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Is the occurrence of a typhoon a

fortuitous event?
General Rule:
Yes, if all the elements of a natural disaster or calamity concur. This holds true especially if the
vessel was seaworthy at the time it undertook that fateful voyage and that it was confirmed with the
Coast Guard that the weather condition would permit safe travel of the vessel to its destination.
(Philippine American General Insurance Co., Inc. v. MGG Marine Services, Inc., G.R. No. 135645,
Mar. 8, 2002)

Exception:
If a vessel sank due to a typhoon, and there was failure to ascertain the direction of the storm and
the weather condition of the path they would be traversing, it constitutes lack of foresight and
minimum vigilance over its cargoes taking into account the surrounding circumstances of the case.
Thus, the common carrier will still be liable. (Arada v. CA, G.R. No. 98243, July 1, 1992)

Are mechanical defects


considered fortuitous events?
No. Mechanical defects in the carrier are not considered a caso fortuito that exempts the
carrier from responsibility. (Sweet Lines, Inc. v. CA, G.R. No. L-46340, Apr. 29, 1983)

1. Tire blowout of a jeep is not a fortuitous event where there exists a specific act of negligence by
the carrier consisting of the fact that the jeepney was overloaded and speeding at the time of the
incident. (Juntilla v. Fontanar, G.R. No. L-45637, May 31, 1985)
2. Defective brakes cannot be considered fortuitous in character. (Vergara v. CA, G.R. No. 77679,
Sept. 30, 1987)
What are the instances when the
defects in the notice or proof of
loss are considered waived?
When the insurer:

1. Writes to the insured that he considers the policy null and void as the furnishing of notice or proof
of loss would be useless;
2. Recognizes his liability to pay the claim; 3. Denies all liability under the policy

4. Joins in the proceedings for determining the amount of the loss by arbitration, making no
objections on account of notice and preliminary proof; or
5. Makes Objection on any ground other than the formal defect in the preliminary proof.

What is misrepresentation?
It is an affirmative defense. To avoid liability, the insurer has the duty to establish such a defense by
satisfactory and convincing evidence. (Ng Gan Zee v. Asian Crusader Life Assn. Corp., G.R. No. L-
30685, May 30, 1983)

Note: In the absence of evidence that the insured has sufficient medical knowledge to enable him to
do distinguish between “peptic ulcer” and “tumor”, the statement of deceased that said tumor was
“associated with ulcer of the stomach” should be considered an expression in good faith. Fraudulent
intent of insured must be established to entitle insurer to rescind the insurance contract.
Misrepresentation, as a defense of insurer, is an affirmative defense which must be proved. (Ng Gan
Zee v. Asian Crusader Life Assn. Corp., G.R. No. L-30685, May 30, 1983).

CONCEALMENT OF NON-MATERIAL FACT


Joanna applied for a non-medical life insurance. Joanna
did not inform the insurer that one week prior to her
application for insurance, he was examined and confined
at St. Luke’s Hospital where she was diagnosed for lung
cancer. The insured soon thereafter died in a plane crash.
Is the insurer liable considering that the fact concealed
had no bearing with the cause of death of the insured?
Why?

No. The concealed fact is material to the approval and issuance of the insurance policy. It is well
settled that the insured need not die of the disease she failed to disclose to the insurer. It is sufficient
that his nondisclosure misled the insurer in forming his estimate of the risk of the proposed
insurance policy or in making inquiries.

TEST OF MATERIALITY

It is 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 advantages of the
proposed contract, or in making his inquiries. (Sec. 31)

When is the insurance contract


perfected?
When the assent or consent is manifested by the meeting of the offer and the acceptance upon the
thing and the cause which are to constitute the contract. Mere offer or proposal is not contemplated.
(De Lim v. Sun Life Assurance Co., G.R. No. L-15774, Nov. 29, 1920)

FIRE INSURANCE POLICY


Angela, owner of a condominium unit, insured the same
against fire with the ELM Insurance Co., and made the
loss payable to his sister, Antonette. In case of loss by fire
of the said condominium unit, who may recover on the fire
insurance policy?

Angela can recover on the fire insurance policy for the loss of said condominium unit. He has the
insurable interest as owner-‐insured. As beneficiary in the fire insurance policy, Antonette cannot
recover on the fire insurance policy. For the beneficiary to recover on the fire or property insurance
policy, it is required that she must have insurable interest in the property insured. In this case,
Antonette does not have insurable interest in the condominium unit. (2001 Bar Question)

Differentiate insurable interest in


life insurance and insurable
interest in property insurance.
Insurable interest in life exists when there is reasonable ground founded on the relation of the
parties, either pecuniary or contractual or by blood or affinity, to expect some benefit or advantage
from the continuance of the life of the insured.

TRAFFIC VIOLATION REPORT


When a passenger jeepney, insured but with an
authorized driver’s clause and was driven by a driver who
only holds a Traffic Violation report (TVR) because his
license was confiscated, met an accident, may the owner
of the jeepney claim from the insurance company?

Yes. The fact that the driver was merely holding a TVR does not violate the condition that the driver
should have a valid and existing driver’s license. Besides, such a condition should be disregarded
because what is involved is a passenger jeepney, and what is involved here is not own damage
insurance but third party liability where the injured party is a third party not privy to the contract of
insurance. (2003 Bar Question)
What is a cooperation clause?
It is that which provides that the insured shall give all such information and assistance as the insurer
may require, usually including attendance at trials or hearings.

What is the theft clause?


It is that which includes theft as among the risks insured against. Where a car is unlawfully and
wrongfully taken without the knowledge and consent of the owner, such taking constitutes “theft” and
it is the theft clause, not the authorized driver clause which should apply. (Palermo v. Pyramid Inc.,
G.R. No. L-‐36480, May 31, 1988)

What is the authorized driver


clause?
It indemnifies the insured owner against loss or damage to the car but limits the use of the insured
vehicle to: 1. The insured himself; or 2. Any person who drives on his order or with his permission.
(Villacorta v. Insurance Commissioner, G.R. No. 54171, Oct. 28, 1980)

What is the main purpose of an


authorized driver clause
Its main purpose is to require a person other than the insured, who drives the car on the insured’s
order, such as, his regular driver, or with his permission, such as a friend or member of the family or
the employees of a car service or repair shop to be duly licensed drivers and have no disqualification
to drive a motor vehicle. (Villacorta v. Insurance Commission, G.R. No. L-54171, Oct. 28, 1980)

What is a no fault indemnity


clause?
It is a clause where the insurer is required to pay a third party injured or killed in an accident without
the necessity of proving fault or negligence on the part of the insured. There is a stipulated maximum
amount to be recovered. (1994 Bar Question)

What is the meaning of “land


transportation operator”?
It means the owner or owners of motor vehicles for transportation of a passenger for compensation,
including school buses. (Sec. 373, [e])

What is the meaning of a “motor


vehicle owner”?
It means the actual legal owner of a motor vehicle, whose name such vehicle is duly registered with
the Land Transportation Office. (Sec. 373, [d])

Who is a third-party in
insurance?
Any person other than a passenger as defined in this section and shall also exclude a member of the
household, or a member of the family within the second degree of consanguinity or affinity, of a
motor vehicle owner or land transportation operator, as likewise defined herein, or his employee in
respect of death, bodily injury, or damage to property arising out of and in the course of employment.
(Sec. 373, [c])

Who is a passenger?
Any fare paying person being transported and conveyed in and by a motor vehicle for transportation
of passengers for compensation, including persons expressly authorized by law or by the vehicle’s
operator or his agents to ride without fare. (Sec. 373 [b])
What is the purpose of motor
vehicle liability insurance?
To give immediate financial assistance to victims of motor vehicle accidents and/or their dependents,
especially if they are poor regardless of financial capability of motor vehicle owners of operators
responsible for the accident sustained. (First Integrated Bonding Insurance Co., Inc. v. Hernando,
G.R. No. L-51221, July 31, 1991)

What is motor vehicle liability


insurance?
It is a protection coverage that will answer for legal liability for losses and damages for bodily injuries
or property damage that may be sustained by another arising from the use and operation of a motor
vehicle by its owner.

What is life insurance?


It is that which is payable on the death of a person or on his surviving a specified period, or
otherwise contingently on the continuance of cessation of life (Sec. 180). It is a mutual agreement by
which a party agrees to pay a given sum on the happening of a particular event contingent on the
duration of human life, in consideration of the payment of a smaller sum immediately, or in periodical
payments by the other party.

What is suretyship?
It is an agreement whereby the surety guarantees the performance by another of an undertaking or
an obligation in favor of a third party. (Sec. 175)
What is a “no action” clause?
It is a requirement in a policy of liability insurance which provides that suit and final judgment be first
obtained against the insured, that only thereafter can the person injured recover on the policy.
(Guingon v. Del Monte, G.R. No. L-‐21806, Aug. 17, 1967)

WChris, a boxer, is a holder of an accident insurance


policy. In a boxing match, he died after being knocked out
by the opponent. Can his father who is a beneficiary under
said insurance policy successfully claim indemnity from
the insurance company?

Yes. Clearly, the proximate cause of death was the boxing contest. Death sustained in a boxing
contest is an accident. (De la Cruz v. Capital Insurance & Surety Co., G.R. No. L-21574, June 30,
1966)

What is casualty insurance?


It is that which covers loss or liability arising from accident or mishap, excluding those falling under
types of insurance as fire or marine. (Sec. 174)

What is fire insurance?


It is a contract of indemnity by which the insurer, for a consideration, agrees to indemnify the insured
against loss of or damage by fire, lightning, windstorm, tornado or earthquake and other allied risks,
when such risks are covered by extension to fire insurance policies or under separate policies. (Sec.
167)
What does the phrase “port of
refuge expenses” mean?
These are the additional expenses incurred in repairing the damages suffered by a vessel because
of the perils insured against as well as those incurred for saving the vessel from such perils, such as
the expense of launching or raising the vessel or of towing or navigating it into port for her safety.
These are items to be borne by the insurer in addition to a total loss if that afterwards takes place.
(Sec. 163)

What is the effect if


unseaworthiness is unknown to
the owner of the cargo?
It is immaterial in ordinary marine insurance and may not be used by him as a defense in order to
recover on the marine insurance policy. It becomes the obligation of a cargo owner to look for a
reliable common carrier, which keeps its vessels in seaworthy conditions. The shipper may have no
control over the vessel but he has control in the choice of the common carrier that will transport his
goods. (Roque v. IAC, G.R. No. L-66935, Nov. 11, 1985)

What is the effect of the


admission of seaworthiness by
the insurer?
If the policy provides that the seaworthiness of the vessel as between insured and insurer is
admitted, the issue of seaworthiness cannot be raised by the insurer without showing concealment
or misrepresentation by the insured. (Phil. American General Insurance Co. v. CA, G.R. No. 116940,
June 11, 1997)

It may mean:
1. That the warranty of seaworthiness is to be taken as fulfilled; or

2. That the risk of unseaworthiness is assumed by the insurer. (Philippine American General
Insurance Co., Inc. v CA, GR No. 116940. June 11, 1997)

SUBROGATION

Company X procured an “open-‐policy” marine insurance from Y Insurance, a foreign corporation.


The insurance was for a transshipment of certain wooden work tools and workbenches purchased
for consignee Z. The cargo, packed inside one container van was shipped from Hamburg, Germany
en route to Manila, Philippines. The ship arrived and docked where cargo was received by Aboitiz
Shipping Corporation, thereafter it issued a bill of lading containing a notation ‘grounded outside
warehouse’. It was then shipped to Cebu City and was released to Z. Two days after its release,
Aboitiz received a call from Z informing it that the cargo sustained water damage. Z then informed
the Philippine office of Y Insurance for insurance claims. Y Insurance got an official weather report
from PAGASA, it would appear that heavy rains caused water damage to the shipment, noticeably
the shipment was placed outside the warehouse of Aboitiz based on the bill of lading containing an
notation “grounded outside the warehouse”. Aboitiz refused to settle the claim, Y Insurance paid the
amount of Php 280, 176.92 to consignee Z, and a subrogation receipt was thereafter signed.

A case for collection of actual damages with interest and attorney’s fees was filed with RTC. Aboitiz
disavowed any liability and asserted that the claim had no factual and legal bases, and that
complaint had no cause of action, plaintiff Y Insurance had no personality to sue, cause of action
was barred, suit was premature there being no claim made upon Aboitiz. RTC rendered decision
against Y Insurance and case was elevated to CA, which reversed RTC decision. Case was then
elevated to SC.

ISSUES:

a. Is Respondent Y Insurance the real party-in-interest that possesses the right of subrogation to
claim reimbursement from Aboitiz?

b. Is this right to subrogation an absolute right?

