Session 1 June 18, 2016 & Session 2 June 25, 2016 & Session 3 July 2, 2016

A.

Concept of Insurance
a.

Historical Background

b.

Sources of Insurance Law

B.

What may be insured

C.

Parties to the contract

D.

Elements of an Insurance Contract

E.

Characteristics/Nature of Insurance Contracts

F.

Classes

(1)

Constantino vs. Asia Life 87 Phil 248

Constantino v. Asia Life- Non-payment of Insurance Premiums

87 PHIL 248
Facts:
> Appeal consolidates two cases.
> Asia life insurance Company (ALIC) was incorporated in Delaware.
> For the sum of 175.04 as annual premium duly paid to ALIC, it issued Policy No.
93912 whereby it insured the life of Arcadio Constantino for 20 years for P3T with Paz
Constantino as beneficiary.

First premium covered the period up to Sept. 26, 1942. No further premiums
were paid after the first premium and Arcadio died on Sept. 22, 1944.

> Due to Jap occupation, ALIC closed its branch office in Manila from Jan. 2 19421945.
> On Aug. 1, 1938, ALIC issued Policy no. 78145 covering the lives of Spouses Tomas
Ruiz and Agustina Peralta for the sum of P3T for 20 years. The annual premium
stipulated was regularly paid from Aug. 1, 1938 up to and including Sept. 30, 1940.

Effective Aug. 1, 1941, the mode of payment was changed from annually to
quarterly and such quarterly premiums were paid until Nov. 18, 1941.

Last payment covered the period until Jan. 31, 1942.

Tomas Ruiz died on Feb. 16, 1945 with Agustina Peralta as his beneficiary.

> Due to Jap occupation, it became impossible and illegal for the insured to deal with
ALIC. Aside from this the insured borrowed from the policy P234.00 such that the cash
surrender value of the policy was sufficient to maintain the policy in force only up to
Sept. 7, 1942.
> Both policies contained this provision: All premiums are due in advance and any
unpunctuality in making such payment shall cause this policy to lapse unless and except
as kept in force by the grace period condition.
> Paz Constantino and Agustina Peralta claim as beneficiaries, that they are entitled to
receive the proceeds of the policies less all sums due for premiums in arrears. They
also allege that non-payment of the premiums were caused by the closing of ALICs
offices during the war and the impossible circumstances by the war, therefore, they
should be excused and the policies should not be forfeited.
> Lower court ruled in favor of ALIC.

Issue:

May a beneficiary in a life insurance policy recover the amount thereof although the
insured died after repeatedly failing to pay the stipulated premiums, such failure being
caused by war?

Held:
NO.

Due to the express terms of the policy, non-payment of the premium produces its
avoidance. In Glaraga v. Sun Life, it was held that a life policy was avoided because the
premium had not been paid within the time fixed; since by its express terms, nonpayment of any premium when due or within the 31 day grace period ipso fact caused
the policy to lapse.

When the life insurance policy provides that non-payment of premiums will cause its
forfeiture, war does NOT excuse non-payment and does not avoid forfeiture.
Essentially, the reason why punctual payments are important is that the insurer
calculates on the basis of the prompt payments. Otherwise, malulugi sila.

It should be noted that the parties contracted not only as to peace time conditions but
also as to war-time conditions since the policies contained provisions applicable
expressly to wartime days. The logical inference therefore is that the parties
contemplated the uninterrupted operation of the contract even if armed conflict should
ensue.

(2)

Insular Life vs. Ebrado 80 SCRA 181

Insular Life v. Ebrado - Insurance Proceeds

80 SCRA 181
Facts:
> Buenaventura Ebrado was issued by Insular Life Assurance Co. a whole life plan for
P5,882.00 with a rider for Accidental Death Benefits for the same amount.
> Ebrado designated Carponia Ebrado as the revocable beneficiary in his policy,
referring to her as his wife.
> Ebrado died when he was accidentally hit by a falling branch of tree.
> Insurer by virtue of the contract was liable for 11,745.73, and Carponia filed her
claim, although she admitted that she and the insured were merely living as husband
and wife without the benefit of marriage.
> Pascuala Ebrado also filed her claim as the widow of the deceased insured.
> Insular life filed an interpleader case and the lower court found in favor of Pascuala.

