REVIEWER IN COMMERCIAL LAW

INSURANCE LAW

SEC. 1 THIS DECREE SHALL BE KNOWN AS

THE INSURANCE CODE.
Case #1
Enriquez vs. Sun Life Assurance of Canada
- There must be an agreement between the insurer and
the insured to constitute a valid contract of insurance.
- Acceptance of the insurer shall only bind the insured
from the time the acceptance came to his knowledge.
Case #2
Insular Life Assurance Company vs. Ebrado
- When the Insurance Code is silent on a given issue (ie
donation made between persons committing illicit
relationships) the Civil Code shall be applied in
suppletory character.
Case #3
Constantino vs Asia Life Insurance Corp.
- When the Insurance Code AND the Civil Code are
silent on a given issue ( ie effectiveness of a policy
where payment of premiums was stopped by reason of
war), the US Insurance Laws particularly that of State of
California (where our current Insurance Code was
patterned) shall be applied in suppletory character.
Q: When is
perfected?

an

Insurance

Contract

deemed

A: A contract of insurance is deemed perfected from the

time the minds of the parties meet in agreement as when
the insurer accepts the application and such acceptance
came to the knowledge of the applicant.
Q: How is an insurance contract construed?
A: The following rules of construction apply to an
Insurance Contract:
1. When the provisions are clear, they must be
construed in their plain, ordinary and popular
sense.
2. When the provisions are ambiguous, uncertain
or doubtful. They must be construed strictly
against the insurer and liberally in favor of the
insured.

insurance company upon the advice of its legal

advisers.
3. When there are conflicting provisions, they must
be harmonized and construed strictly against the
insurer and liberally in favor of the insured.
Case #4
Dela Cruz vs. Capital Insurance and Surety Inc.
- Terms which are clear like (accident and accidental)
should be construed in their ordinary and plain
acceptation.
- Death is not ordinarily anticipated in human activities
which could categorize it to accidental/accident.
- Accident is an event that proceeds from an unknown
cause and therefore, not expected.
Case #5
Ty vs. First National Surety and Assurance Corp.
- Clear and definite stipulations in the contract should be
construed in their plain and ordinary context.
- Amputations which are clearly stated to be permanent
loss of hand from the wrist should not include temporary
loss or paralysis.
Case #6
Panaton vs Malayan Insurance Corp.
- Amputation of legs should include total paralysis of the
leg. To interpret the phrase amputation of legs to
exclude total permanent paralysis of the legs would be
contrary to public good, sound morality and public policy.
Hence, terms in an insurance policy which can be
subject to multiple interpretations should be subject to
multiple interpretations should be construed strictly
against the insurer and liberally in favor of the insured.
Case #7
Qua Chee Gan vs Law Union and Rock Insurance
Comp.
- The clause containing the warranty of not storing in the
area oils and other flammable materials being
ambiguous, hence it must be construed strictly against
the insurer and liberally in favor of the insured. Hence,
oils would be construed to mean lubricants and would
not include gasoline or kerosene.

REASON: Insurance contract is a contract of

adhesion: The insured has no voice in the
selection of the words used, and the language of
the contract which are all selected by the
Reference: The Insurance Code and Financial Rehabilitation and Insolvency Act by Hernando B. Perez
Made by: Juan Paolo R. Datinguinoo, UB College of Law

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Case #8
Eternal Gardens Memorial Park vs PhilAm Life
- Conflicting provisions must be harmonized and
construed strictly against the insurer and liberally in favor
of the insured.
Q: Can the Courts, in the exercise of judicial
construction, change or alter the terms of an
insurance contract?
A: NO. While insurance contracts should be construed
strictly against the insurer and liberally in favor of the
insure, when the provisions are clear and simple in
language, there is no room for the judiciary to employ
judicial construction.