RESOLUTION:

a. YES. A foreign corporation not licensed to do business in the Philippines is not absolutely
incapacitated from filing a suit in local courts. Only when that foreign corporation is “transacting” or
“doing business” in the country will a license be necessary before it can institute suits. It may,
however, bring suits on isolated business transactions, which is not prohibited under Philippine law.
Thus, this Court has held that a foreign insurance company may sue in the Philippine courts upon
the marine insurance policies issues by it abroad to cover international-‐bound cargoes shipped by a
Philippine carrier, even if it has no license to do business in this country. It is the act of engaging in
business without the prescribed license, and not the lack of license per se, which bars a foreign
corporation from access to our courts. Thus, the payment by the insurer to the assured operates as
an equitable assignment of all remedies the assured may have against the third party who caused
the damage. Subrogation is not dependent upon, nor does it grow out of, any privity of contract or
upon written assignment of claim. It accrues simply upon payment of the insurance by the insurer.
(Aboitiz Shipping Corporation vs. Insurance Company of North America, G.R. No. 168402, August6,
2008, [Reyes, R.T.,J.])

b. NO. This Right of Subrogation has its limitations, to wit:


1. Both the insurer and the consignee are bound by the contractual stipulations under the bill of
lading;
2. The insurer can be subrogated only to the rights as the insured may have against the wrongdoer.

Sue and labor clause – a clause under which the insurer may become liable to pay the insured in
addition to the loss actually suffered, such expenses as he may have incurred in his efforts to protect
the property against a peril for which the insurer would have been liable (Sec. 163)

Inchamaree clause – a clause which makes the insurer liable for loss or damage to the hull or
machinery arising from the:

a. Negligence of the captain, engineers, etc.


b. Explosion, breakage of shafts; and
c. Latent defect of machinery or hull. (Thames and Mersey Marine Insurance Co v. Hamilton Fraser
and Co [1887] 12 AC 484)
Barratry clause – a clause which provides that there can be no recovery on the policy in case of
any willful misconduct on the part of the master or crew in pursuance of some unlawful or fraudulent
purpose without the consent of the owner and to the prejudice of owner’s interest. It requires an
intentional and willful act in its commission. No honest error or judgment or mere negligence, unless
criminally gross, can be barratry. (Roque v. IAC, G.R. No. L-‐ 66935, Nov. 11, 1985)

All-risks insurance policy – insurance against all causes of conceivable loss or damage,
except:

a. Excluded risk stipulated in the policy, or


b. due to fraud or intentional misconduct on the part of the insured (Chao Tiek Seng v. CA, GR. No.
84507, Mar. 15, 1990).
The insured has the initial burden of proving that the cargo was in good condition when the policy
attached and that the cargo was damaged when unloaded from the vessel; thereafter, the burden
shifts to the insurer to show the exception to the coverage.

What is a loan on bottomry?


It is one which is payable only if the vessel given as security for the loan completes in safety the
contemplated voyage.

What is the risk insured against


in marine insurance?
General Rule: Only perils of the sea is insured against.

Exception: Unless perils of the ship are covered by an all-risks policy

What is an “all risks” marine


insurance policy?
General Rule:
It is that which insures against all causes of conceivable loss or damage.

Exception:
1. As otherwise excluded in the policy; or
2. Due to fraud or intentional misconduct on the part of the insured. (Choa Tiek v. CA, G.R. No.
84507, Mar. 15, 1990) This type of policy grants greater protection than that afforded by the “perils
clause.”
What does “perils of the ship” mean?
It is a loss which, in the ordinary course of events, results from: 1. The natural and inevitable action
of the sea 2. The ordinary wear and tear of the ship 3. The negligent failure of the ship’s owner to
provide the vessel with proper equipment to convey the cargo under ordinary conditions.

What does the phrase “perils of the sea or perils of navigation” mean?

It includes only those casualties due to the unusual violence or extraordinary action of wind and
wave, or to other extraordinary causes connected with navigation.

Marine insurance includes:


1. Insurance against loss or damage to:
a. Vessels, goods, freight, cargo, merchandise, profits, money, valuable papers, bottomry and
respondentia, and interest in respect to all risks or perils of navigation;
b. Persons or property in connection with marine insurance;
c. Precious stones, jewels, jewelry and precious metals whether in the course of transportation or
otherwise; and
d. Bridges, tunnels, piers, docks and other aids to navigation and transportation (Sec. 99)
Note: Cargo can be the subject of marine insurance, and once it is entered into, the implied warranty
of seaworthiness immediately attaches to whoever is insuring the cargo, whether he be the ship
owner or not. (Roque v. IAC, G.R. No. L-‐66935, Nov. 11, 1985)

2. “Marine protection and Indemnity insurance” which means insurance against, or against
legal liability of the insured for loss, damage, or expense incident to ownership, operation,
chartering, maintenance, use, repair, or construction of any vessel, craft or instrumentality in
use of ocean or inland waterways, including liability of the insured for personal injury, illness
or death or for loss of or damage to the property of another person. (Sec. 99) Measure of
indemnity:
a. Valued policy – the parties are bound by the valuation, if the insured had some interest at risk and
there is no fraud (Sec. 156)
b. Open policy – the following rules shall apply in estimating a loss: i. value of the ship-‐ value at the
beginning of the risk ii. value of the cargo-‐ actual cost when laden on board or market value at the
time and place of lading iii. value of freightage-‐ gross freightage exclusive of primage iv. cost of
insurance – in each case to be added to the estimated value (Sec. 161)

What vessels are contemplated in marine insurance?


Those used, or at least, intended for navigation. E.g., one for shipping, chartering, voyage and the
like. Vessels which are used as museums or those that are stationary are not entitled to be insured
under this a marine insurance.
What is marine insurance?
Insurance against risks connected with navigation, to which a ship, cargo, freightage, profits or other
insurable interest in movable property, may be exposed during a certain voyage or fixed period of
time.

What is the nature of a health care agreement? What is


the effect of limited liability to health care agreements?
A health care agreement is in the nature of a non-‐life insurance. It is an established rule in
insurance contracts that when their terms contain limitations on liability, they should be construed
strictly against the insurer. These are contracts of adhesion the terms of which must be interpreted
andenforced stringently against the insurer which prepared the contract. This doctrine is equally
applicable to health care agreements. (Blue Cross Health Care, Inc. vs. Noemi and Danilo Olivares,
G.R. No. 169737, February 12, 2008 [Corona, J.], citing Philamcare Health Systems, Inc. vs. CA)

What is Uberrimae Fides Contract?


The contract of insurance is one of Perfect Good Faith not for the insured alone, but equally so far
the insurer. It requires the parties to the contract to disclose conditions affecting the risk of which He
ought to know.

What are pre-need plans?


They are contracts which provide for the performance of future services of the payment of future
monetary considerations at the time of actual need, for which planholders pay in cash or installment
at stated prices, with or without interest or insurance coverage and includes life, pension, education,
interment, and other plans which the Commission may from time to time approve. (Sec. 3.9. R.A.
8799)

What is a contract of insurance?


It is an agreement whereby one undertakes for a consideration to indemnify another against the
loss, damage or liability arising from an unknown or contingent event. (Sec. 2[1], Insurance Code)
Note: A contract of insurance is still a contract, thus it must have all the essential elements of a valid
contract as enumerated in Art. 1318 of the New Civil Code.
Section 54. When an insurance contract is executed with an agent or trustee as the insured, the fact
that his principal or beneficiary is the real party in interest may be indicated by describing the insured
as agent or trustee, or by other general words in the policy.

Who may take insurance?


An insurance may be taken by a person, personally or through his agent or trustee.
If the insurance is taken by an agent or trustee, what must the agent or trustee do?
Since the insurance is to be applied exclusively to the interest of the person in whose name and for
whose benefit it is made, the agent or trustee when making an insurance contract for or on behalf of
his principal should, indicate that he is merely acting in a representative capacity by signing as such
agent or trustee, or by other general terms in the policy.
Section 55. To render an insurance effected by one partner or part-owner, applicable to the interest
of his co-partners or other part-owners, it is necessary that the terms of the policy should be such as
are applicable to the joint or common interest.

What happens when the insurance is effected by a partner or a part-owner?


A partner or part-owner who insures partnership property in his own name limits the contract to his
individual share UNLESS the terms of the policy clearly show that the insurance was meant to cover
also the shares of the other partners.

Section 56. When the description of the insured in a policy is so general that it may comprehend
any person or any class of persons, only he who can show that it was intended to include him can
claim the benefit of the policy.

What happens when the description of the insured is general?


In order that the insurance may be applied to the interest of the person claiming the benefit of the
policy, he must show that he is the person named or described or that he belongs to the class of
persons comprehended in the policy.
Example?
If the policy is payable “to the children”, you must show that you are a child of the deceased. Not a
grand-child, nor a great-grand-child.

Section 57. A policy may be so framed that it will inure to the benefit of whomsoever, during the
continuance of the risk, may become the owner of the interest insured.

Section 58. The mere transfer of a thing insured does not transfer the policy, but suspends it until
the same person becomes the owner of both the policy and the thing insured.
What is the reason behind Sec. 58?
Sec. 58 follows from the well established principle that a policy is a personal contract with the
insured and does NOT run with the insured property unless so expressly stipulated, and in the
absence of an assignment of the policy with the insurer’s consent, the purchaser of the interest of
the property requires no privity with the insurer.
In reading sec. 58, take note of Sec. 19 and 20.
Section 19. An interest in property insured must exist when the insurance takes effect, and when
the loss occurs, but need not exist in the meantime; and interest in the life or health of a person
insured must exist when the insurance takes effect, but need not exist thereafter or when the loss
occurs.
Section 20. Except in the cases specified in the next four sections, and in the cases of life, accident
and health insurance, a change of interest in any part of a thing insured, unaccompanied by a
corresponding change of interest in the insurance, suspends the insurance to an equivalent extent,
until the interests in the thing and the interest in the insurance are vested in the same person.
Problem.
A borrowed 5,000 from B, and to secure payment of his obligation, he mortgaged his house to B. B
then insured the house for 5T. Subsequently, B assigned his mortgage credit to X, but did not make
the corresponding transfer of his right over the insurance policy. IF the house burns down, is Paul
entitled to collect the insurance money as assignee-mortgagee?
NO, since B did not assign his right over the insurance policy to X. A purchaser of insured property
who does Not take the precaution to obtain a transfer of the policy on the insurance, cannot in case
of loss, recover upon the contract, as the transfer of the property has the effect of suspending the
insurance until the purchaser becomes the owner of the policy as well as the property insured.

RCBC v. CA - Insurance
Proceeds
289 SCRA 292 (1998)
Facts:
> GOYU applied for credit facilities and accommodations with RCBC. After due evaluation, a credit
facility in the amount of P30 million was initially granted. Upon GOYU's application increased
GOYU's credit facility to P50 million, then to P90 million, and finally to P117 million
> As security for its credit facilities with RCBC, GOYU executed two REM and two CM in favor of
RCBC, which were registered with the Registry of Deeds at. Under each of these four mortgage
contracts, GOYU committed itself to insure the mortgaged property with an insurance company
approved by RCBC, and subsequently, to endorse and deliver the insurance policies to RCBC.
> GOYU obtained in its name a total of 10 insurance policies from MICO. In February 1992,
Alchester Insurance Agency, Inc., the insurance agent where GOYU obtained the Malayan
insurance policies, issued nine endorsements in favor of RCBC seemingly upon instructions of
GOYU
> On April 27, 1992, one of GOYU's factory buildings in Valenzuela was gutted by fire.
Consequently, GOYU submitted its claim for indemnity.
> MICO denied the claim on the ground that the insurance policies were either attached pursuant to
writs of attachments/garnishments issued by various courts or that the insurance proceeds were also
claimed by other creditors of GOYU alleging better rights to the proceeds than the insured.
> GOYU filed a complaint for specific performance and damages. RCBC, one of GOYU's creditors,
also filed with MICO its formal claim over the proceeds of the insurance policies, but said claims
were also denied for the same reasons that AGCO denied GOYU's claims.
> However, because the endorsements do not bear the signature of any officer of GOYU, the trial
court, as well as the Court of Appeals, concluded that the endorsements are defective and held that
RCBC has no right over the insurance proceeds.

Issue:
Whether or not RCBC has a right over the insurance proceeds.

Held:
RCBC has a right over the insurance proceeds.
It is settled that a mortgagor and a mortgagee have separate and distinct insurable interests in the
same mortgaged property, such that each one of them may insure the same property for his own
sole benefit. There is no question that GOYU could insure the mortgaged property for its own
exclusive benefit. In the present case, although it appears that GOYU obtained the subject insurance
policies naming itself as the sole payee, the intentions of the parties as shown by their
contemporaneous acts, must be given due consideration in order to better serve the interest of
justice and equity.

It is to be noted that 9 endorsement documents were prepared by Alchester in favor of RCBC. The
Court is in a quandary how Alchester could arrive at the idea of endorsing any specific insurance
policy in favor of any particular beneficiary or payee other than the insured had not such named
payee or beneficiary been specifically disclosed by the insured itself. It is also significant that GOYU
voluntarily and purposely took the insurance policies from MICO, a sister company of RCBC, and not
just from any other insurance company. Alchester would not have found out that the subject pieces
of property were mortgaged to RCBC had not such information been voluntarily disclosed by GOYU
itself. Had it not been for GOYU, Alchester would not have known of GOYU's intention of obtaining
insurance coverage in compliance with its undertaking in the mortgage contracts with RCBC, and
verify, Alchester would not have endorsed the policies to RCBC had it not been so directed by
GOYU.