Issue:
Between Carponia and Pascuala, who is entitled to the proceeds?

Held:
Pascuala.
It is quite unfortunate that the Insurance Act or our own Insurance Code does not
contain a specific provision grossly resolutory of the prime question at hand. Rather, the
general rules of civil law should be applied to resolve this void in the insurance law. Art.
2011 of the NCC states: The contract of insurance is governed by special laws. Matters

not expressly provided for in such special laws shall be regulated by this Code. When
not otherwise specifically provided for in the insurance law, the contract of life insurance
is governed by the general rules of civil law regulating contracts.

Under Art. 2012, NCC: Any person who is forbidden from receiving any donation under
Art. 739 cannot be named beneficiary of a life insurance policy by a person who cannot
make any donation to him, according to said article. Under Art. 739, donations between
persons who were guilty of adultery or concubinage at the time of the donation shall be
void.

In essence, a life insurance policy is no different from civil donations insofar as the
beneficiary is concerned. Both are founded on the same consideration of liberality. A
beneficiary is like a donee because from the premiums of the policy which the insured
pays, the beneficiary will receive the proceeds or profits of said insurance. As a
consequence, the proscription in Art. 739 should equally operate in life insurance
contracts.

Therefore, since common-law spouses are barred from receiving donations, they are
likewise barred from receiving proceeds of a life insurance contract.

(3)

Qua Che Gan vs. Law Union 98 Phil 85

(Cant be found)
(4)

Ty vs. Filipinas Cia de Seguros 17 SCRA 364

Ty v. Filipinas Compaia de Seguros - Insurance Policy

17 SCRA 364
Facts:
> Ty was employed as a mechanic operator by Braodway Cotton Factory at Grace Park,
Caloocan.
> In 1953, he took personal accident policies from 7 insurance companies (6
defendants), on different dates, effective for 12 mos.
> On Dec. 24. 1953, a fire broke out in the factory were Ty was working. A hevy object
fell on his hand when he was trying to put out the fire.
> From Dec. 1953 to Feb. 6, 1954 Ty received treatment at the Natl Orthopedic
Hospital for six listed injuries. The attending surgeon certified that these injuries would
cause the temporary total disability of Tys left hand.
> Insurance companies refused to pay Tys claim for compensation under the policies
by reason of said disability of his left hand. Ty filed a complaint in the municipal court
who decided in his favor.
> CFI reversed on the ground that under the uniform terms of the policies, partial
disability due to loss of either hand of the insured, to be compensable must be the result
of amputation.

Issue:
Whether or not Ty should be indemnified under his accident policies.

Held.
NO.
SC already ruled in the case of Ty v. FNSI that were the insurance policies define partial
disability as loss of either hand by amputation through the bones of the wrist, the
insured cannot recover under said policies for temporary disability of his left hand
caused by the fractures of some fingers. The provision is clear enough to inform the
party entering into that contract that the loss to be considered a disability entitled to
indemnity, must be severance or amputation of the affected member of the body of the
insured.

(5)