Sec. 2. Whenever used in this Code, the

following terms shall have the respective
meanings hereinafter set forth or indicated,
unless the context otherwise requires:
(1)
A "contract
of
insurance" is
an
agreement whereby one undertakes for a
consideration to indemnify another against
loss, damage or liability arising from an
unknown or contingent event.
A contract of suretyship shall be deemed to
be an insurance contract, within the
meaning of this Code, only if made by a
surety who or which, as such, is doing an
insurance business as hereinafter provided.
(2)
The
term "doing
an
insurance
business" or "transacting
an
insurance
business", within the meaning of this Code,
shall include:
(a) making or proposing to make, as
insurer, any insurance contract;
(b) making or proposing to make, as
surety, any contract of suretyship as a
vocation and not as merely incidental
to any other legitimate business or
activity of the surety;
(c) doing any kind of business,
including a reinsurance business,
specifically recognized as constituting
the doing of an insurance business
within the meaning of this Code;

any of the foregoing in a manner

designed to evade the provisions of
this Code.
In the application of the provisions of this
Code the fact that no profit is derived from
the making of insurance contracts,
agreements or transactions or that no
separate or direct consideration is received
therefore, shall not be deemed conclusive to
show that the making thereof does not
constitute the doing or transacting of an
insurance business.
(3)
As
used
in
this
code,
the
term "Commissioner" means the "Insurance
Commissioner".
Q: What is a contract of insurance?
A: A contract of insurance is an agreement whereby
one undertakes for a consideration to indemnify
another against loss, damage or liability arising from
an unknown or contingent event.
Q: What are the elements of a contract of
insurance?
A: The elements of a contract of insurance are the
following:
(I-R-A-S-P)
1. The insured posses an interest (called insurable
interest) of some kind susceptible of pecuniary
estimation.
2. The insured is subject to a risk of loss through
the destruction or impairment of that interest by
the happening of designated perils.
3. The insurer assumes that risk of loss.
4. Such assumption is part of a general scheme to
distribute actual losses among a large group of
persons bearing somewhat similar risks.
5. As consideration for the insurers promise, the
insured makes a ratable contribution (called
premiums) to a general insurance fund.
Q: What is suretyship?
A: A suretyship is 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 a third party called obligee.

(d) doing or proposing to do any

business in substance equivalent to
Reference: The Insurance Code and Financial Rehabilitation and Insolvency Act by Hernando B. Perez
Made by: Juan Paolo R. Datinguinoo, UB College of Law

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INSURANCE LAW
Q: When is a suretyship deemed an insurance?
A: A contract of of surety shall be deemed an insurance
contract when made by a surety who is doing an
insurance business (offering, making, or proposing
surety as a vocation) and not merely incidental to any
other legitimate business or activity of the surety.
When the surety is only incidental, it is not an insurance
contract since it lacks the requirement that the
assumption of loss should be part of a general scheme
to distribute actual losses among a large group of
persons bearing somewhat similar risks.
Q: What are the tests to determine whether a
contract is an insurance contract?
A: The following tests may be used to determine whether
a contract is an insurance contract: (A-N-A)
1. Nature of the promise
2. Act required to be performed
3. Exact nature of the agreement in light of the
occurrence, contingency or circumstances under
which the performance becomes a requisite.

4. It is executory contract after payment of

premiums.
- After payment of the premium, the contract
shall be wholly executory on both parties.
5. It is a conditional contract.
- The insurer is not obligated to pay the
beneficiary or the insured himself unless the
risk insured against happens.
Q: What are the nature of Insurance Contracts?
A: GENL RULE: Insurance contracts shall be deemed
contracts of indemnity which means that the right to
recover shall be commensurate to the amount of loss
incurred upon the happening of the loss.
EXCEPTIONS:
1. Life Insurance The amount of the insurance
may be for ANY value as there can be no
monetary value for the life of a person.
2. Accident Insurance where the result is death

Case #9
White Gold Marine Services vs. Pioneer Insurance
and Surety Corp.

Sec. 3. 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, subject to the provisions of this
chapter.

- A contract may be deemed an insurance contract not

on how it is called but on the nature of the obligations of
the parties involved with regard to the loss or occurrence
insured against.

The consent of the husband is not

necessary for the validity of an insurance
policy taken out by a married woman on her
life or that of her children.

Q: What are the characteristics of an insurance

contract? (A-I-P-EC)
A:
1.

It is aleatory and not wagering.

- Both parties bind each other to give or to do
something in consideration of the other shall
give or do upon the occurrence of the risk
insured against.
2. It is a contract of indemnity.
- The right to recover shall be commensurate
to the amount of loss incurred upon the
happening of the loss.
3. It is a personal contract.
- An insurer contracts with reference to the
character of the insured for integrity and
prudence.

