on the ground that the death of the insured, caused by his participation in a boxing contest,
was not accidental and, therefore, not covered by insurance.
ISSUE: Whether or not the death of the insured is covered by the policy
HELD:
The terms accident and accidental as used in the insurance contract, have not acquired any technical meaning, and are construed by the courts
in their ordinary and common acceptation. 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 proceeds from an unknown cause and,
therefore, not expected. Without the unintentional slipping of the deceased, perhaps he would not have received the blow in the head and would
not have died. Boxing is attended with some risks of external injuries, but any injury received in the course of the game could be accidental. In
boxing, as in other equally physically rigorous sports, such as basketball or baseball, death is not ordinarily anticipated to result. If, therefore, it
ever does, the injury or death can only be accidental or produced by some unforeseen happening or event as what occurred in this case. The
insurer was liable.
Change of irrevocable beneficiaries to revocable beneficiaries need consent of the irrevocable beneficiaries
THE PHILIPPINE AMERICAN INSURANCE COMPANY vs. HONORABLE GREGORIO G. PINEDA
G.R. No. L-54216, 19 July 1989
175 SCRA 416
FACTS:
On January 15, 1968, Rodolfo Dimayuga procured an ordinary life insurance policy from the petitioner company and designated his wife and
children as irrevocable beneficiaries of said policy. In February 22, 1980, Dimayuga filed a petition before the CFI of Rizal to amend the
designation of the beneficiaries in his life policy from irrevocable to revocable.
ISSUE:
1)
2)

HELD:
1)

Whether or not the designation of the irrevocable beneficiaries could be changed or amended without the consent of all the irrevocable
beneficiaries.
Whether or not the irrevocable beneficiaries, one of whom is already deceased while the others are all minors, could validly give
consent to such amendment

NO. Needless to say, the applicable law in the instant case is the Insurance Act, otherwise known as Act No.2427 as amended, the
policy having been procured in1968. Under the said law, 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. Inevitably therefore, based on the aforequoted

provision of the contract, not to mention the law then applicable, it is only with the consent of all the beneficiaries that any change or
amendment in the policy concerning the irrevocable beneficiaries may be legally and validly effected. Both the law and the policy do
not provide for any other exception, thus, abrogating the contention of the private respondent that said designation can be amended if
the Court finds a just, reasonable ground to do so.
2)

NO. The alleged acquiescence of the six children beneficiaries of the policy (the beneficiary-wife predeceased the insured) cannot be
considered an effective ratification to the change of the beneficiaries from irrevocable to revocable. Indubitable is the fact that all the
six children named as beneficiaries were minors at the time, for which reason, they could not validly give their consent. Neither could
they act through their father insured since their interests are quite divergent from one another. Therefore, the parent-insured cannot
exercise rights and/or privileges pertaining to the insurance contract for otherwise, the vested rights of the irrevocable beneficiaries
would be rendered inconsequential.
VII

a)

Joseph and Maria got married. Two-days after the marriage, Joseph got an insurance policy covering the life of Maria and made
himself a beneficiary. Assuming that there is a divorce law in this country, after five years of marriage, Joseph and Maria
divorced. A month later, Maria died of a broken heart. Can Joseph recover under the policy? Reasons.

b)

During his lifetime, Pedro secured a fire insurance policy over his residential home. Pedro died, leaving one heir in the person of
Mario. A month later, while the policy was enforced, the housed was razed totally by fire. Can Mario recover under the policy?
Why?

Ans. Yes, Joseph can recover under the policy. The Insurance Code provides that in life insurance policy, the insurable interest must
exist when the policy takes effect but need not exist when the loss occurs. When Joseph and Maria got married, the insurable
interest exist between the spouses and Joseph has the right to take out a life insurance policy on the life of Maria. When they
divorced, this insurable interest did not exist anymore but Joseph can still recover in the event that Maria died. It did not change
the fact that Joseph is still the beneficiary. Joseph can recover on the life insurance policy of Maria.
Yes, Mario can recover from the fire insurance policy over the residential home he inherited. Although in property insurance, it
is the general rule that insurable interest must exist at the time the policy takes effect and when the loss occurs, there are
exceptions to it. One of the exceptions is a change on interest by WILL or SUCCESSION caused by the death of the insured. His
interest passes to the person taking his interest in the thing insured. In the case above, fire insurance taken by the father on a
building he owned can be inherited by the son. The son inherits the building and the fire insurance on the building.
VIII
a)

What is concealment and its requisites? Distinguish it with representation.

b)

JDV procured life insurance contract for himself with Sun Life Ins. Co. but did not reveal that he was examined and confined at
the Lung Center where he was diagnosed for renal failure, and was subjected to various tests. Subsequently, he died of an air
plane crash. Can the mother who is the beneficiary recover anything from the insurer?