Philamlife vs. Ansaldo 234 SCRA 509

Philamlife v. Ansaldo - Jurisdiction of the Insurance Commissioner

234 SCRA 509

Facts:
> Ramon M. Paterno sent a letter-complaint to the Insurance Commissioner alleging
certain problems encountered by agents, supervisors, managers and public consumers
of the Philamlife as a result of certain practices by said company.
> Commissioner requested petitioner Rodrigo de los Reyes, in his capacity as
Philamlife's president, to comment on respondent Paterno's letter.
> The complaint prays that provisions on charges and fees stated in the Contract of
Agency executed between Philamlife and its agents, as well as the implementing
provisions as published in the agents' handbook, agency bulletins and circulars, be
declared as null and void. He also asked that the amounts of such charges and fees
already deducted and collected by Philamlife in connection therewith be reimbursed to
the agents, with interest at the prevailing rate reckoned from the date when they were
deducted
> Manuel Ortega, Philamlife's Senior Assistant Vice-President and Executive Assistant
to the President, asked that the Commissioner first rule on the questions of the
jurisdiction of the Insurance Commissioner over the subject matter of the letterscomplaint and the legal standing of Paterno.
> Insurance Commissioner set the case for hearing and sent subpoena to the officers
of Philamlife. Ortega filed a motion to quash the subpoena alleging that the Insurance
company has no jurisdiction over the subject matter of the case and that there is no
complaint sufficient in form and contents has been filed.
> The motion to quash was denied.

Issue:
Whether or not the insurance commissioner had jurisdiction over the legality of the
Contract of Agency between Philamlife and its agents.

Held:
No, it does not have jurisdiction.
The general regulatory authority of the Insurance Commissioner is described in Section
414 of the Insurance Code, to wit:
"The Insurance Commissioner shall have the duty to see that all laws relating to
insurance, insurance companies and other insurance matters, mutual benefit
associations and trusts for charitable uses are faithfully executed and to perform the
duties imposed upon him by this Code, . . . ."

On the other hand, Section 415 provides:

"In addition to the administrative sanctions provided elsewhere in this Code, the
Insurance Commissioner is hereby authorized, at his discretion, to impose upon
insurance companies, their directors and/or officers and/or agents, for any willful failure
or refusal to comply with, or violation of any provision of this Code, or any order,
instruction, regulation or ruling of the Insurance Commissioner, or any commission of
irregularities, and/or conducting business in an unsafe or unsound manner as may be
determined by the Insurance Commissioner, the following:
a) fines not in excess of five hundred pesos a day; and
b) suspension, or after due hearing, removal of directors and/or officers and/or agents."

A plain reading of the above-quoted provisions show that the Insurance Commissioner
has the authority to regulate the business of insurance, which is defined as follows:

"(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 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; (d)
doing or proposing to do any business in substance equivalent to any of the foregoing in
a manner designed to evade the provisions of this Code. (Insurance Code, Sec. 2 [2])
Since the contract of agency entered into between Philamlife and its agents is not
included within the meaning of an insurance business, Section 2 of the Insurance Code
cannot be invoked to give jurisdiction over the same to the Insurance Commissioner.
Expressio unius est exclusio alterius.

(6)

Del Rosario vs. Equitable Insurance 8 SCRA 343

Del Rosario v. Equitable Insurance - Life Insurance Policy

118 PHIL 349
Facts:
> Equitable Insurance issued a life Insurance policy to del Rosario binding itself to pay
P1,000 to P3,000 as indemnity.
> Del Rosario died in a boating accident. The heirs filed a claim and Equitable paid
them P1,000.
> The heir filed a complaint for recovery of the balance of P2,000, claiming that the
insurere should pay him P3,000 as stated in the policy.

Issue:
Whether or not the heir is entitled to recover P3,000.

Held:
YES.
Generally accepted principles or ruling on insurance, enunciate that where there is an
ambiguity with respect to the terms and conditions of the policy, the same shall be
resolved against the one responsible thereof. The insured has little, if any, participation
in the preparation of the policy. The interpretation of obscure stipulations in a contract
should not favor the party who cause the obscurity.