Any minor of the age of eighteen years or

more, may, notwithstanding such minority,
contract for life, health and accident
insurance, with any insurance company duly
authorized to do business in the Philippines,
provided the insurance is taken on his own
life and the beneficiary appointed is the
minor's estate or the minor's father, mother,
husband, wife, child, brother or sister.
The married woman or the minor herein
allowed to take out an insurance policy may
exercise all the rights and privileges of an
owner under a policy.

Reference: The Insurance Code and Financial Rehabilitation and Insolvency Act by Hernando B. Perez
Made by: Juan Paolo R. Datinguinoo, UB College of Law

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INSURANCE LAW

All rights, title and interest in the policy of

insurance taken out by an original owner on
the life or health of a minor shall
automatically vest in the minor upon the
death of the original owner, unless
otherwise provided for in the policy.

an insurer requires the assumption of risks and

accordinglu, the insurer is still responsible even if the
event could not be foreseen, or though foreseen, is
inevitable.

Q: Does a married person need the consent of the

other spouse in obtaining a CI?
Q: What risks may be insured against in a contract
of insurance?

A: There are two types of risks insurable:

A: No, a married person may obtain a CI on his/her

life, or those of their children WITHOUT the consent of
the other spouse.

1. Risk which may cause damage to the insured

2. Risk which may cause liability against the
insured

Q: What types of events may be insured in an IC?

Q: What are the rules that apply when a minor obtains

a CI?

A: Under the Civil Code, contracts entered into by

minors need the consent of the parents or their
guardians.

A: GENL RULE: Events covered in an IC are future

events.

W/ CONSENT Valid and enforceable

W/O CONSENT Voidable (At the option of the
insured and not by the insurer, hence, the insurer cannot
raise the incapacity of the minor as a defense)

EXCEPTIONS: Past events may be covered by the

insurance if two requisites are present:

Q: What happens to the interest in a CI taken upon the

life of another upon the death of the policy holder?

1. The past event causing the loss must be

UNKNOWN to both parties.

A: GENL RULE: The interest to the insurance policy

shall pass on to insured.

2. It must be expressly stipulated in the policy

that a prior loss is insured against.

EXCEPTIONS:
1. Unless otherwise is provided in the policy.
2. Where the beneficiary is different from that of the
policy holder

Q: Can the insurer exempt himself from liability arising

out of fortuitous event?

Sec. 4. The preceding section does not

authorize an insurance for or against the
drawing of any lottery, or for or against any
chance or ticket in a lottery drawing a prize.
Q: Distinguish gambling from a CI.

A: No, if the fortuitous event is among the risks

included in the policy. The nature of the obligation of

A:

Reference: The Insurance Code and Financial Rehabilitation and Insolvency Act by Hernando B. Perez
Made by: Juan Paolo R. Datinguinoo, UB College of Law

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REVIEWER IN COMMERCIAL LAW

INSURANCE LAW
Gambling
May result in a profit

CI
May never result in a profit

- Premiums paid before the insured became a public

enemy should be returned.

(insurance benefits are equal

to the loss except in life
insurance)

Invites fortune
Tends to increase
inequality of fortune

Avoids misfortune
Tends to equalize fortune

Sec. 5. All kinds of insurance are subject to the

provisions of this chapter so far as the
provisions can apply.
Sec. 6. Every person, partnership, association,
or corporation duly authorized to transact
insurance business as elsewhere provided in
this code, may be an insurer.
Q: What are the parties to an insurance contract?
A: The following are parties to an insurance contract:
1. Insurer person who undertakes to indemnify
another by a contract of insurance
2. Insured a person to be indemnified
3. Beneficiary a person who receives a benefit or
advantage

Sec. 7. Anyone except a public enemy may be

insured.

Q: What is a public enemy?

A: Public enemy is a nation at war with the Philippines

and also every citizen or subject of such nation.

Case #10:

Sec. 8. Unless the policy otherwise provides,

where a mortgagor of property effects
insurance in his own name providing that the
loss shall be payable to the mortgagee, or
assigns a policy of insurance to a mortgagee,
the insurance is deemed to be upon the
interest of the mortgagor, who does not cease
to be a party to the original contract, and any
act of his, prior to the loss, which would
otherwise avoid the insurance, will have the
same effect, although the property is in the
hands of the mortgagee, but any act which,
under the contract of insurance, is to be
performed by the mortgagor, may be
performed by the mortgagee therein named,
with the same effect as if it had been
performed by the mortgagor.