On equitable principles, particularly on the ground of estoppel, the Court is constrained to rule in
favor of mortgagor RCBC. RCBC, in good faith, relied upon the endorsement documents sent to it as
this was only pursuant to the stipulation in the mortgage contracts. We find such reliance to be
justified under the circumstances of the case. GOYU failed to seasonably repudiate the authority of
the person or persons who prepared such endorsements. Over and above this, GOYU continued, in
the meantime, to enjoy the benefits of the credit facilities extended to it by RCBC. After the
occurrence of the loss insured against, it was too late for GOYU to disown the endorsements for any
imagined or contrived lack of authority of Alchester to prepare and issue said endorsements. If there
had not been actually an implied ratification of said endorsements by virtue of GOYU's inaction in
this case, GOYU is at the very least estopped from assailing their operative effects.

To permit GOYU to capitalize on its non-confirmation of these endorsements while it continued to


enjoy the benefits of the credit facilities of RCBC which believed in good faith that there was due
endorsement pursuant to their mortgage contracts, is to countenance grave contravention of public
policy, fair dealing, good faith, and justice. Such an unjust situation, the Court cannot sanction.
Under the peculiar circumstances obtaining in this case, the Court is bound to recognize RCBC's
right to the proceeds of the insurance policies if not for the actual endorsement of the policies, at
least on the basis of the equitable principle of estoppel.
GOYU cannot seek relief under Section 53 of the Insurance Code which provides that the proceeds
of insurance shall exclusively apply to the interest of the person in whose name or for whose benefit
it is made. The peculiarity of the circumstances obtaining in the instant case presents a justification
to take exception to the strict application of said provision, it having been sufficiently established that
it was the intention of the parties to designate RCBC as the party for whose benefit the insurance
policies were taken out. Consider thus the following:
1. It is undisputed that the insured pieces of property were the subject of mortgage contracts
entered into between RCBC and GOYU in consideration of and for securing GOYU's credit facilities
from RCBC. The mortgage contracts contained common provisions whereby GOYU, as mortgagor,
undertook to have the mortgaged property properly covered against any loss by an insurance
company acceptable to RCBC.
2. GOYU voluntarily procured insurance policies to cover the mortgaged property from MICO, no
less than a sister company of RCBC and definitely an acceptable insurance company to RCBC.
3. Endorsement documents were prepared by MICO's underwriter, Alchester Insurance Agency,
Inc., and copies thereof were sent to GOYU, MICO and RCBC. GOYU did not assail, until of late, the
validity of said endorsements.
4. GOYU continued until the occurrence of the fire, to enjoy the benefits of the credit facilities
extended by RCBC which was conditioned upon the endorsement of the insurance policies to be
taken by GOYU to cover the mortgaged properties.

This Court can not over stress the fact that upon receiving its copies of the endorsement documents
prepared by Alchester, GOYU, despite the absence written conformity thereto, obviously considered
said endorsement to be sufficient compliance with its obligation under the mortgage contracts since
RCBC accordingly continued to extend the benefits of its credit facilities and GOYU continued to
benefit therefrom. Just as plain too is the intention of the parties to constitute RCBC as the
beneficiary of the various insurance policies obtained by GOYU. The intention of the parties will have
to be given full force and effect in this particular case. The insurance proceeds may, therefore, be
exclusively applied to RCBC, which under the factual circumstances of the case, is truly the person
or entity for whose benefit the policies were clearly intended.

Insular Life vs. Ebrado


80 SCRA 181
Facts:
> Buenaventura Ebrado was issued al life plan by Insular Company. He designated Capriona as his
beneficiary, referring to her as his wife.
> The insured then died and Carponia tried to claim the proceeds of the said plan.
> She admitted to being only the common law wife of the insured.
> Pascuala, the legal wife, also filed a claim asserting her right as the legal wife. The company then
filed an action for interpleader.
Issue:

Whether or not the common law wife named as beneficiary can collect the proceeds.

Held:
NO.
The civil code prohibitions on donations made between persons guilty of adulterous concubinage
applies to insurance contracts. On matters not specifically provided for by the Insurance Law, the
general rules on Civil law shall apply. A life insurance policy is no different from a civil donation as
far as the beneficiary is concerned, since both are founded on liberality.

Why was the common law wife not ed to collect the proceeds despite the fact that
she was the beneficiary? Isn’t this against Sec. 53?
It is true that SC went against Sec. 53. However, Sec. 53 is NOT the only provision that the SC had
to consider. Art. 739 and 2012 of CC prohibit persons who are guilty of adultery or concubinage
from being beneficiaries of the life insurance policies of the persons with whom they committed
adultery or concubinage. If the SC used only Sec. 53, it would have gone against Art. 739 and
2012.

Del Val v. Del Val


29 Phil 535
Facts:
> Petitioners and private respondents are brothers and Sisters and are the only heirs and next of kin
of Gregorio del Val who died intestate.
> It was found out that the deceased took out insurance on his life for the sum of 40T and made it
payable to private respondents as sole beneficiary.
> After Gregorio’s death, Andres collected the proceeds of the policy.
> Of the said policy, Andres paid 18T to redeem some real property which Gregorio had sold to third
persons during his lifetime.
> Said redemption of the property was made by Andres’ laywer in the name of Andres and the
petitioners. (Accdg to Andres, said redemption in the name of Petitioners and himself was without
his knowledge and that since the redemption, petitioners have been in possession of the property)
> Petitioners now contend that the amount of the insurance policy belonged to the estate of the
deceased and not to Andres personally.
> Pet filed a complaint for partition of property including the insurance proceeds
> Andress claims that he is the sole owner of the proceeds and prayed that he be declared:
> Sole owner of the real property, redeemed with the use of the insurance proceeds and its
remainder;
> Petitioners to account for the use and occupation of the premises.

Issue:
Whether or not the petitioners have a right to the insurance proceeds?

Held:
NOPE.
The contract of life insurance is a special contract and the destination of the proceeds thereof is
determined by special laws which deal exclusively with the subject. Our civil code has no provisions
which relate directly and specifically to life-insurance contracts of to the destination of life-insurance
proceeds that subject is regulated exclusively by the Code of Commerce. Thus, contention of
petitioners that proceeds should be considered as a dontation or gift and should be included in the
estate of the deceased is UNTENABLE.

Since the repurchase has been made n the names of all the heirs instead of the defendant alone,
petitioners claim that the property belongs to the heirs in common and not to the defendant
alone. The SC held that if it is established by evidence that that was his intention and that the real
estate was delivered to the plaintiffs with that understanding, then it is probable that their contention
is correct and that they are entitled to share equally with the defendant. HOWEVER, it appears from
the evidence that the conveyances were taken in the name of the plaintiffs without the knowledge
and consent of Andres, or that it was not his intention to make a gift to them of real estate, when it
belongs to him.

Coquia v. Fieldmen’s
Insurance
26 SCRA 172

Facts:
> On Dec. 1, 1961, Fieldmen’s Insurance co. Issued in favor of the Manila Yellow Taxicab a
common carrier insurance policy with a stipulation that the company shall indemnify the insured of
the sums which the latter wmy be held liable for with respect to “death or bodily injury to any faire-
paying passenger including the driver and conductor”.
> The policy also stated that in “the event of the death of the driver, the Company shall indemnify
his personal representatives and at the Company’s option may make indemnity payable directly to
the claimants or heirs of the claimants.”
> During the policy’s lifetime, a taxicab of the insured driven by Coquia met an accident and Coquia
died.
> When the company refused to pay the only heirs of Coquia, his parents, they institued this
complaint. The company contends that plaintiffs have no cause of action since the Coquias have no
contractual relationship with the company.
Issue:

Whether or not plaintiffs have the right to collect on the policy.

Held:
YES.
Athough, in general, only parties to a contract may bring an action based thereon, this rule is subject
to exceptions, one of which is found in the second paragraph of Article 1311 of the Civil Code of the
Philippines, reading: "If a contract should contain some stipulation in favor of a third person, he may
demand its fulfillment provided he communicated his acceptance to the obligor before its revocation.
A mere incidental benefit or interest of a person is not sufficient. The contracting parties must have
clearly and deliberately conferred a favor upon a third person." This is but the restatement of a well-
known principle concerning contracts pour autrui, the enforcement of which may be demanded by a
third party for whose benefit it was made, although not a party to the contract, before the stipulation
in his favor has been revoked by the contracting parties

In the case at bar, the policy under consideration is typical of contracts pour autrui this character
being made more manifest by the fact that the deceased driver paid fifty percent (50%) of the
corresponding premiums, which were deducted from his weekly commissions. Under these
conditions, it is clear that the Coquias — who, admittedly, are the sole heirs of the deceased — have
a direct cause of action against the Company, and, since they could have maintained this action by
themselves, without the assistance of the insured it goes without saying that they could and did
properly join the latter in filing the complaint herein.

Guingon v. Del Monte


80 SCRA 181
Facts:
> The insured owned a fleet of jeepneys. He insured the operation of his jeepneys against
“accidents with third part liability” with Capital Insurance and Surety Co.
> One day, one of his jeepney dirivers, bumped and killed Guingon.
> An action for damages was then filed against the owner-insured, the driver and the company.
> The company sough to dismiss the charges against it on the ground of lack of cause of action
against it.

Issue:

Whether or not there is a cause of action against the company.


Held:
YES.
The right of a person injured to sue the insurer of the party at fault depends on whether the contract
of insurance was intended to benefit third persons. The test applied here is: Where the contract
provides for indemnity against liability to third persons, then third persons to whom the insured is
liable, can sue the insurer. On the other hand, where the contract is for indemnity against actual
loss or payment, then third persons cannot proceed against the insurer, the contract being solely to
reimburse the insured for liability actually discharged by him through payment to third persons, said
third persons' recourse being thus limited to the insured alone

The policy in the present case, is one whereby the insurer agreed to indemnify the insured "against
all sums . which the Insured shall become legally liable to pay in respect of: a. death of or bodily
injury to any person . . ." Clearly, therefore, it is one for indemnity against liability from the fact then
that the insured is liable to the third person, such third person is entitled to sue the insurer.

Since the policy in questioned contained a stipulation pour autrui, then the insurance company must
deliver the proceeds to the claimants.

Bonifacio Bros. v. Mora


20 SCRA 262
Facts:
> Enrique Mora mortgaged his Odlsmobile sedan car to HS Reyes Inc. with the condition that Mora
would insure the car with HS Reyes as beneficiary.
> The car was then insured with State Insurance Company and the policy delivered to Mora.
> During the effectivity of the insurance contract, the car figured in an accident. The company then
assigned the accident to an insurance appraiser for investigation and appraisal of the damage.
> Mora without the knowledge and consent of HS Reyes, authorized Bonifacio Bros to fix the car,
using materials supplied by the Ayala Auto Parts Company.
> For the cost of Labor and materials, Mora was billed P2,102.73. The bill was sent to the insurer’s
appraiser. The insurance company drew a check in the amount of the insurance proceeds and
entrusted the check to its appraiser for delivery to the proper party.
> The car was delivered to Mora without the consent of HS Reyes, and without payment to
Bonifacio Bros and Ayala.
> Upon the theory that the insurance proceeds should be directly paid to them, Bonifacio and Ayala
filed a complaint against Mora and the insurer with the municipal court for the collection of
P2,102.73.
> The insurance company filed its answer with a counterclaim for interpleader, requiring Bonifacio
and HS Reyes to interplead in order to determine who has a better right to the proceeds.
Issue:
Whether or not there is privity of contract between Bonficacio and Ayala on one hand and State
Insurance on the other.

Held:
NONE.
It is fundamental that contracts take effect only between the parties thereto, except in some specific
instance provided by law where the contract contains some stipulation in favor of a third
person. Such stipulation is known as a stipulation pour autrui; or a provision in favor of a third
person not a party to the contract.

Under this doctrine, a third person is ed to avail himself of a benefit granted to him by the terms of
the contract, provided that the contracting parties have clearly and deliberately conferred a favor
upon such person. Consequently, a third person NOT a party to the contract has NO action against
the aprties thereto, and cannot generally demand the enforcement of the same.

The question of whether a third person has an enforceable interest in a contract must be settled by
determining whether the contracting parties intended to tender him such an interest by deliberately
inserting terms in their agreement with the avowed purpose of conferring favor upon such third
person. IN this connection, this court has laid down the rule that the fairest test to determine
whether the interest of a 3rd person in a contract is a stipulation pour autrui or merely an incidental
interest, is to rely upon the intention of the parties as disclosed by their contract.

In the instant case the insurance contract does not contain any words or clauses to disclose an
intent to give any benefit to any repairmen or material men in case of repair of the car in question.
The parties to the insurance contract omitted such stipulation, which is a circumstance that supports
the said conclusion. On the other hand, the "loss payable" clause of the insurance policy stipulates
that "Loss, if any, is payable to H.S. Reyes, Inc." indicating that it was only the H.S. Reyes, Inc.
which they intended to benefit.