(7)

Misamis Lumber vs. Capital Insurance 17 SCRA 228

(8)

Verendia vs. Court of Appeals 217 SCRA 417

Verendia v. CA - Insurance Policy

217 SCRA 1993
Facts:
> Fidelity and Surety Insurance Company (Fidelity) issued Fire Insurance Policy No. F18876 effective between June 23, 1980 and June 23, 1981 covering Rafael (Rex)
Verendia's residential in the amount of P385,000.00. Designated as beneficiary was the
Monte de Piedad & Savings Bank.
> Verendia also insured the same building with two other companies, namely, The
Country Bankers Insurance for P56,000.00 and The Development Insurance for
P400,000.00.
> While the three fire insurance policies were in force, the insured property was
completely destroyed by fire.
> Fidelity appraised the damage amounting to 385,000 when it was accordingly
informed of the loss. Despite demands, Fidelity refused payment under its policy, thus
prompting Verendia to file a complaint for the recovery of 385,000
> Fidelity, averred that the policy was avoided by reason of over-insurance, that
Verendia maliciously represented that the building at the time of the fire was leased
under a contract executed on June 25, 1980 to a certain Roberto Garcia, when actually
it was a Marcelo Garcia who was the lessee.

Issue:
Whether or not Verendia can claim on the insurance despite the misrepresentation as to
the lessee and the overinsurance.

Held:
NOPE.
The contract of lease upon which Verendia relies to support his claim for insurance
benefits, was entered into between him and one Robert Garcia, a couple of days after
the effectivity of the insurance policy. When the rented residential building was razed to
the ground, it appears that Robert Garcia was still within the premises. However,
according to the investigation by the police, the building appeared to have "no
occupants" and that Mr. Roberto Garcia was "renting on the otherside of said
compound" These pieces of evidence belie Verendia's uncorroborated testimony that
Marcelo Garcia whom he considered as the real lessee, was occupying the building
when it was burned.

Ironically, during the trial, Verendia admitted that it was not Robert Garcia who signed
the lease contract but it was Marcelo Garcia cousin of Robert, who had also been
paying the rentals all the while. Verendia, however, failed to explain why Marcelo had to
sign his cousin's name when he in fact he was paying for the rent and why he (Verendia)
himself, the lessor, allowed such a ruse. Fidelity's conclusions on these proven facts
appear, therefore, to have sufficient bases: Verendia concocted the lease contract to
deflect responsibility for the fire towards an alleged "lessee", inflated the value of the
property by the alleged monthly rental of P6,500) when in fact, the Provincial Assessor
of Rizal had assessed the property's fair market value to be only P40,300.00, insured
the same property with two other insurance companies for a total coverage of around
P900,000, and created a dead-end for the adjuster by the disappearance of Robert
Garcia.

Basically a contract of indemnity, an insurance contract is the law between the parties.
Its terms and conditions constitute the measure of the insurer's liability and compliance
therewith is a condition precedent to the insured's right to recovery from the. As it is also
a contract of adhesion, an insurance contract should be liberally construed in favor of
the insured and strictly against the insurer company which usually prepares it
.

Considering, however, the foregoing discussion pointing to the fact that Verendia used a
false lease contract to support his claim under Fire Insurance Policy, the terms of the
policy should be strictly construed against the insured. Verendia failed to live by the
terms of the policy, specifically Section 13 thereof which is expressed in terms that are
clear and unambiguous, that all benefits under the policy shall be forfeited "if the claim
be in any respect fraudulent, or if any false declaration be made or used in support
thereof, or if any fraudulent means or devises are used by the Insured or anyone acting
in his behalf to obtain any benefit under the policy". Verendia, having presented a false
declaration to support his claim for benefits in the form of a fraudulent lease contract, he
forfeited all benefits therein by virtue of Section 13 of the policy in the absence of proof
that Fidelity waived such provision
There is also no reason to conclude that by submitting the subrogation receipt as
evidence in court, Fidelity bound itself to a "mutual agreement" to settle Verendia's
claims in consideration of the amount of P142,685.77. While the said receipt appears to
have been a filled-up form of Fidelity, no representative of Fidelity had signed it. It is
even incomplete as the blank spaces for a witness and his address are not filled up.
More significantly, the same receipt states that Verendia had received the aforesaid
amount. However, that Verendia had not received the amount stated therein, is proven
by the fact that Verendia himself filed the complaint for the full amount of P385,000.00
stated in the policy. It might be that there had been efforts to settle Verendia's claims,
but surely, the subrogation receipt by itself does not prove that a settlement had been
arrived at and enforced. Thus, to interpret Fidelity's presentation of the subrogation
receipt in evidence as indicative of its accession to its "terms" is not only wanting in
rational basis but would be substituting the will of the Court for that of the parties