Q: What are the rules on insuring a mortgaged

property?

A: GENL RULE: Anyone may insure the property for

an insurance amount not exceeding the value of the
property.

EXCEPTIONS: When a property is mortgaged, the

mortgagor and the mortgagee may take out separate
policies on the property subject to the following rules:
1. The mortgagor (still the owner of the property)
may insure the property up to its value

Cia de Seguros vs. Christern, Huenfield & Co.

- Loss incurred during the time when the insured

became a public enemy shall not be compensated
under the CI.

2. The mortgagee (not the owner, property is just

used as security for the payment of debt) may
insure the property only up to the extent of his
credit.

Reference: The Insurance Code and Financial Rehabilitation and Insolvency Act by Hernando B. Perez
Made by: Juan Paolo R. Datinguinoo, UB College of Law

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INSURANCE LAW
Q: What is a mortgage redemption Insurance and
what are its effects?

A: A mortgage redemption insurance is a kind of life

insurance procured by the mortgagor with the
mortgagee as the beneficiary up to the exten of the
mortgage indebtedness.

In case the mortgagor-insured dies, the

proceeds of the insurance will be applied to the
payment of the mortgage debt to the mortgagee,
thereby relieving the heirs of the mortgagor of the
burden of paying the debt.

A. Insurance secured by the Mortgagor, loss

payable to mortgagee

GENL RULE:
1. The mortgagor is still the party in interest to
the insurance contract and he is one with the
right to recover from the insurer in case of
loss.
2. In case of death by the mortgagor, his heirs
assumes right to the CI.
3. BUT the mortgagee has a lien on the amount
to be recovered by virtue of the debt of the
mortgagor.

EXCEPTION:
Case #11
Great Pacific Life Assurance Corp. vs. CA

- Where the mortgagor pays the insurance premium

under group life policy, making the loss payable to the
mortgagee, the insurance is still on the interest of the
mortgagor who continues to be a party to the contract.
Such kind ogf policy insurance upon life or health MAY
PASS by transfer, will or succession to any person
whether he has an insurable interest or not, and such
person may recover whatever the insured might have
recovered.

1. If the mortgagee has decided to foreclose on

the mortgage, then his interest/lien on the
amount recoverable by the mortgagor shall be
extinguished. (The foreclosure shall be the
one to settle the debt)

B. Insurance secured by the mortgagee for

the extent of his credit W/O reference to the
right of the mortgagor

1. The mortgagee may collect from the insurer

upon the occurrence of the loss to the extent
of his credit.
Q: What are the rules that govern insurance on
mortgaged properties?

A: The rules applicable depend on who insured the

mortgaged property:

2. The mortgagor may not collect from the

insurer the balance of the insurance proceeds
after payment to the mortgagee his benefits up
to the extent of his credit. (EXCEPTION:
When permitted by the policy to do so)
3. The insurer becomes subrogated to the rights
of the mortgagee and may go after the
mortgagor for the collection of the amount it
paid to the mortgagee.

Reference: The Insurance Code and Financial Rehabilitation and Insolvency Act by Hernando B. Perez
Made by: Juan Paolo R. Datinguinoo, UB College of Law

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INSURANCE LAW
4. The mortgagee, after receiving payment from
the insurer, may no longer collect from the
mortgagor. (The payment by the insurer
constitutes extinguishment of the liability of the
mortgagor to the mortgagee with respect to
the mortgagee but not the liability of the
mortgagor to the insurer.)

Q: What constitutes insurable interest in life?

A: It must be for the continuance or preservation of life
and not for its destruction which is against law, morals
and public customs.
Q: When should insurable interest exist?

5. The mortgagor is not released from his liability

from his debt by the insurers payment to the
mortgagee. He may no longer pay the
mortgagee but he should pay the insurer.

A: It depends on the subject matter of the insurance:

Subject Matter
Life Insurance

Sec. 9. If an insurer assents to the transfer of

an insurance from a mortgagor to a
mortgagee, and, at the time of his assent,
imposes further obligation on the assignee,
making a new contract with him, the act of the
mortgagor cannot affect the rights of said
assignee.