Ans. Concealment is the neglect to communicate that which a party knows and ought to communicate. The requisites of concealment
are:
a.
A party knows the fact which he neglects to communicate or disclose to the other
b.
Such fact concealed is material to the risk
c.
Such party concealing is duty bound to disclose such fact to the other
d.
Such party concealing makes no warranty of the fact concealed
e.
The other party has not the means of ascertaining the fact concealed.
Representation is a statement made by the insured at the time of, or prior to, the issuance of the policy, as to an existing or past
fact or state of facts, or concerning a future happening, to give information to the insurer and otherwise induce him to enter into
the insurance contract.
CONCEALMENT
Insured withholds information of material facts from the insurer

MISREPRESENTATION
Insured makes erroneous statements of facts with the intent of inducing
the insurer to enter into the insurance contract

SUN LIFE V. CA - CONCEALMENT IN INSURANCE

245 SCRA 268 (1995)
FACTS:
On April 15, 1986, Bacani procured a life insurance contract for himself from Sun Life. He was issued a life insurance policy with double
indemnity in case of accidental death. The designated beneficiary was his mother, Bernarda. On June 26, 1987, the insured died in a plane crash.
Bernarda Bacani filed a claim with Sun Life, seeking the benefits of the insurance. Sun Life conducted an investigation and its findings prompted

it to reject the claim. Sun Life discovered that 2 weeks prior to his application, Bacani was examined and confined at the Lung Center of the
Philippines, where he was diagnosed for renal failure. During his confinement, the deceased was subjected to urinalysis, ultra-sonography and
hematology tests. He did not reveal such fact in his application. In its letter, Sun Life informed Benarda, that the insured did not disclosed
material facts relevant to the issuance of the policy, thus rendering the contract of insurance voidable. A check representing the total premiums
paid in the amount of P10,172.00 was attached to said letter. Bernarda and her husband, filed an action for specific performance against Sun Life.
RTC ruled for Bernarda holding that the facts concealed by the insured were made in good faith and under the belief that they need not be
disclosed. Moreover, it held that the health history of the insured was immaterial since the insurance policy was "non-medical." CA affirmed.
ISSUE:
Whether or not the beneficiary can claim despite the concealment.
HELD:
NO. Section 26 of the Insurance Code is explicit in requiring a party to a contract of insurance to communicate to the other, in good faith, all facts
within his knowledge which are material to the contract and as to which he makes no warranty, and which the other has no means of ascertaining.
Materiality is to be determined not by the event, but solely by the probable and reasonable influence of the facts upon the party to whom
communication is due, in forming his estimate of the disadvantages of the proposed contract or in making his inquiries (The Insurance Code, Sec
31)
The terms of the contract are clear. The insured is specifically required to disclose to the insurer matters relating to his health. The information
which the insured failed to disclose was material and relevant to the approval and the issuance of the insurance policy. The matters concealed
would have definitely affected petitioner's action on his application, either by approving it with the corresponding adjustment for a higher
premium or rejecting the same. Moreover, a disclosure may have warranted a medical examination of the insured by petitioner in order for it to
reasonably assess the risk involved in accepting the application.
Thus, "good faith" is no defense in concealment. The insured's failure to disclose the fact that he was hospitalized for two weeks prior to filing his
application for insurance, raises grave doubts about his bonafides. It appears that such concealment was deliberate on his part
IX
a)
b)
c)

Explain the doctrine of Contra Proferentum Rule in interpreting insurance contracts.

How about the doctrine of Uberrimae Fidae. How is this doctrine related to concealment, representation and breach of
warranty in insurance contracts?
Must the injured party, to escape liability, prove that the concealment is intentional?
X

a)
b)

c)

The insured was murdered. When the beneficiary claim the insurance, the insurer denied the claim on the ground that murder is
not an accident. Decide whos correct.
The insurance policy does not expressly state whether suicide is excepted in the policy. The insured employed himself as a
suicide bomber with a terrorist group and died therefrom. Can the beneficiary recover anything from the insurance?
What facts must be communicated by the insured to the insurer even if the latter does not ask them?