(9)

Gulf Resorts vs. Phil. Charter Ins. Corp. 458 SCRA 550

Insurance Case Digest: Gulf Resorts Inc. V. Philippine Charter Insurance Corp. (2005)
G.R. No. 156167 May 16, 2005
Lessons Applicable: Stipulations Cannot Be Segregated (Insurance)

FACTS:
Gulf Resorts, Inc at Agoo, La Union was insured with American Home
Assurance Company which includes loss or damage to shock to any of the
property insured by this Policy occasioned by or through or in
consequence of earthquake

July 16, 1990: an earthquake struck Central Luzon and Northern Luzon
so the properties and 2 swimming pools in its Agoo Playa Resort were
damaged

August 23, 1990: Gulf's claim was denied on the ground that its
insurance policy only afforded earthquake shock coverage to the two
swimming pools of the resort

Petitioner contends that pursuant to this rider, no qualifications

were placed on the scope of the earthquake shock coverage. Thus, the
policy extended earthquake shock coverage to all of the insured
properties.

RTC: Favored American Home - endorsement rider means that only the
two swimming pools were insured against earthquake shock

CA: affirmed RTC

ISSUE: W/N Gulf can claim for its properties aside from the 2 swimming
pools

HELD: YES. Affirmed.

It is basic that all the provisions of the insurance policy should be
examined and interpreted in consonance with each other.

All its parts are reflective of the true intent of the parties.
Insurance Code

Section 2(1)
contract of insurance as an agreement whereby one undertakes for a
consideration to indemnify another against loss, damage or liability arising
from an unknown or contingent event

An insurance premium is the consideration paid an insurer for

undertaking to indemnify the insured against a specified peril.
In the subject policy, no premium payments were made with
regard to earthquake shock coverage, except on the two swimming
pools.

(10) Philamcare vs. Court of Appeals 379 SCRA 356

379 SCRA 356 Mercantile Law Insurance Law Representation Concealment
Rescission of an Insurance Contract Health Care Agreement is an Insurance Contract
In 1988, Ernani Trinos applied for a health care insurance under the Philamcare Health
Systems, Inc. He was asked if he was ever treated for high blood, heart trouble,
diabetes, cancer, liver disease, asthma, or peptic ulcer; he answered no. His application
was approved and it was effective for one year. His coverage was subsequently
renewed twice for one year each. While the coverage was still in force in 1990, Ernani
suffered a heart attack for which he was hospitalized. The cost of the hospitalization
amounted to P76,000.00. Julita Trinos, wife of Ernani, filed a claim before Philamcare
for the latter to pay the hospitalization cost. Philamcare refused to pay as it alleged that
Ernani failed to disclose the fact that he was diabetic, hypertensive, and asthmatic.
Julita ended up paying the hospital expenses. Ernani eventually died. In July 1990,
Julita sued Philamcare for damages. Philamcare alleged that the health coverage is not
an insurance contract; that the concealment made by Ernani voided the agreement.
ISSUE: Whether or not Philamcare can avoid the health coverage agreement.
HELD: No. The health coverage agreement (health care agreement) entered upon by
Ernani with Philamcare is a non-life insurance contract and is covered by the Insurance
Law. It is primarily a contract of indemnity. Once the member incurs hospital, medical or
any other expense arising from sickness, injury or other stipulated contingent, the health
care provider must pay for the same to the extent agreed upon under the contract.
There is no concealment on the part of Ernani. He answered the question with good
faith. He was not a medical doctor hence his statement in answering the question asked
of him when he was applying is an opinion rather than a fact. Answers made in good
faith will not void the policy.
Further, Philamcare, in believing there was concealment, should have taken the
necessary steps to void the health coverage agreement prior to the filing of the suit by
Julita. Philamcare never gave notice to Julita of the fact that they are voiding the
agreement. Therefore, Philamcare should pay the expenses paid by Julita.