Sec. 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 or interest vested in him
depends.
Q: What is insurable interest?
A: Insurable interest is the interest of a person to the
person or thing insured such that he will derive
pecuniary benefit or advantage from its preservation or
will suffer pecuniary loss or damage from its destruction,
termination or injury by the happening of the event
insured against.

Property Insurance
AND Life Insurance taken
by the creditor on the life
of the debtor

When Insurable Interest

must exist
Effectivity of the policy
ONLY
(reason:
Life
Insurance is NOT a
contract of indemnity)
Effectivity of the policy
AND at the occurrence of
the loss

Q: Who are the persons who are obliged to support each

other as contemplated in Sec. 10 par B (insurable
interest from receiving support)?
A: Sec 10, par B states that every person has insurable
interest in the life and health of any person on whom he
depends wholly or in part for education or support, or in
whom he has a pecuniary interest. These persons are
the persons who are required by law to support each
other:
1. The spouse;
2. Legitimate ascendants and descendants;
3. Parents and acknowledged natural children and
the legitimate of illegitimate descendants of the
latter;
4. Parents and natural children by legal fiction and
the legitimate and the illegitimate descendants
of the latter;
5. Parents and illegitimate children who are not
natural; and
6. Brothers and sisters.
Q: What are the limits in Sec 10, par C (insurable
interest in debtors life)?
A: The following limits must be observed:
1. The creditors insurable interest must only be to
the extent of the indebtedness of the debtor.
2. The amount insured must not be grossly
disproportionate to the amount of debt. (ie 750 is
the debt but the insurance amount is 500,000).

Reference: The Insurance Code and Financial Rehabilitation and Insolvency Act by Hernando B. Perez
Made by: Juan Paolo R. Datinguinoo, UB College of Law

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INSURANCE LAW

SEC. 11. The insured shall have the right to

change the beneficiary he designated in the
policy, unless he has expressly waived this
right in said policy. Notwithstanding the
foregoing, in the event the insured does not
change the beneficiary during his lifetime, the
designation shall be deemed irrevocable.
Q: What is a beneficiary?
A: A beneficiary is the person for whose benefit the
policy is issued and to whom the loss is payable.
Q: What are the rules applicable to naming a
beneficiary in a LI and a property insurance?
Life Insurance
Beneficiary may be any
one at the election of the
insured. Beneficiary may
or may not have insurable
interest in the life insured.

Property Insurance
Beneficiary must have
insurable interest in the
property both at the time of
effectivity of the policy
AND the occurrence of the
loss.

Q: Who are not allowed to be beneficiaries in a life

insurance?
A: Persons not allowed to receive donations are also not
allowed to receive benefits in a contract of insurance.
They are the following:
1. Those made BETWEEN persons who are guilty
of adultery or concubinage at the time of the
donation;
Note:
a. Not including adulterous children
b. Conviction not required; may be proven by
preponderant evidence
2. Those made BETWEEN persons found guilty of
the same criminal offense, in consideration
thereof; and
3. Those made to a public officer or his wife,
descendants and ascendants, by reason of his
office.
Q: What are the kinds of beneficiaries?
A: There are two:
1. Revocable the beneficiary may be changed
EXCEPTION:
a. When stated in the policy that the right to
change beneficiary is waived
b. When the insured did not change the
beneficiary
during
his
lifetime,
the
beneficiary shall be deemed irrevocable

2. Irrevocable the beneficiary may not be

changed without his consent. Also, no other
beneficiary may be added in the policy without
his permission.
Note: WHERE CONSENT IN BEHALF OF
MINORS MAY BE MADE:
- When a minor was designated as
beneficiary and the interest of the minor in
the policy DOES NOT EXCEED P500,000,
his consent to the change of beneficiary may
be given by (IN EXACT ORDER):
o Judicial guardian
o Father
o Mother
o Grandparent
o Eldest brother or sister (at least
18yo)
o Any relative of the minor who has
actual custody of the minor
- When the amount EXCEEDS P500,000, the
adult should be court appointed first.
Case #12
PhilAm Life Insurance Co. vs. Pineda
- It is only with consent of all the beneficiaries that any
change or amendment in the policy concerning
irrevocable beneficiaries may be made.
- Consent given by minors shall not be deemed effective
as they cannot validly give their consent to the change of
beneficiaries.
Q: What rules shall apply when the beneficiary
predeceases the insured?
A: It depends on what kind of beneficiary:
1. REVOCABLE the right to the proceeds of the
policy becomes payable to the estate of the
insured.
2. IRREVOCABLE the beneficiary having vested
right thereon, the legal representatives of the
beneficiary shall be entitled to the proceeds of
the insurance and not the estate of the insured.