A policy of insurance is a distinct and independent contract between the insured and insurer, and
third persons have no right either in a court of equity, or in a court of law, to the proceeds of it,
unless there be some contract of trust, expressed or implied, by the insured and third person. In this
case, no contract of trust, express or implied. In this case, no contract of trust, expressed or implied
exists. We, therefore, agree with the trial court that no cause of action exists in favor of the
appellants in so far as the proceeds of insurance are concerned. The appellant's claim, if at all, is
merely equitable in nature and must be made effective through Enrique Mora who entered into a
contract with the Bonifacio Bros Inc. This conclusion is deducible not only from the principle
governing the operation and effect of insurance contracts in general, but is clearly covered by the
express provisions of section 50 of the Insurance Act (now Sec. 53).

The policy in question has been so framed that "Loss, if any, is payable to H. S. Reyes, Inc." which
unmistakably shows the intention of the parties.
Binding Receipt
What is a binding receipt according to Glora v. Philamlife?
A binding receipt or slip is ordinarily a document, slip or memorandum given to the insured, which
binds the insurance company to pay insurance should a loss occur pending action upon the
application and actual issuance of a policy.

The purpose of a binder is to provide temporary insurance pending an inquiry by the insurer as to
the character of the risk and to take the place of the policy until the latter can be issued.

The issuance of a binder evidences, a complete, temporary or preliminary contract of insurance


effective from that time until the issuance of the formal policy or until rejection of the risk. Under a
life policy, it would establish liability upon the insurer if death occurred prior to the issuance of the
policy.

A binder receipt would be misnamed if it does NOT bind the insurer. If the insurer issues a binder
receipt with terms which will negate, or neutralize the binding result of the receipt, then the insurer
would have actually practiced fraud on the applicant for insurance.

Gloria v. Philamlife Insurance


Co.
73 OG 8660
Facts:
> In 1966, Roberto Narito applied for a 100T life insurance policy with Philamlife Insurance
Company. Narito was examined by Dra. Vergel de dios, the insurer’s medical examiner.
> She opined that Narito was insurable. Her opinion was confirmed by Dr. Orobia, the Associate
Medical Director of the insurer.
> On Oc. 31, 1966, an agent of the insured prepared an application for the life insurance whose
annual premium was P1,178. On the same date, the application was signed by Narito.
> Narito paid the first annual premium on the policy applied for. The insurer’s application form
contained a so-called “Binding Receipt” which was detachable.
> It is not sure whether or not Narito was given the Binding Receipt upon his payment of the first
premium, but what is certain that he was handed a Cashier’s Receipt.
> From the time the insured received the application form its agent on Nov. 5, 1966, up to Dec. 6,
1966, it did not take any action with regard to the controverted insurance coverage.
> On Dec. 6, 1966, Narito was shot and killed. The beneficiaries submitted a claim to the
insurer. After an underwriting analysis conducted by the insurer, it found out that Narito was
unacceptable as an insurance risk. The claim was denied.

Issue:
Whether or not the beneficiaries can claim.

Held:
YES.
The application for insurance signed by the deceased contained the following stipulation: “The
binding receipt must NOT be issued unless a binding deposit is paid which must be at least equal to
the first full premium.” The preponderance of evidence is to the effect that the binding receipt was
not issued to the deceased when he paid the company’s agent, the first annual premium of
P1,178. Hence the rights of the beneficiaries and the obligation of the company have to be
determined solely in the application for insurance an in the Cashier’s receipt.

The application for insurance contained the following clause: “There shall be no contract of
insurance unless a policy is issued on this application and the full first premium thereon actually
paid.” It should be conceded that there shall be a contract of insurance once the first premium is
paid and a policy is issued. There is no question that the first premium was paid.

The problem is to resolve whether or not it can be said that the policy has been issued. IN this
connection, what may be noted is that, in contrast to the requirement of actual payment of the
premium, it was NOT required that the policy be actually issued. An assuming that no policy had
indeed been issued, it should still be held that the application for insurance was approved by the
company, with the actual issuance of the policy being a mere technicality. When an insurer accepts
and retains the first premium for an unreasonable length of time, it should be presumed that the
insurer had assumed the risk. It should therefore be liable for loss before the application is
subsequently rejected. In the case at bar, the company did NOT act on the application for
insurance, one way or the other, from Nov. 2 to Dec. 5, 1966, and no justification for the delay had
been proven.

Hence, it should be held that the application for insurance of the deceased had been approved prior
to his death, although the policy had not actually been issued, for which reason, the company should
be liable to the beneficiaries.

Pacific Timber v. CA
112 SCRA 199

Facts:
> On March 13, 1963, Pacific secured temporary insurance from the Workemen’s Insurance Co. for
its exportation of logs to Japan. Workmen issued on said date Cover Note 1010 insuring said cargo.
> The regular marine policies were issued by the company in favor of Pacific on Apr 2, 1963. The 2
marine policies bore the number 53H01032 and 53H01033.
> After the issuance of the cover note but BEFORE the issuance of the 2 policies, some of the logs
intended to be exported were lost due to a typhoon.
> Pacific filed its claim with the company, but the latter refused, contending that said loss may not
be considered as covered under the cover note because such became null and void by virtue of the
issuance of the marine policies.

Issue:

Whether or not the cover not was without consideration, thus null and void.

Held:
It was with consideration.
SC upheld Pacific’s contention that said cover not was with consideration. The fact that no separate
premium was paid on the cover note before the loss was insured against occurred does not militate
against the validity of Pacific’s contention, for no such premium could have been paid, since by the
nature of the cover note, it did not contain, as all cover notes do not contain, particulars of the
shipment that would serve as basis for the computation of the premiums. As a logical consequence,
no separate premiums are required to be paid on a cover note.

If the note is to be treated as a separate policy instead of integrating it to the regular policies
subsequently issued, its purpose would be meaningless for it is in a real sense a contract, not a
mere application.

Grepalife v. CA
89 SCRA 543
Facts:
> On March 14, 1957, respondent Ngo Hing filed an application with Grepalife for a 20-yr
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
latter’s 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.

Lim v. Sun Life


41 PHIL 263
Facts:
> On July 6, 1917, Luis Lim Y Garcia of Zamboanga applied for a policy of life insurance with
Sunlife in the amount of 5T.
> He designated his wife Pilar Lim as the beneficiary. The first premium of P433 was paid by Lim
and company issued a “provisional policy”
> Such policy contained the following provisions “xx the abovementioned life is to be assured in
accordance with the terms and conditions contained or inserted by the Company in the policy which
may be granted by it in this particular case for 4 months only from the date of the application,
PROVIDED that the company shall confirm this agreement by issuing a policy on said application
xxx. Should the company NOT issue such a policy, then this agreement shall be null and void ab
initio and the Company shall be held not to have been on the risk at all, but in such case, the amount
herein shall be returned.
> Lim died on Aug. 23, 1917 after the issuance of the provisional policy but before the approval of
the application by the home office of the insurance company.
> The instant action is brought by the beneficiary to recover from Sun Life the sum of 5T.

Issue:
Whether or not the beneficiary can collect the 5T.

Held:
NO.
The contract of insurance was not consummated by the parties. The above quoted agreement
clearly stated that the agreement should NOT go into effect until the home office of the Company
shall confirm it by issuing a policy. It was nothing but an acknowledgment by the Company that it
has received a sum of money agreed upon as the first year’s premium upon a policy to be issued
upon the application if it is accepted by the Company.

When an agreement is made between the applicant and the agent whether by signing an application
containing such condition or otherwise, that no liability shall attach until the principal approves the
risk and a receipt is given by the agent, such acceptance is merely conditional and is subordinated
to the company’s act in approving or rejecting; so in life insurance a “binding slip or receipt” does not
insure itself.

What is a cover note?


The cover note is merely a written memorandum of the most important terms of the preliminary
contract of insurance, intended to give temporary protection pending the investigation of the risk by
the insurer, or until the issuance of a formal policy, provided that it is later determined that the
applicant was insurable at the time it was given.

By its nature, it is subject to all conditions in the policy expected even though that policy may never
issue. In life insurance, where an agreement is made between an applicant and the insurers’ agent,
no liability shall attach until the insurer approves the risk. Thus, in life insurance, a binding slip or
binding receipt DOES NOT insure itself.

Can you explain a preliminary executory contract of insurance?


By a preliminary executory contract of insurance, the insurer makes a contract to insure the subject
matter at some subsequent time which may be definite or indefinite. Under such an executory
contract, the right acquired by the insured is merely to demand the delivery of the policy in
accordance with the terms agreed upon and the obligation assumed by the insurer is to deliver the
said policy.

What are the rules governing cover notes?


1) Insurance companies doing business in the Philippines may issue cover notes to bind
insurance temporarily pending the issuance of the policy

2) A cover not shall e deemed to be a contract of insurance within the meaning of Sec. 1(1) of
IC.

3) NO cover note shall be issued or renewed unless in the form previously approved by the
Insurance Commission.

4) A cover not shall be valid and binding for a period NOT exceeding 60 days from the date of its
issuance, whether or not the premium therefore has been paid or not, BUT such cover note may be
canceled by either party upon at least 7 days notice to the other party.

5) If a cover not is not so canceled, a policy of insurance shall, within 60 days after the issuance
of the cover not be issued in lieu thereof. Such policy shall include within its terms the identical
insurance bound under the cover note and the premiums therefore.

6) A cover note may be extended or renewed beyond the aforementioned period of 60 days with
the written approval of the Insurance Commissioner, provided that such written approval may be
dispensed with upon the certification of the Pres, VP or General Mgr of the Insurance company
concerned, that the risks involved, the values of such risks, and the premiums therefore have not as
yet been determined or established and that such extension or renewal is NOT contrary to and is not
for the purpose of violating any provision of the Insurance Code.

7) The insurance companies may impose on cover notes a deposit premium equivalent to at
least 25% of the estimated premium of the intended insurance coverage but in no case less than
P500.

Preliminary Contracts of
Insurance
Section 52. Cover notes may be issued to bind insurance temporarily pending the issuance of the
policy. Within sixty days after the issue of the cover note, a policy shall be issued in lieu thereof,
including within its terms the identical insurance bound under the cover note and the premium
therefor.
Cover notes may be extended or renewed beyond such sixty days with the written approval of the
Commissioner if he determines that such extension is not contrary to and is not for the purpose of
violating any provisions of this Code. The Commissioner may promulgate rules and regulations
governing such extensions for the purpose of preventing such violations and may by such rules and
regulations dispense with the requirement of written approval by him in the case of extension in
compliance with such rules and regulations.

What are two types of preliminary contracts of insurance?


The preliminary contract of present insurance and the preliminary executory contract of
insurance.

What is a preliminary contract of present insurance?


By a preliminary contract of insurance, the insurer insures the subject matter usually by what is
known as a “binding slip” or “binder” or “cover note” which is the contract to be effective until the
formal policy is issued or the risk is rejected.

What are the kinds of insurable


risks?
1) Personal risks – life or health risks
2) Property risks – loss or damage to property
3) Liability risks – involve liability of the insured for an injury caused to the person or property of
another

What are the requirements in order that a risk be insurable?


1) The loss to be insured against must be important enough to warrant the existence of an
insurance contract
2) Risk must permit a reasonable statistical estimate of the chance of loss in order to determine
the amount of premium to be paid
3) The loss should be definite as to cause, time, place and amount
4) The loss is not catastrophic
5) Risk is accidental in nature

Requirements of an Insurance
Policy
Section 51. A policy of insurance must specify:
(a) The parties between whom the contract is made;
(b) The amount to be insured except in the cases of open or running policies;
(c) The premium, or if the insurance is of a character where the exact premium is only determinable
upon the termination of the contract, a statement of the basis and rates upon which the final
premium is to be determined;
(d) The property or life insured;
(e) The interest of the insured in property insured, if he is not the absolute owner thereof;
(f) The risks insured against; and
(g) The period during which the insurance is to continue.

What must a policy contain and what are the reason behind such requirements?
A policy must contain:
1. Names of the parties
2. Amount of insurance
Ø to easily and exactly determine the amount of indemnity to be paid in case of loss or
damage. This requirement however can be dispensed with in cases of open or running policies.
3. Rate of premium
Ø Because the premium represents the consideration of the contract; these rates are developed on
the basis of the nature and character of the risk assumed. Remember Atty. Quimson’s famous
words? As the risk increases, the rate of premium also increases.
4. Property or life or thing insured
Ø Constitutes the Subject Matter
5. Interests of the insured in the property
Ø In order to determine actual damage. Remember, an owner gets the full value of the loss while a
mortgagee gets only the value of his credit.
6. Risks insured against
Ø In order to know when the insurer is called to indemnify the insured, because if this is NOT
stated, and you hold the insurer liable for any loss due to any cause whatsoever, it will result to a big
loss on the part of the insurer.
7. Duration of the insurance
Ø This period signifies the life of the policy. If the duration of insurance has already ended, it can no
longer be revived.