(11) Filipinas Cia de Seguros vs. Christern Huenfeld and Co. 89 Phil 54
Filipinas Cia de Seguros v. Christern Huenfeld & Co. - Enemy Corporation

80 PHIL 54
Facts:
> Oct. 1, 1941, Domestic Corp Christern, after payment of the premium, obtained from
Filipinas, fire policy no. 29333 for P100T covering merchandise contained in a building
located in Binondo.
> On Feb. 27, 1942, during the Jap occupation, the building and the insured
merchandise were burned. Christern submitted to Filipinas its claim.
> Salvaged goods were sold and the total loss of Christern was P92T.
> Filipinas denied liability on the ground that Christern was an enemy corporation and
cannot be insured.

Issue:
Whether or not Filipinas is liable to Christern, Huenfeld & Co.

Held:
NO.
Majority of the stockholders of Christern were German subjects. This being so, SC
ruled that said corporation became an enemy corporation upon the war between the US
and Germany. The Phil Insurance Law in Sec. 8 provides that anyone except a public
enemy may be insured. It stands to reason that an insurance policy ceases to be
allowable as soon as an insured becomes a public enemy.

The purpose of the war is to cripple the power ad exhaust the resources of the enemy,
and it is inconsistent that one country should destroy its enemy property and repay in
insurance the value of what has been so destroyed, or that it should in such manner
increase the resources of the enemy or render it aid.

All individuals who compose the belligerent powers, exist as to each other, in a state of
utter exclusion and are public enemies. Christern having become an enemy corporation
on Dec. 10. 1941, the insurance policy issued in his favor on Oct. 1, 1941 by Filipinas
had ceased to be valid and enforceable, and since the insured goods were burned after
Dec. 10, 1941, and during the war, Christern was NOT entitled to any indemnity under
said policy from Filipinas.

Elementary rules of justice require that the premium paid by Christern for the period
covered by the policy from Dec. 10, 1941 should be returned by Filipinas.

(12) Grepalife vs. Court of Appeals 316 SCRA 677

Grepalife v. CA
89 SCRA 543
Facts:
> On March 14, 1957, respondent Ngo Hing filed an application with Grepalife for a 20yr endowment policy for 50T on the life of his one year old daughter Helen Go.
> All the essential data regarding Helen was supplied by Ngo to Lapu-Lapu Mondragon,
the branch manager of Grepalife-Cebu. Mondragon then typed the data on the
application form which was later signed by Ngo.
> Ngo then paid the insurance premium and a binding deposit receipt was issued to
him. The binding receipt contained the following provision: If the applicant shall not
have been insurable xxx and the Company declines to approve the application, the
insurance applied for shall not have been in force at any time and the sum paid shall be
returned to the applicant upon the surrender of this receipt.
> Mondragon wrote on the bottom of the application form his strong recommendation
for the approval of the insurance application.
> On Apr 30, 1957, Mondragon received a letter from Grepalife Main office
disapproving the insurance application of Ngo for the simple reason that the 20yr
endowment plan is not available for minors below 7 yrs old.
> Mondragon wrote back the main office again strongly recommending the approval of
the endowment plan on the life of Helen, adding that Grepalife was the only insurance
company NOT selling endowment plans to children.
> On may 1957, Helen died of influenza with complication of broncho pneumonia. Ngo
filed a claim with Gepalife, but the latter denied liability on the ground that there was no
contract between the insurer and the insured and a binding receipt is NOT evidence of
such contract.

Issue:
Whether or not the binding deposit receipt, constituted a temporary contract of life
insurance.