SEC. 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 such a case, the share forfeited shall
pass on to the other beneficiaries, unless otherwise
disqualified. In the absence of other beneficiaries,
the proceeds shall be paid in accordance with the

Reference: The Insurance Code and Financial Rehabilitation and Insolvency Act by Hernando B. Perez
Made by: Juan Paolo R. Datinguinoo, UB College of Law

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INSURANCE LAW

policy contract. If the policy contract is silent, the

proceeds shall be paid to the estate of the insured.
Q: How shall forfeiture operate in case the beneficiary is
proven to be a principal, accomplice or accessory in the
killing of the insured?
A: The following rules on forfeiture shall apply:
1. It shall pass on to other beneficiaries if there are
any, or unless disqualified as well.
2. If not, the proceeds shall be paid in accordance
to the stipulation in the policy.
3. If the policy is silent, then it shall be paid to the
estate of the insured.
Note:
Where the killing is unintentional or not
felonious, the beneficiary will not be denied recovery
by reason of his causing the death of the insured.

SEC. 13. 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.

SEC. 14. 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.

SEC. 15. 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.

SEC. 16. A mere contingent or expectant interest in

any thing, not founded on an actual right to the
thing, nor upon any valid contract for it, is not
insurable.
Q: Distinguish insurable interest in LI and Property
Insurance.
A:
Life Insurance
Not based on pecuniary
interest as it may be
consanguinity or affinity
Interest must exist at the
time of the effectivity of the
policy
Insurable interest has no
limit on the amount of
insurable interest UNLESS
it is an insurance taken by
the creditor on the life of its
debtor
Beneficiary may not have
insurable interest on the
life or health insured
EXCEPT
party
is
prohibited
to
receive
donations

Property Insurance
Based
on
pecuniary
(monetary) interest
Interest must exist BOTH
at the effectivity of the
policy and the occurrence
of the loss
Insurable interest is limited
to the actual value of the
damage the insured may
suffer
Beneficiary needs to have
insurable interest on the
property insured

SEC. 17. The measure of an insurable interest in

property is the extent to which the insured might be
damnified by loss or injury thereof.

SEC. 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.

Case #13
Cha vs CA
- In property insurance, insurable interest should exist
both at the effectivity of the policy and at the occurrence
of the loss.

Reference: The Insurance Code and Financial Rehabilitation and Insolvency Act by Hernando B. Perez
Made by: Juan Paolo R. Datinguinoo, UB College of Law

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INSURANCE LAW

SEC. 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, 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.

SEC. 21. A change of 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.

SEC. 22. A change of interest in one or more of

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

SEC. 23. 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.

SEC. 24. 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.

Change of interest in the thing insured

accompanied by change of interest in the policy shall
SUSPEND the policy to an equivalent extent UNLESS
the interest in the thing and the interest in the policy
becomes vested to one person only. (Reason: Insurance
policy is a PERSONAL contract.)
Q: What happens when an insurance policy is
suspended?
A: When a loss occurs during a time when the policy is
suspended, the insured or beneficiary shall not be able
to recover from the insured.
Q: What are the rules applicable when the property
insured is transferred by alienation from one person
to another?
A: GENL RULE: A transfer, assignment or alienation og
the property insured does not transfer any right with
respect to the insurance.
EXCEPTIONS:
1. When the insured makes an express
assignment of the interest of the property and
policy WITH the insurers consent;
2. Where by express stipulation of the parties, the
policy is made to run with the subject-matter, or
the contract is so framed as to attach the risk
inseparably to the property, as where the
insurance is on account of the owners of the
property
3. A change of interest by will or succession, on the
death of the insured passes the interest in the
insurance to the person taking his interest in ths
thing insured;
4. Transfer of interest by one of several partners,
joint owners, or owners in common who are
jointly insured, to the others.
Note: Transfer or alienation of property made under
these exceptions shall not suspend the contract of
insurance.
Q: How may a suspended contract of insurance be
revived?

Q: What is change in interest and what are its

effects?
A: The change of interest in insurance law means an
absolute transfer of the insureds entire interest in the
property insured to one not previously interested or
insured.