CIR v. Lincoln Phil Life -


Automatic Increase Clause
379 SCRA 423 (2002)
Facts:
> In the years prior to 1984, Lincoln issued a special kind of life insurance policy known as the
"Junior Estate Builder Policy," the distinguishing feature of which is a clause providing for an
automatic increase in the amount of life insurance coverage upon attainment of a certain age by the
insured without the need of issuing a new policy. The clause was to take effect in the year 1984.
> Documentary stamp taxes due on the policy were paid to the petitioner only on the initial sum
assured.
> Subsequently, petitioner issued deficiency documentary stamps tax assessment for the year
1984, corresponding to the amount of automatic increase of the sum assured on the policy issued by
respondent.
> Lincoln questioned the deficiency assessments and sought their cancellation in a petition filed in
the Court of Tax Appeals. CTA found no basis for the assessment. CA affirmed.

Issue:
Whether or not the automatic increase of the sum assured on the policy is taxable.

Held:
YES.
CIR claims that the "automatic increase clause" in the subject insurance policy is separate and
distinct from the main agreement and involves another transaction; and that, while no new policy
was issued, the original policy was essentially re-issued when the additional obligation was assumed
upon the effectivity of this "automatic increase clause" in 1984; hence, a deficiency assessment
based on the additional insurance not covered in the main policy is in order. The SC agreed with
this contention.

The subject insurance policy at the time it was issued contained an "automatic increase clause."
Although the clause was to take effect only in 1984, it was written into the policy at the time of its
issuance. The distinctive feature of the "junior estate builder policy" called the "automatic increase
clause" already formed part and parcel of the insurance contract, hence, there was no need for an
execution of a separate agreement for the increase in the coverage that took effect in 1984 when the
assured reached a certain age.

It is clear from Section 173 of the NIRC that the payment of documentary stamp taxes is done at the
time the act is done or transaction had and the tax base for the computation of documentary stamp
taxes on life insurance policies under Section 183 of NIRC is the amount fixed in policy, unless the
interest of a person insured is susceptible of exact pecuniary measurement.

Logically, we believe that the amount fixed in the policy is the figure written on its face and whatever
increases will take effect in the future by reason of the "automatic increase clause" embodied in the
policy without the need of another contract.
Here, although the automatic increase in the amount of life insurance coverage was to take effect
later on, the date of its effectivity, as well as the amount of the increase, was already definite at the
time of the issuance of the policy. Thus, the amount insured by the policy at the time of its issuance
necessarily included the additional sum covered by the automatic increase clause because it was
already determinable at the time the transaction was entered into and formed part of the policy.

The "automatic increase clause" in the policy is in the nature of a conditional obligation under Article
1181, 8 by which the increase of the insurance coverage shall depend upon the happening of the
event which constitutes the obligation. In the instant case, the additional insurance that took effect in
1984 was an obligation subject to a suspensive obligation, 9 but still a part of the insurance sold to
which private respondent was liable for the payment of the documentary stamp tax.

Perez v. CA- Perfection of the


Contract of Insurance
323 SCRA 613 (2000)
Facts:
> Primitivo Perez had been insured with the BF Lifeman Insurance Corporation since 1980 for
P20,000.00.
> In October 1987, an agent of Lifeman, Rodolfo Lalog, visited Perez in Quezon and convinced him
to apply for additional insurance coverage of P50,000.00, to avail of the ongoing promotional
discount of P400.00 if the premium were paid annually.
> Primitivo B. Perez accomplished an application form for the additional insurance
coverage. Virginia A. Perez, his wife, paid P2,075.00 to Lalog. The receipt issued by Lalog indicated
the amount received was a "deposit."
> Unfortunately, Lalog lost the application form accomplished by Perez and so on October 28, 1987,
he asked the latter to fill up another application form. On November 1, 1987, Perez was made to
undergo the required medical examination, which he passed.
> Lalog forwarded the application for additional insurance of Perez, together with all its supporting
papers, to the office of BF Lifeman Insurance Corporationn in Quezon which office was supposed to
forward the papers to the Manila office.
> On November 25, 1987, Perez died while he was riding a banca which capsized during a storm.
> At the time of his death, his application papers for the additional insurance were still with the
Quezon office. Lalog testified that when he went to follow up the papers, he found them still in the
Quezon office and so he personally brought the papers to the Manila office of BF Lifeman Insurance
Corporation. It was only on November 27, 1987 that said papers were received in Manila.
> Without knowing that Perez died on November 25, 1987, BF Lifeman Insurance Corporation
approved the application and issued the corresponding policy for the P50,000.00 on December 2,
1987
> Virginia went to Manila to claim the benefits under the insurance policies of the deceased. She
was paid P40,000.00 under the first insurance policy for P20,000.00 (double indemnity in case of
accident) but the insurance company refused to pay the claim under the additional policy coverage
of P50,000.00, the proceeds of which amount to P150,000.00 in view of a triple indemnity rider on
the insurance policy.
> In its letter of January 29, 1988 to Virginia A. Perez, the insurance company maintained that the
insurance for P50,000.00 had not been perfected at the time of the death of Primitivo Perez.
Consequently, the insurance company refunded the amount of P2,075.00 which Virginia Perez had
paid
> Lifeman filed for the rescission and the declaration of nullity. Perez, on the other hand, averred
that the deceased had fulfilled all his prestations under the contract and all the elements of a valid
contract are present.
> RTC ruled in favor of Perez. CA reversed.

Issue:
Whether or not there was a perfected additional insurance contract.

Held:
The contract was not perfected.
Insurance is a contract whereby, for a stipulated consideration, one party undertakes to compensate
the other for loss on a specified subject by specified perils. A contract, on the other hand, is a
meeting of the minds between two persons whereby one binds himself, with respect to the other to
give something or to render some service.

Consent must be manifested by the meeting of the offer and the acceptance upon the thing and the
cause which are to constitute the contract. The offer must be certain and the acceptance absolute.
When Primitivo filed an application for insurance, paid P2,075.00 and submitted the results of his
medical examination, his application was subject to the acceptance of private respondent BF
Lifeman Insurance Corporation. The perfection of the contract of insurance between the deceased
and respondent corporation was further conditioned upon compliance with the following requisites
stated in the application form:
"there shall be no contract of insurance unless and until a policy is issued on this application and that
the said policy shall not take effect until the premium has been paid and the policy delivered to and
accepted by me/us in person while I/We, am/are in good health."
The assent of private respondent BF Lifeman Insurance Corporation therefore was not given when it
merely received the application form and all the requisite supporting papers of the applicant. Its
assent was given when it issues a corresponding policy to the applicant. Under the abovementioned
provision, it is only when the applicant pays the premium and receives and accepts the policy while
he is in good health that the contract of insurance is deemed to have been perfected.

It is not disputed, however, that when Primitivo died on November 25, 1987, his application papers
for additional insurance coverage were still with the branch office of respondent corporation in
Gumaca and it was only two days later, or on November 27, 1987, when Lalog personally delivered
the application papers to the head office in Manila. Consequently, there was absolutely no way the
acceptance of the application could have been communicated to the applicant for the latter to accept
inasmuch as the applicant at the time was already dead.

Tang v. CA- Insurance Fraud or Mistake


90 SCRA 236
Facts:
> On Sept. 25, 2965, Lee Su Guat, widow, 61 years old and illiterate who spoke only Chinese,
applied for life insurance for 60T with Philamlife. The application was in two parts, both in English.
> The second part dealt with her state of health. Her answers having shown that she was health,
Philamlife issued her a policy effective Oct. 23, 1965 with her nephew Vicente Tang as beneficiary.
> On Nov. 15, 1965, Lee again applied for additional insurance of her life for 40T. Since it was only
recent from the time she first applied, no further medical exam was made but she accomplished Part
1 (which certified the truthfulness of statements made in Part. 2)
> The policy was again approved. On Apri 20 1966, Lee Su Guat died of Lung cancer.
> Tang claimed the amount o 100T but Philamlife refused to pay on the ground that the insured was
guilty of concealment and misrepresentation.
> Both trial court and CA ruled that Lee was guilty of concealment.
> Tang’s position, however, is that because Lee was illiterate and spoke only Chinese, she could
not be held guilty of concealment of her health history because the application for insurance was
English, and the insurer has not proven that the terms thereof had been fully explained to her as
provided by Art. 1332 of CC.

Issue:

Whether or not Art. 1332 applies.

Held:
NO.
Art. 1332 is NOT applicable. Under said article, the obligation to show that the terms of the contract
had been fully explained to the party who is unable to read or understand the language of the
contract, when fraud or mistake is alleged, devolves on the party seeking to enforce it. Here, the
insurance company is NOT seeking to enforce the contract; on the contrary, it is seeking to avoid its
performance.

It is petitioner who is seeking to enforce it, even as fraud or mistake is NOT alleged. Accordingly,
Philamlife was under no obligation to prove that the terms of the insurance contract were fully
explained to the other party. Even if we were to say that the insurer is the one seeking the
performance of the cont contracts by avoiding paying the claim, it has to be noted as above stated
that there has been NO imputation of mistake of fraud by the illiterate insured whose personality is
represented by her beneficiary. In sum, Art. 1332 is inapplicable, and considering the findings of
both the trial court and the CA as to the Concealment of Lee, the SC affirms their decisions.

Concurring: J., Antonio


In a contract of insurance, each party must communicate to the other, in good faith, all facts within
his knowledge which are material to the contract, and which the other has no means of
ascertaining. As a general rule, the failure by the insured to disclose conditions affecting the risk of
which he is aware makes the contract voidable at the option of the insurer.

The reason for this rule is that insurance policies are traditionally contracts uberrimae fidei, which
means “most abundant good faith”, “absolute and perfect candor or openness and honesty,”
“absence of any concealment or deception however slight.” Here the CA found that the insured
deliberately concealed material facts about her physical condition and history and/or concealed with
whoever assisted her in relaying false information to the medical examiner. Certainly, the petitioner
cannot assume inconsistent positions by attempting to enforce the contract of insurance for the
purpose of collecting the proceeds of the policy and at the same time nullify the contract by claiming
that it was executed through fraud or mistake.

NOTE: Art. 1332: When one of the parties is unable to read or if the contract is in a language not
understood by him, and mistake or fraud is alleged, the person enforcing the contract must show
that the terms thereof have been fully explained to him.

Enriquez v. SunLife- Insurance


Policy
41 PHIL 269
Facts:
> On Sept. 24 1917, Herrer made an application to SunLife through its office in Manila for life
annuity.
> 2 days later, he paid the sum of 6T to the company’s anager in its Manila office and was given a
receipt.
> On Nov. 26, 1917, the head office gave notice of acceptance by cable to Manila. On the same
date, the Manila office prepared a letter notifying Herrer that his application has been accepted and
this was placed in the ordinary channels of transmission, but as far as known was never actually
mailed and never received by Herrer.
> Herrer died on Dec. 20, 1917. The plaintiff as administrator of Herrer’s estate brought this action
to recover the 6T paid by the deceased.
Issue:

Whether or not the insurance contract was perfected.

Held:
NO.
The contract for life annuity was NOT perfected because it had NOT been proved satisfactorily that
the acceptance of the application ever came to the knowledge of the applicant. An acceptance of an
offer of insurance NOT actually or constructively communicated to the proposer does NOT make a
contract of insurane, as the locus poenitentiae is ended when an acceptance has passed beyond the
control of the party.

NOTE: Life annuity is the opposite of a life insurance. In life annuity, a big amount is given to the
insurance company, and if after a certain period of time the insured is stil living, he is entitled to
regular smaller amounts for the rest of his life. Examples of Life annuity are pensions. Life
Insurance on the other hand, the insured during the period of the coverage makes small regular
payments and upon his death, the insurer pays a big amount to his beneficiaries.

Sindayen v. Insular Life- Policy


of Insurance
62 PHIL 9
Facts:
> Arturo Sindayen was a linotype operator in the Bureau of Printing. He and his wife Fortunat went
to Camiling to spend Christmas with his aunt Felicidad Estrada.
> On Dec. 26, 1932, while still in Camiling, he made a written application to Insular Life, through its
agent, Cristobal Hendoza, for a policy of insurance on his life in the sum of 1,000.
> He paid the agent P15 as part of the first premium. It was agreed that the policy, when and if
issued, should be delivered to Felicidad with whom Sindayen left the sum P25.06 to complete the
payment of the first annual premium of P40.06.
> On Jan 1, 1933, Sindayen was examined by Insular’s doctor who made a favorable report to
Insular.
> The next day, Sindayen returned to Manila and resumed his work. On Jan. 11, 1933, Insular
accepted the risk and issued a policy, and mailed the same to its agent for delivery to the insured.
> On Jan. 12, 1933, Sindayen complained of a severe headache. ON Jan. 15, 1933, he called a
physician who found that Sindayen was suffering from acute nephritis and uremia. His illness did
not yield to treatment and on Jan. 19, 1933, he died.
> The policy which the company issued and mailed in manila on Jan. 11 1933 was received by its
agent in Camilin on Jan. 16, 1933. On Jan 18, 1933, the agent, in accordance with his agreement
with the insured delivered the policy to Felicided upon her payment of the balance of the 1st year’s
premium.
> The agent asked Felicidad if her nephew was in good health and she replied that she believed so
because she had no information that he was sick, and thereupon , the policy was handed to her by
the agent.
> On Jan. 20, 1933, the agent learned of the death of Sindayen, afterwhich he called upon Felicidad
and asked her to return the policy. Felicidad did so.
> On Feb. 4, 1933, the company obtained from Sindayen’s widow Fortunata (also the beneficiary),
her signature on a legal document whereby in consideration of the sum 40.06 representing the
amount of premium paid, Fortunata thereby releases forever and discharges Insular from any and all
claims and obligations she may have against the latter.
> A check for the above-mentioned amount was drawn in the name of Fortunata, but the same was
never encashed.
> Instead, it was returned to Insular and this complaint to enforce payment under the policy was
instituted.
> The application which Sindayen signed in Camiling contained the following provisions:
“xxx
(3) That the said policy shall not take effect until the first premium has been paid and the policy has
been delivered to and accepted by me, while I am in good health.”