Held:
NO.
The binding receipt in question was merely an acknowledgement on behalf of the
company, that the latters branch office had received from the applicant, the insurance
premium and had accepted the application subject for processing by the insurance
company, and that the latter will either approve or reject the same on the basis of
whether or not the applicant is insurable on standard rates.

Since Grepalife disapproved the insurance application of Ngo, the binding deposit
receipt had never became on force at any time, pursuant to par. E of the said receipt. A
binding receipt is manifestly merely conditional and does NOT insure outright. Where
an agreement is made between the applicant and the agent, NO liability shall attach
until the principal approves the risk and a receipt is given by the agent.

The acceptance is merely conditional, and is subordinated to the act of the company in
approving or rejecting the application. Thus in life insurance, a binding slip or binding
receipt does NOT insure by itself.

(13) San Miguel vs. Law Union Rock Ins. 40 Phil 674
San Miguel Brewery v. Law Union Rock Insurance Company - Insurance Proceeds

40 PHIL 674
Facts:
> On Jan. 12, 1918, Dunn mortgaged a parcel of land to SMB to secure a debt of 10T.
> Mortgage contract stated that Dunn was to have the property insured at his own
expense, authorizing SMB to choose the insurers and to receive the proceeds thereof
and retain so much of the proceeds as would cover the mortgage debt.
> Dunn likewise authorized SMB to take out the insurance policy for him.
> Brias, SMBs general manager, approached Law Union for insurance to the extent of
15T upon the property. In the application, Brias stated that SMBs interest in the
property was merely that of a mortgagee.
> Law Union, not wanting to issue a policy for the entire amount, issued one for P7,500
and procured another policy of equal amount from Filipinas Cia de Seguros. Both
policies were issued in the name of SMB only and contained no reference to any other
interests in the propty. Both policies required assignments to be approved and noted on
the policy.
> Premiums were paid by SMB and charged to Dunn. A year later, the policies were
renewed.
> In 1917, Dunn sold the property to Harding, but no assignment of the policies was
made to the latter.
> Property was destroyed by fire. SMB filed an action in court to recover on the
policies. Harding was made a defendant because by virtue of the sale, he became the
owner of the property, although the policies were issued in SMBs name.

> SMB sought to recover the proceeds to the extent of its mortgage credit with the
balance to go to Harding.
> Insurance Companies contended that they were not liable to Harding because their
liability under the policies was limited to the insurable interests of SMB only.
> SMB eventually reached a settlement with the insurance companies and was paid the
balance of its mortgage credit. Harding was left to fend for himself. Trial court ruled
against Harding. Hence the appeal.

Issue:

Whether or not the insurance companies are liable to Harding for the balance of the
proceeds of the 2 policies.

Held:
NOPE.
Under the Insurance Act, the measure of insurable interest in the property is the extent
to which the insured might be daminified by the loss or injury thereof. Also it is provided
in the IA that the insurance shall be applied exclusively to the proper interest of the
person in whose name it is made. Undoubtedly, SMB as the mortgagee of the property,
had an insurable interest therein; but it could NOT, an any event, recover upon the two
policies an amount in excess of its mortgage credit.

By virtue of the Insurance Act, neither Dunn nor Harding could have recovered from the
two policies. With respect to Harding, when he acquired the property, no change or
assignment of the policies had been undertaken. The policies might have been worded
differently so as to protect the owner, but this was not done.

If the wording had been: Payable to SMB, mortgagee, as its interests may appear,
remainder to whomsoever, during the continuance of the risk, may become owner of the
interest insured, it would have proved an intention to insure the entire interest in the
property, NOT merely SMBs and would have shown to whom the money, in case of
loss, should be paid. Unfortunately, this was not what was stated in the policies.

If during the negotiation for the policies, the parties had agreed that even the owners
interest would be covered by the policies, and the policies had inadvertently been written
in the form in which they were eventually issued, the lower court would have been able
to order that the contract be reformed to give effect to them in the sense that the parties
intended to be bound. However, there is no clear and satisfactory proof that the policies
failed to reflect the real agreement between the parties that would justify the reformation
of these two contracts.