A: It may be revived under any of the following:

1. Assignment of the policy to the transferee;
2. Reacquisition of the property by the original
owner
Q: What are the instances when the policy is NOT
suspended despite transfer of interest in the thing

Reference: The Insurance Code and Financial Rehabilitation and Insolvency Act by Hernando B. Perez
Made by: Juan Paolo R. Datinguinoo, UB College of Law

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INSURANCE LAW
insured without corresponding transfer of the
insurance?
A: These are the following:
1. When there is a prohibition against alienation of
property without the consent of the insurer
(Policy not suspended but AVOIDED)
2. In case of life, accident or health insurance;
3. A change of interest in the thing insured AFTER
the occurrence of the loss;
4. A change of interest in one or more distinct
things separately insured;
5. A change of interest by will or succession;
6. A transfer of interest by one of several partners,
joint owners or owners in common; and
7. When the policy is so framed that it will inure to
the benefit of the owner of the property.

SEC. 25. 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.
SEC. 26. A neglect to communicate that which a
party knows and ought to communicate, is
called a concealment.

A: GENL RULE: Bad faith must exist at the time of the

after the application for insurance but before the
effectivity of the policy.

EXCEPTIONS:
1. Where the policy provides if the application is
approved and policy is issued, it shall be in force
from the date of application;
2. Where
the
change
occurs
after
the
consummation of the insurance orally although
the formal policy has not been issued yet.

SEC. 27. A concealment whether intentional or

unintentional entitles the injured party to
rescind a contract of insurance.

Q: What does it entitle the innocent party when one party

is guilty of concealment?

A: The innocent party may rescind the contract on the

ground of concealment, regardless of intentional or
unintentional.
Q: What is concealment?

Case #14
A: Concealment presupposes knowledge of the fact
concealed on the part of the party charged with
concealment. Such party alleging concealment must
prove that such concealment is done with knowledge or
bad faith.

Q: When must knowledge or bad faith exist to

constitute concealment?

Great Pacific Life Assurance Co. vs CA

- The contract of insurance is one of perfect good faith,

absolute and perfect candor or openness and honesty. A
party guilty of concealment entitles the other for
rescission.

SEC. 28. Each party to a contract of insurance

must communicate to the other, in good faith,
Reference: The Insurance Code and Financial Rehabilitation and Insolvency Act by Hernando B. Perez
Made by: Juan Paolo R. Datinguinoo, UB College of Law

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REVIEWER IN COMMERCIAL LAW

INSURANCE LAW

all facts within his knowledge which are

material to the contract and as to which he
makes no warranty, and which the other has not
the means of ascertaining.

SEC. 30. Neither party to a contract of

insurance is bound to communicate information
of the matters following, except in answer to the
inquiries of the other:
(a) Those which the other knows;

Q: What facts should be communicated to the other

party under Sec. 28?

(b) Those which, in the exercise of

ordinary care, the other ought to know,
and of which the former has no reason to
suppose him ignorant;

A: The facts must have the following requisites:

(c) Those of which the other waives

communication;

1. Must be within the partys knowledge;

2. Must be material to the contract;
3. The other party has
ascertaining such fact;

not

the

means

of

4. The party makes no warranties of such fact.

SEC. 29. An intentional and fraudulent

omission, on the part of one insured, to
communicate information of matters proving or
tending to prove the falsity of a warranty,
entitles the insurer to rescind.

Q: What are the rules regarding warranties?

(d) Those which prove or tend to prove

the existence of a risk excluded by a
warranty, and which are not otherwise
material; and
(e) Those which relate to a risk excepted
from the policy and which are not
otherwise material.

SEC. 31. 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 the communication is due, in forming
his estimate of the disadvantages of the
proposed contract, or in making his inquiries.

A: GENL RULE: Matters covered by a warranty need

not be revealed.

EXCEPTION: Facts which prove or tend to prove the

falsity of a warranty (there must be attending bad faith)

SEC. 32. Each party to a contract of insurance

is bound to know all the general causes which
are open to his inquiry, equally with that of the
other, and which may affect the political or
material perils contemplated; and all general
usages of trade.

Reference: The Insurance Code and Financial Rehabilitation and Insolvency Act by Hernando B. Perez
Made by: Juan Paolo R. Datinguinoo, UB College of Law

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