> The main defense of the company is the policy never took effect because of par. 3 of the
application, since at the time of the delivery of the agent, the insured was not in good health.

Issue:
Whether or not the policy took effect.

Held:
YES.
There is one line of American cases which holds that the stipulation contained par. 3 is in the nature
of a condition precedent, that is to say, that there can be no valid delivery to the insured unless he is
in good health at that time; that this condition precedent goes to the very essence of the contract and
cannot be waived by the agent making delivery of the policy; HOWEVER, there is also a number of
American decision which state the contrary.

These decisions say that an agent to whom a life insurance policy (similar to the one at bar) was
sent with instruction to deliver it to the insured, has authority to bind the company by making such
delivery, ALTHOUGH the insured was NOT in good health at the time of delivery, on the theory that
the delivery of the policy being the final act to the consummation of the contract, the condition as to
the insured’s good health was WAIVED by the company.
These same cases further hold that the delivery of the policy by the agent to the insured
consummates the contract even though the agent knew that the insured was NOT in good health at
the time, the theory being, that his knowledge is the company’s knowledge; and his delivery is the
company’s delivery; that when the delivery is made notwithstanding this knowledge of the defect, the
company is deemed to have WAIVED such defect.

The agent, Mendoza was duly licensed by the Insurance Commission to act for Insular Life. He had
the authority given by him by the company to withhold the delivery of the policy to the insured until
the first premium has been paid and the policy has been delivered to and accepted by the insured
while he is in good health. Whether that condition had been met or not plainly calls for the exercise
of discretion. Mendoza’s decision that the condition had been met by the insured and that it was
proper to make delivery of the policy to him is just as binding on the company as if the decision had
been made by its Board of Directors. Admittedly, Mendoza made a mistake of judgment because he
acted on insufficient evidence as to the state of health of the insured, and this mistake cannot be
said to be induced by any misconduct on the part of the insured.

It is in the interest of not only of the applicant but of all insurance companies as well that there
should be some act which gives the applicant the definite assurance that the contract has been
consummated. This sense of security and of piece of mind that one’s dependents are provided for
without risk of either loss or of litigation is the bedrock of life insurance.

A cloud will be thrown over the entire insurance business if the condition of health of the insured at
the time of the delivery of the policy may be inquired into years afterwards with the view of avoiding
the policy on the ground that it never took effect because of an alleged lack of good health at the
time of delivery.

It is therefore in the public interest that we are constrained to hold, as we do, that the delivery of the
policy to the insured by an agent of the company who is authorized to make delivery or withhold
delivery is the final act which binds the company and the insured, in the absence of fraud or other
legal grounds for rescission. The fact that the agent to whom it has entrusted this duty is derelict or
negligent or even dishonest in the performance of the duty which has been entrusted to him would
create an obligation based upon the authorized acts of the agent toward a third party who was not in
collusion with the agent.

Insurance Policy
Section 49. The written instrument in which a contract of insurance is set forth, is called a policy of
insurance.

Section 50. The policy shall be in printed form which may contain blank spaces; and any word,
phrase, clause, mark, sign, symbol, signature, number, or word necessary to complete the contract
of insurance shall be written on the blank spaces provided therein.
Any rider, clause, warranty or endorsement purporting to be part of the contract of insurance and
which is pasted or attached to said policy is not binding on the insured, unless the descriptive title or
name of the rider, clause, warranty or endorsement is also mentioned and written on the blank
spaces provided in the policy.

Unless applied for by the insured or owner, any rider, clause, warranty or endorsement issued after
the original policy shall be countersigned by the insured or owner, which countersignature shall be
taken as his agreement to the contents of such rider, clause, warranty or endorsement.

Group insurance and group annuity policies, however, may be typewritten and need not be in printed
form.

What is a policy of insurance?


Sec. 49 defines a policy of insurance as a written instrument in which the contract of insurance is set
forth.

Who signs the policy of insurance:


Generally, only the insurer or his duly authorized agent signs the policy. It need not be singed by the
insured EXCEPT where the express warranties are contained in a separate instrument forming part
of the policy, in which case, Sec. 70 requires that the instrument be so signed.

Why are the terms of the policy important?


They are important because they measure the liability of the insurer on one hand, and the other
hand, strict compliance with the terms are required for the recovery on the part of the insured.

Is the policy and the Contract one and the same thing?
NOPE. A contract is a meeting of the minds of the insured and the insurer. (Remember CLV?) The
policy ONLY the formal written instrument evidencing the contract.

What is usually the best evidence that a contract has been entered into between the
insurer and the insured?
Delivery of the policy by the insurer to the insured.

What are the effects of the delivery of the policy?


If the delivery is conditional, non-fulfillment of the condition bars the contract from taking effect.
If the deliver is unconditional, the insurance becomes effective at the time of delivery.
What is a rider?
It is a printed or typed stipulation contained on a slip of paper attached to the policy and forming an
integral part of the policy. Riders are usually attached to the policy because they constitute
additional stipulations between the parties.

What happens if there is an inconsistency between the policy and the rider?
RIDER prevails, as being a more deliberate expression of the agreement of the contracting parties.

What are the requirements in order that a rider be binding upon the insured?
1) Descriptive title or name of the rider which is pasted or attached to a policy MUST be
mentioned and written on the blank spaces provided for in the policy; and
2) Unless applied for by the insured or owner, said insured or owner MUST countersign the rider.

Do the preceding requirements apply only to riders?


NO. they apply also to warranties, clauses and endorsements.

What are warranties?


Warranties are inserted or attached to a policy to eliminate specific potential increases of hazard
during the policy term owing to actions of the insured, or conditions of property.

What are clauses?


Clauses are agreements between the insurer and the insured on certain matters relating to the
laibiity of the insurer in case of loss.

What are examples of clauses:


1) ¾ Clause – where the insurer is liable for only ¾ of the loss or damage to the insured
2) Loss Payable clause – where the loss if any is payable to the party or parties named, as their
interests may appear.
3) Change of Ownership clause where the insurance will insure to the benefit of whomsoever,
during the continuance of the risk, may become the owner of the interest insured.

What is an endorsement?
An endorsement is any provision added to an insurance contract altering its scope or
application. Examples would be those additions to the contract changing the amount, the rate or the
term of the same.
What does Sec. 226 say?
Section 226. No policy, certificate or contract of insurance shall be issued or delivered
within the Philippines unless in the form previously approved by the Commissioner, and no
application form shall be used with, and no rider, clause, warranty or endorsement shall be attached
to, printed or stamped upon such policy, certificate or contract unless the form of such application,
rider, clause, warranty or endorsement has been approved by the Commissioner.

Tan v. CA - Rescission of the


contract of insurance
174 SCRA 403
Facts:
> Tan Lee Siong was issued a policy by Philamlife on Nov. 6, 1973.
> On Aprl 26, 1975, Tan died of hepatoma. His beneficiaries then filed a claim with Philamlife for
the proceeds of the insurance.
> Philamlife wrote the beneficiaries in Sep. 1975 denying their claim and rescinding the contract on
the ground of misrepresentation. The beneficiaries contend that Philamlife can no longer rescind the
contract on the ground of misrepresentation as rescission must allegedly be done “during the lifetime
of the insured” within two years and prior to the commencement of the action following the wording
of Sec. 48, par. 2.

Issue:
Whether or not Philamlife can rescind the contract.

Held:
YES.
The phrase “during the lifetime” found in Sec. 48 simply means that the policy is no longer in force
after the insured has died. The key phrase in the second paragraph is “for a period of two years”.

What is a simpler illustration of the ruling in Tan v. CA?


The period to consider in a life insurance poiicy is “two years” from the date of issue or of the last
reinstatement. So if for example the policy was issued/reinstated on Jan 1, 2000, the insurer can
still exercise his right to rescind up to Jan. 1, 2003 or two years from the date of issue/reinstatement,
REGARDLESS of whether the insured died before or after Jan. 1, 2003.
Soliman v. US Life- Rescind
Contract of Insurance
104 PHIL 1046
Facts:
> US Life issued a 20 yr endowment life policy on the joint lives of Patricio Soliman and his wife
Rosario, each of them being the beneficiary of the other.
> In Mar. 1949, the spouses were informed that the premium for Jan 1949 was still unpaid
notwithstanding that the 31-day grace period has already expired, and they were furnished at the
same time long-form health certificates for the reinstatement of the policies.
> In Apr 1949, they submitted the certificates and paid the premiums.
> In Jan. 1950, Rosario died of acute dilation of the heart, and thereafter, Patricio filed a claim for
the proceeds of the insurance.
> US life denied the claim and filed for the rescission of the contract on the ground that the
certificates failed to disclose that Rosario had been suffering from bronchial asthma for 3 years prior
to their submission.

Issue:
Whether or not the contract can still be rescinded.

Held:

Yes.
The insurer is once again given two years from the date of reinstatement to investigate into the
veracity of the facts represented by the insured in the application for reinstatement. When US life
sought to rescind the contract on the ground of concealment/misrepresentation, two years had not
yet elapsed. Hence, the contract can still be rescinded.

Right to Rescind a Contract of


Insurance
Section 48. Whenever a right to rescind a contract of insurance is given to the insurer by any
provision of this chapter, such right must be exercised previous to the commencement of an action
on the contract.
After a policy of life insurance made payable on the death of the insured shall have been in force
during the lifetime of the insured for a period of two years from the date of its issue or of its last
reinstatement, the insurer cannot prove that the policy is void ab initio or is rescindable by reason of
the fraudulent concealment or misrepresentation of the insured or his agent.

When must the insurer exercise his right to rescind?


In a non-life insurance policy, the insurer may rescind a contract of insurance prior to the
commencement of an action on the contract.

In a life insurance policy, the insurer may rescind the contract of insurance during the first two
years when the policy was in force during the lifetime of the insured from the date of its issue or of its
last reinstatement.

What are the requisites in order that the insurer may rescind a life insurance policy?
1) There must be a basis for the rescission (breach of warranty, concealment, misrepresentation,
etc.)
2) The rescission must be coupled with a check for the amount of premiums already paid.
(without this, the rescission is not effective)
3) The rescission must be exercised within the two years that the insurance is in force during the
lifetime of the insured.

What are the differences and


similarities between a
concealment and
misrepresentation?
CONCEALMENT MISREPRESENTATION
Insured withholds information of material facts Insured makes erroneous statements of facts with
from the insurer the intent of inducing the insurer to enter into the
insurance contract.
Materiality is determined by the same rules applied in cases of misrepresentation.
Concealment on the part of the insured has the same effect as a misrepresentation and gives the
insurer the right to rescind the contract.
Whether intentional or not intentional, the injured party is entitled to rescind the contract of
insurance on ground of concealment or false representation.
Rules on concealment and representation apply likewise to the insurer since the contracts of
insurance is said to be one of utmost good faith on part of both parties to the agreement.

Test of Materiality
Section 46. The materiality of a representation is determined by the same rules as the materiality of
a concealment.

What is the test of materiality?


The materiality of the representation 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 representation is made,
in forming his estimates of the disadvantages of the proposed contract or in making his inquiries.

Who determines materiality?


It is a judicial question. It is NOT left to the insurance company to say after the loss has occurred
that it would or would not have issued the policy had an answer been truly given. The matter
misrepresented must be of that character which the court can say would reasonably affect the
insurer’s judgment.