(14) Saura Import vs. Phil. Ins. Co. 8 SCRA 143

G.R. No. L-15184 May 31, 1963
Lessons Applicable: Mortgagor (Insurance)
Laws Applicable:

FACTS:
Saura Import & Export Co Inc., mortgaged to the Phil. National Bank, a
parcel of land.

The mortgage was amended to guarantee an increased amount,

bringing the total mortgaged debt to P37,000

On the land mortgage is a building owned by Saura Import & Export

Co Inc. which was insured with Philippine International Surety (Insurer)
even before the mortgage contract so it was required to endorse to
mortgagee PNB

October 15, 1954: Barely 13 days after the issuance of the fire
insurance policy, the insurer cancelled it. Notice of the cancellation was
given to PNB (mortgagee). But Saura (insured) was not informed.

April 6, 1955: The building and all its contents worth P40,685.69 were
burned so Saura filed a claim with the Insurer and mortgagee Bank

RTC: dismissed
ISSUE: W/N Philippine International Surety should be held liable for the
claim because notice to only the mortgagee is not substantial

HELD:YES. Appealed from is hereby reversed. Philippine International

Surety Co., Inc., to pay Saura Import & Export Co., Inc., P29,000

It was the primary duty of Philippine International Surety to notify the

insured, but it did not
If a mortgage or lien exists against the property insured, and the policy
contains a clause stating that loss, if any, shall be payable to such
mortgagee or the holder of such lien as interest may appear, notice of
cancellation to the mortgagee or lienholder alone is ineffective as a
cancellation of the policy to the owner of the property.

liability attached principally the insurance company, for its failure to

give notice of the cancellation of the policy to Saura
it is unnecessary to discuss the errors assigned against appellee bank

(15) Palileo vs. Cosio 97 Phil 919

Palilieo v. Cosio - Insurance Proceeds

97 PHIL 919
Facts:
> On Dec. 18, 1951, Palileo obtained from Cosio a loan of P12T.
> To secure payment, Cosio required Palileo to sign a document known as conditional
sale of residential building, purporting to convey to Cosio, with a right to repurchase (on
the part of Palileo), a two-story building of strong materials belonging to Palileo.
> After execution of the document, Cosio insured the building against fire with
Associated Insurance & Surety Co. (Associated) for 15T.
> The insurance policy was issued in the name of Cosio.
> The building was partly destroyed by fire and after proper demand, Cosio was able to
collect from the insurance company an indemnity of P13,107.
> Palileo demanded from Cosio that she be credited with the necessary amount to pay
her obligation out of the insurance proceeds, but Cosio refused to do so.
> Trial Court found that the debt had an unpaid balance of P12T. It declared the
obligation of Palileo to Cosio fully compensated by virtue of the proceeds collected by
Cosio and further held that the excess of P1,107 (13,107 12,000) be refunded to
Palileo

Issue:
Whether or not the trial court was justified in considering the obligation of Palileo fully
compensated by the insurance amount that Cosio was able to collect from Associated,

and whether or not the trial court was correct in requiring Cosio to refund the excess of
P1,107 to Palileo.

Held:
NO and NO.
The rule is that where a mortgagee, independently of the mortgagor, insures the
mortgaged property in his own name and for his own interest, he is entitled to the
insurance proceeds in case of loss, but in such case, he is not allowed to retain his
claim against the mortgagor, but is passed by subrogation to the insurer to the extent of
the money paid.

The lower court erred in declaring that the proceeds of the insurance taken out by Cosio
on the property insured to the benefit of Palileo and in ordering the former to deliver to
the latter, the difference between the indebtedness and the amount of insurance
received by Cosio. In the light of this ruling, the correct solution would be that the
proceeds of the Insurance be delivered to Cosio, but her claim against Palileo should be
considered assigned to the insurance company who is deemed subrogated to the rights
of Cosio to the extent of the money paid as indemnity.