Colado v. Insular Life - Tender


of Overdue Payments
51 OG (No 12) 6269

Facts:
> Vivencio Collado applied for an insurance contract with Insular life in 1948. His application was
approved and he began started making premium payments. However, he defaulted and the
insurance was cancelled.
> He then applied for the reinstatement of his insurance policy in Nov. of 1951 and tendered the
amount of premium for the years 1950-1951.
> He stated that he was as of Nov. 1951 of good health, and that he had no injuries, ailments or
illnesses and had not been sick for any case since 1948 (his medical check up when he applied for
insurance) and that he had not consulted any physician or practitioner for any case since the date of
such latest medical exam.
> However, when Vivencio applied for the reinstatement, he was already sick of a fatal disease
known as carcinoma of the liver and that 4 days prior to his application for insurance, he consulted a
doctor regarding his condition.
> The reinstatement was approved. Vivencio again failed to pay the premiums for the last quarter of
Nov. 1951 and as such, Insular life sent him a notice canceling the policy.
> Vivencio then died. The beneificiaries instituted the present action to recover from Insular life the
death benefits of a life insurance policy valued at 2T. Insular refused to pay claiming concealment
on the part of Vivencio.
> Collado contends that Insular life had waived the right to rescine the policy in view of its repeated
acceptance of the overdue premiums for the second and third years.
> Municipal court of Manila found for Collado and Insular filed an appeal with CFI of Manila. CFI
rendered judgment in favor of Insular and dismissed Collado’s complaint.

Issue:

Whether or nor Insular life was estopped and could no longer cancel the contract due to the fact that
it accepted the tender of overdue payments from Vivencio.

Held:

NO.
It is enormously clear that when the deceased applied for a reinstatement of his policy in Nov. 1951,
he had already been afflicted with the fatal ailment for a period of about four months. Furthermore,
in submitting together with his application for reinstatement, a health statement to the effect that he
was in good health, Vivencio concealed the material fact that he had consulted a doctor and was
then found to be afflicted with the malady.

The acceptance of Insular life of the overdue premiums did not necessarily deprive it of the right to
cancel the policy in case of default incurred by the Insured in the payment of future premiums. The
case would be different had the insured died at any time after the payment of overdue premiums but
previous to the reinstatement of the policy, for the, Insular, by its acceptance of its overdue
premiums is deemed to have waived its right to rescind the policy.

The evidence at hand shows that insofar as the payment of the last quarterly premium for 1951 was
concerned, Insular had availed of the right to rescind the policy by notifying the Insured that the
policy had lapsed.

Tan Chay Heng v. West Coast


Life - Fraud
51 Phil 80
Facts:
> In 1926, Tan Chay Heng sued West Coast on the policy allegedly issued to his “uncle”, Tan
Caeng who died in 1925. He was the sole beneficiary thereof.
> West Coast refused on the ground that the policy was obtained by Tan Caeng with the help of
agents Go Chuilian, Francisco Sanchez and Dr. Locsin of West Coast.
> West Coast said that it was made to appear that Tan Caeng was single, a merchant, health and
not a drug user, when in fact he was married, a laborer, suffering form tuberculosis and addicted to
drugs.
> West Coast now denies liability based on these misrepresentations.
> Tan Chay contends that West Coast may not rescind the contract because an action for
performance has already been filed.
> Trial court found for Tan Chay holding that an insurer cannot avoid a policy which has been
procured by fraud unless he brings an action to rescind it before he is sued thereon.

Issue:
Whether or not West Coast’s action for rescission is therefore barred by the collection suit filed by
Tan Chay.

Held:
NO.
Precisely, the defense of West Cast was that through fraud in its execution, the policy is void ab
initio, and therefore, no valid contract was ever made. Its action then cannot be fore rescission
because an action to rescind is founded upon and presupposes the existence of the
contract. Hence, West Coast’s defense is not barred by Sec. 47.

In the instant case, it will be noted that even in its prayer, the defendant does not seek to have the
alleged insurance contract rescinded. It denies that it ever made any contract of insurance on the life
of Tan Caeng, or that any such a contract ever existed, and that is the question which it seeks to
have litigated by its special defense. In the very nature of things, if the defendant never made or
entered into the contract in question, there is no contract to rescind, and, hence, section 47 upon
which the lower court based its decision in sustaining the demurrer does not apply.

As stated, an action to rescind a contract is founded upon and presupposes the existence of the
contract which is sought to be rescinded. If all of the material matters set forth and alleged in the
defendant's special plea are true, there was no valid contract of insurance, for the simple reason that
the minds of the parties never met and never agreed upon the terms and conditions of the contract.
We are clearly of the opinion that, if such matters are known to exist by a preponderance of the
evidence, they would constitute a valid defense to plaintiff's cause of action. Upon the question as to
whether or not they are or are not true, we do not at this time have or express any opinion, but we
are clear that section 47 does not apply to the allegations made in the answer, and that the trial court
erred in sustaining the demurrer.
Gonzalez Lao v. Yek Tong Lin
Fire & Marine Insurance -
Insurance Premiums
55 PHIL 386
Facts:
> Gonzales was issued 2 fire insurance policies by Yek for 100T covering his leaf tobacco prducts.
> They were stored in Gonzales’ building on Soler St., which on Jan. 11, 1928, burned down.
> Art. 3 of the Insurance policies provided that: “Any insurance in force upon all or part of the things
unsured must be declared in writing by the insured and he (insured) should cause the company to
insert or mention it in the policy. Without such requisite, such policy will be regarded as null and void
and the insured will be deprived of all rights of indemnity in case of loss.”
> Notwithstanding said provision, Gonzales entered into other insurance contracts. When he
sought to claim from Yek after the fire, the latter denied any liability on the ground of violation of Art.
3 of the said policies.
> Gonzales however proved that the insurer knew of the other insurance policies obtained by him
long efore the fire, and the insurer did NOT rescind the insurance polices in question but demanded
and collected from the insured the premiums.

Issue:
Whether or not Yek is still entitled to annul the contract.

Held:
NO.
The action by the insurance company of taking the premiums of the insured notwithstanding
knowledge of violations of the provisions of the policies amounted to waiver of the right to annul the
contract of insurance.

Edillon v. Manila Bankers Life


Insurance Corp. - Concealment
117 SCRA 187
Facts:
> In Apr. 1969, Carmen Lapuz applied for insurance with Manila Bankers. In the application she
stated the date of her birth as July 11, 1904 (around 64 yrs old). The policy was thereafter issued.
> Subsequently, in May 1969, Carmen died of a car accident. Her sister, as beneficiary claimed the
proceeds of the insurance.
> Manila Bankers refused to pay because the certificate of insurance contained a provision
excluding it’s liability to pay claims to persons under 16 or over 60.

Issue:
Whether or not the policy is void considering that the insured was over 60 when she applied.

Held:
NO.
The age of Carmen was not concealed to the insurance company. Her application form indicated
her true age. Despite such information, Manila Bankers accepted the premium and issued the
policy. It had all the time to process the application and notice the applicant’s age. If it failed to act,
it was because Manila Bankers was willing to waive such disqualifications or it simply overlooked
such fact. It is therefore estopped from disclaiming any liability.

Musngi v. West Coast Life


Assurance Co.- False
Representation
61 PHIL 864
Facts:
> Arsenio Garcia was insured by West Coast twice in 1931. In both policies, he was asked to
answer the question: “what physician or practitioners have you consulted or been treated by, and for
what illness or ailment?
> In both policies, he answered in the negative. It turned out that from 1929 to 1939, he went to see
several physicians for a number of ailments. So when he died in 1942, the company refused to pay
the proceeds of the insurance.

Issue:
Whether or not the answer given by Arsenio in the policies justifies the company’s refusal to pay?
Held:
YES.
Aresenio knew that he was suffering from a number of ailments, yet, he concealed this. Such
concealment and his false statements constituted fraud, because the insurance company by reasons
of such statement accepted the risk which it would otherwise have rejected.

False Representation
Section 44. A representation is to be deemed false when the facts fail to correspond with its
assertions or stipulations.

What is the importance of Sec. 44?


This defines misrepresentation.

Must representation be literally true?


No. See Section 38. Representations are not required to be literally true unlike warranties which
must be literally true. It is sufficient that representations are substantially true.

Is the same true in cases of marine insurance?


NO. In marine insurance, the substantial truth of a representation is NOT sufficient. Accdg. to Sec.
107, the insured is required to state the exact and whole truth in relation to all matters that he
represents, or upon inquiry, discloses or assumes to disclose.

When will a representation relied upon avoid a policy?


In order that a representation shall avoid a policy, it must be relied upon and be falise in a
substantial and material respect.

Section 45. If a representation is false in a material point, whether affirmative or promissory, the
injured party is entitled to rescind the contract from the time when the representation becomes false.
The right to rescind granted by this Code to the insurer is waived by the acceptance of premium
payments despite knowledge of the ground for rescission. (As amended by Batasang Pambansa
Blg. 874)

What does this section provide?


It provides that the falsity of a representation entitles the injured party to rescind the contract from
the time when the representation becomes false. And ordinarily, under this section, fraudulent intent
is IMMATERIAL. In other words, the injured party can rescind the contract of insurance where there
is a misrepresentation even without fraud. And not that the false representation MUST be material.

Harding v. Commercial Union


Assurance Company- Willful
Misstatement
38 PHIL 464
Facts:
> Henry Harding bought a car for 2T in 1915. He then gave the car to his wife Mrs. Harding.
> While Mrs. Harding was having the car repaired at the Luneta Garage (Luneta was an agent of
Smith Bell and Co., which in turn is Commercial Union’s agent), the latter induced Mrs. Harding to
insure the care with Commercial.
> Mrs. Harding agreed, and Smith Bell sent an agent to Luneta Garage, who together with the
manager of LUneta, appraised the car and declared that its present value was P3T. This amt was
written in the proposal form which Mrs. Harding signed.
> Subsequently, the car was damaged by fire. Commercial refused to pay because the car’s
present value was only 2.8T and not 3T.

Issue:
Whether or not Commercial is liable.

Held:
Commercial is liable.
Where it appears that the proposal form, while signed by the insured was made out by the person
authorized to solicit the insurance (Luneta and Smith Bell) the facts stated in the proposal, even if
incorrect, will not be regarded as warranted by the insured, in the absence of willful
misstatement. Under such circumstances, the proposal is to be regarded as the act of the insurer.

Insurance- Information Obtained


From Third Persons
Section 43. When a person insured has no personal knowledge of a fact, he may nevertheless
repeat information which he has upon the subject, and which he believes to be true, with the
explanation that he does so on the information of others; or he may submit the information, in its
whole extent, to the insurer; and in neither case is he responsible for its truth, unless it proceeds
from an agent of the insured, whose duty it is to give the information.

What is the effect where information is obtained from third persons?


Under Sec. 43, the insured is given discretion to communicate to the insurer what he knows of a
matter of which he has no personal knowledge. If the representation turns out to be false, he is NOT
responsible therefor, provided he gives the explanation that he represents so on the information of
others.

Example:
If the insured has no personal knowledge of the causes of the death of his parents because they
died when the injured was still an infant, he may report information obtained from friends and
relatives if he likes. In which case, he is not responsible for the truth of the information.

What is the effect where information is obtained from the agent of the insured?
If the information proceeds from an agent of the insured, whose duty it is in the ordinary course of
business to communicate such information to his principal, and it is possible for the agent under
such circumstances in the exercise of due diligence to have made such communication before the
making of the contract, the insured will be liable for the truth.

Representation and
Misrepresentation in Insurance
Section 36. A representation may be oral or written.

What is a representation?
A representation is a factual statement made by the insured at the time of, or prior to, the issuance
of the policy to give, information to the insurer and otherwise induce him to enter into the insurance
contract.

What is the difference between a representation and concealment?


A concealment is a negative act, meaning it is the failure to do something which is required while
representation is positive act as the insured volunteers such facts. Concealment usually occurs
prior to making of the insurance contract, while a representation may be made at the time of the
issuance of the contract.
What is a misrepresentation?
A Misrepresentation is a statement:
1. As a fact of something which is untrue
2. Which the insured stated with knowledge that it is untrue and with an intent to deceive or
which he states as true without knowing it to be true and which has the tendency to mislead; and
3. Where such fact in either case is material to the risk.

What is the effect of a misrepresentation?


A misrepresentation by the insured renders the insurance contract voidable at the option of the
insurer, although the policy is not thereby rendered void ab initio.

Is misrepresentation synonymous with concealment?


NO. Misrepresentation is an active form of concealment.

What is the duty of the person applying for insurance?


It is duty to give the insurer all such information concerning the risk as will be of use to the latter in
estimating its character and in determining whether or not to assume it. This information may be
given orally or written in papers not connected with the contract such as in the application or
examiner’s report. Sometimes, it may appear on the policy itself.

Why is such information important?


The information forms the basis of the contract as made. It describes, marks out and defines the
risk assumed. Hence the untruthfulness of any representation will necessarily avoid the contract.

Example of misrepresentations such that the insurer avoids any liability to the
insured
If the insurer was made to believe that he was insuring a brick house when in truth and in fact, the
house was made of nipa, or when the insurer insured a man of thirty and it turns out that the man
who dies was a 130.

Section 37. A representation may be made at the time of, or before, issuance of the policy.

Section 41 provides that “A representation may be altered or withdrawn before the insurance is
effected, but not afterwards.”
Section 38. The language of a representation is to be interpreted by the same rules as the
language of contracts in general.

How are misrepresentations construed?


They are construed liberally in favor of the insured.

Must the representations be literally true?


No. It is sufficient that they be substantially true.

How can a representation be substantially true and not literally true?


De Leon cites two examples:
If one is asked if he drinks, the question will be construed as referring to habitual use. So if you
drink only when there is an occasion, they you can say NO.
If you are asked if you had any illnesses, local disease or injury in any organ, you can still say NO
even if three weeks before you were suffering from LBM because you ate one kaing of avocados.

Section 39. A representation as to the future is to be deemed a promise, unless it appears that it
was merely a statement of belief or expectation.

What are the different kinds of representations?


They may either be:
1. Oral or written;
2. Made at the time of the issuance of the policy or before;
3. Affirmative or promissory

What is an affirmative representation?


It is any allegation as to the existence or non-existence of a fact when the contract begins. An
example would be when the insured states that the house subject of the insurance is used only for
residential purposes.

What is a promissory representation?


A promissory representation is any promise to be fulfilled after the contract has come into existence
or any statement concerning what is to happen during the existence of the insurance.
What is the nature of a promissory representation?
First, it used to indicate a parol or oral promise made in connection with the insurance, but NOT
incorporated in the policy. The non-performance of such a promise CANNOT be shown by the
insurer in defense to an action on the policy, but proof that the promise was made with fraudulent
intent and will serve to defeat the insurance.

Second, it is an undertaking by the insured, inserted in the policy, but NOT specifically made a
warranty, is called a promissory representation. It is however in such a case merely an executory
term of the contract, and not properly a representation. A promissory representation, is therefore,
substantially a condition or a warranty.

Examples of promissory representations


1. An applicant for fire insurance on a building orally promised that the building will be occupied.
2. An applicant for fire insurance on a building orally promised to install two fire extinguishers
within the bldg.
3. A TV hostess saying “Will be back.. promise.. saranghameda po…”

Does a false representation based on an opinion or expectation avoid the policy?


IT DEPENDS. A representation of an expectation, intention, belief opinion or judgment of the
insured, although false, will NOT avoid the policy of insurance if there is NO actual fraud in inducing
the acceptance of the risk or its acceptance at a lower rate of premium and this is likewise the rule
although the statement is material to the risk. In such a case, the insurer is not justified in relying
upon such statement but is obligated to make further inquiry.

What must the insurer then to do to avoid liability?


The insurer must prove both the materiality of the insured’s opinion and the latter’s intent to
deceive. If the representation is one of fact, all the insurer needs to prove is its falsity and
materiality. The intent to deceive is already presumed.

When is a representation deemed a mere expression of opinion?


An oral representation as to a future event, or condition over which the insured has no control, with
reference to property or life insured will be deemed a mere expression of opinion, which will avoid a
contract ONLY when made in bad faith.
Section 40. A representation cannot qualify an express provision in a contract of insurance, but it
may qualify an implied warranty.

Why is it that a representation cannot qualify an express provision in a contract of


insurance?
A representation cannot qualify an express provision or an express warranty in a contract of
insurance because a representation is not a part of the contract but only a collateral inducement to it.
Examples
1) If the policy expressly provides that the house insured is used as a warehouse, any
representation made by the insured prior to the issuance of the policy to the effect that the house
was used only as a residence is NOT a defense in the action for the recovery of the amount of the
insurance.

2) The representation of the insured to the effect that the last time the vessel was drydocked was
six months ago would NOT qualify the implied warranty that the vessel is seaworthy.

Section 41. A representation may be altered or withdrawn before the insurance is effected, but not
afterwards.

What is the reason for this provision?


As representations induce the insurer in assuming the risk insured against and in issuing the
insurance policy, it is but logical that representations may not be altered or withdrawn after the
insurance is affected.

Section 42. A representation must be presumed to refer to the date on which the contract goes into
effect.

To what time does representation refer?


Representations refer only to the time of making the contract. We earlier said that promissory
statements of conditions that exist subsequent to the completion of the contract are conditions or
warranties and not representations (See annotations under Sec. 39). But now, we refer ONLY to
conditions represented as ALREADY EXISTING. These conditions must exist during the making of
the contract.

When is there false representation?


There is NO false representation if the representation was true at the time the contract takes effect,
although it became false at the time it was made.

There is false representation if although the representation was true at the time it was made, it
subsequently became false at the time the contract took effect.
Ng Gan Zee v. Asian Crusader
Life - Imperfection in the
Application Form
122 SCRA 61
Facts:
> In 1962, Kwon Nam applied for a 20yr endowment insurance on his life with his wife, Ng Gan Zee
as the beneficiary.
> He stated in his application that he was operated on for tumor of the stomach associated with
ulcer.
> In 1963, Kwong died of cancer of the liver with metastasis. Asian refused to pay on the ground of
alse information.
> It was found that prior to his application, Kwong was diagnosed to have peptic ulcers, and that
during the operation what was removed from Kwong’s body was actually a portion of the stomach
and not tumor.

Issue:
Whether or not the contract may be rescinded on the ground of the imperfection in the application
form.

Held:
NO.
Kwong did not have sufficient knowledge as to distinguish between a tumor and a peptic ulcer. His
statement therefore was made in good faith. Asian should have made an inquiry as to the illness
and operation of Kwong when it appeared on the face of the application that a question appeared to
be imperfectly answered. Asian’s failure to inquire constituted a waiver of the imperfection in the
answer.

Right to Information of Material


Facts
Section 33. The right to information of material facts may be waived, either by the terms of the
insurance or by neglect to make inquiry as to such facts, where they are distinctly implied in other
facts of which information is communicated.
May the right to information be waived?
Yes. The right to information of material facts may be waived either:
1) Expressly, by the terms of the insurance; or
2) Impliedly, by neglect to make inquiry as to the facts already communicated.

If the applicant has answered the questioned asked in the application, he is justified in assuming that
no further information is desired.

What is an example of the operation of this provision?


The insurer asks the insured if he was ever confined in a hospital for more than a month and the
insured says “YES”. If the insurer does not inquire for the cause of the long confinement, then he is
deemed to have waived the information.

General Causes and General


Usages of Trade
Section 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.

Under this section, what is each party to a contract of insurance bound to know?
There are two matters that each party to a contract of insurance is bound to know, namely:
1. General clauses
2. General usages of trade.

A party however, is not bound to know all the classes of general clauses but only such general
causes:
a) Which are open to his inquiry, equally with that of the other;
b) Which may affect either the political or material perils contemplated.

What is the import of the aforementioned rules?


The insured need not communicate public events such as that the nation is at war, or what the law
is, or political conditions in other countries, the sources of this information being equally open to the
insurer who is also presumed to know such events. Likewise, the insurer is charged with the
knowledge or general trade usages and rules of navigation, kinds of seasons and all the risks
connected with navigation.
Test of Materiality in Insurance
Section 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.

What is the test of materiality?


The test is simply: IF the knowledge of a fact would cause the insurer to reject the risk , or to accept
it only at a higher premium rate, that fact is material, though it may not even remotely contribute to
the contingency upon which the insurer would become liable, or in any wise affect the risk.

What is the principal question that must be asked?


The principal question in determining whether the concealment is material is: Was the insurer
misled or deceived into entering a contract, obligation or in fixing the premium of insurance by a
withholding of material information or facts within the insured’s actual or presumed knowledge? If
so, then the contract is avoided, even if the cause of the loss which subsequently occurred be
unconnected with the fact concealed.

Aranilla v. Insular Life -


Concealment
69 OG No. 4 637

Facts:
> In 1959, Jose Aranilla applied for life insurance with Insular. In his application, these 2 questions
appeared:
o WON he has suffered from any disease of the kidney and urinary tract, to which he answered
NO.
o WON he has been confined in a hospital for consultation and treatment, to which he answered
that in 1947, he was confined due to influenza.
> The truth however, was that a few months prior to his application, he was confined and treated for
nephritis, a disease of the kidney and urinary tract, and he was accordingly informed of the cause.
> When Aranilla died of cirrhosis of the liver, Insular refused to pay the proceeds due to
concealment.

Issue:
Whether the contract can be rescinded.
Held:
Yes.
If an answer given by the insured to a specific question asked by the insurer in an application for life
insurance turns out to be false, it is a concealment of a material fact which entitles the insurer to
rescind, even if the insured died of an ailment which has NO connection with the specific questions
falsely answered by him. This is because materiality is to be determined NOT by the event but
ONLY 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.

Insular Life v. Feliciano -


Concealment
73 PHIL 201
Facts:
> Evaristo Feliciano filed an application with Insular Life upon the solicitation of one of its agents.
> It appears that during that time, Evaristo was already suffering from tuberculosis. Such fact
appeared during the medical exam, but the examiner and the company’s agent ignored it.
> After that, Evaristo was made to sign an application form and thereafter the blank spaces were
filled by the medical examiner and the agent making it appear that Evaristo was a fit subject of
insurance. (Evaristo could not read and understand English)
> When Evaristo died, Insular life refused to pay the proceeds because of concealment.

Issue:
Whether or not Insular Life was bound by their agent’s acts.

Held:
Yes.
The insurance business has grown so vast and lucrative within the past century. Nowadays, even
people of modest means enter into insurance contracts. Agents who solicit contracts are paid large
commissions on the policies secured by them. They act as general representatives of insurance
companies.

IN the case at bar, the true state of health of the insured was concealed by the agents of the
insurer. The insurer’s medical examiner approved the application knowing fully well that the
applicant was sick. The situation is one in which of two innocent parties must bear a loss for his
reliance upon a third person. In this case, it is the one who drafted and accepted the policy and
consummated the contract. It seems reasonable that as between the two of them, the one who
employed and gave character to the third person as its agent should be the one to bear the
loss. Hence, Insular is liable to the beneficiaries.

Fieldman’s Insurance v.
Songco - Disclosure of
Material Facts in Insurance
25 SCRA 70
Facts:
> In 1960, Sambat, an agent of Fieldman’s Insurance, induced Songco, a man of scant education to
enter into a common carrier insurance contract with Fieldman.
> During the inducement, a son of Songco butted in and said that they could not accept the type of
insurance offered because theirs was an owner-type jeepney and not a common carrier.
> Sambat answered that it did not matter because the insurance company was not owned by the
government and therefore had nothing to do with rules and regulations of the latter (Fieldman).
> The insurance was executed and approved for a year from Sept. 1960-1961. It was renewed in
1961 for another year.
> In Oct. 1961, the jeepney collided with a car in Bulacan and as a result, Sonco died. The
remaining members of the family claimed the proceeds of the insurance with the company but it
refused to pay on the ground that the vehicle was not a common carrier.

Issue:

Whether or not the Songcos’ can claim the insurance proceeds despite the fact that the vehicle
concerned was an owner and not a common carrier.

Held:
Yes.
The company is estopped from asserting that the vehicle was not covered. After it had led Federico
Songco to believe that he could qualify under the common carrier liability insurance policy, and to
enter into a contract of insurance paying the premiums due, it could not thereafter be permitted to
change its stand to the detriment of the heirs of the insured. It knew all along that Frederico owned
a private vehicle. Its agent Sambat twice exerted the utmost pressure on the insured, a man of
scant education, and the company did not object to this.
Communication in Good Faith of
All Material Facts - Contract of
Insurance
Section 28. Each party to a contract of insurance must 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 not the means of ascertaining.

According to Sec. 28, what are the matters that must be communicated by the party
to the other?
This section makes it the duty of each party to a contract of insurance to communicate in good faith
all facts that are material to the contract within his knowledge when:
1. the party with the duty to communicate makes no warranty; and
2. the other party has no means of ascertaining the facts

Any exceptions to the duty to communicate?


Those falling under Sec. 30.

What is the test to determine whether or not one must communicate the facts to the
other party?
The test is: If the applicant is aware of the existence of some circumstance which he knows would
influence the insurer in acting upon his application, GOOD FAITH requires him to disclose that
circumstance, though unasked.

Problem.

If A consulted Dr. B for treatment of syphilis and gonorrhea when must A disclose the fact?
He must disclose such fact even if not inquired into, if such fact is material to the risk assumed by
the insurer.

In the problem above, how will A know if the fact is material or not?
The fact must be related to the insurance applied for. In the above example, such fact is material in
cases of life or health insurance and may even be material up to a certain extent for accident
insurance. It is far-fetched to require disclosing such information if he is applying for fire or marine
insurance.
What if the insurer with reasonable diligence could have known or discovered such
facts for himself, can the Insured be excused for his concealment and deny the
remedy of rescission to the insurer?
NO. The effect of the material concealment cannot be avoided by the allegation that the insurer
could have known and discovered a fact which the insured had concealed. An allegation like this
implies that there is an obligation on the part of the insurance company to verify all the statements
made by the insured in his application. No such obligation exists on the part of the insurer. The
insurer has the right to rely upon the statements of the insured for he knows the facts and the insurer
does not.

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 Berarda, 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:
NOPE.
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 were 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.

Vda. De Canilang v. CA -
Concealment
223 SCRA 443 (1993)

Facts:
> Canilang consulted Dr. Claudio and was diagnosed as suffering from "sinus tachycardia." Mr.
Canilang consulted the same doctor again on 3 August 1982 and this time was found to have "acute
bronchitis."
> On the next day, 4 August 1982, Canilang applied for a "non-medical" insurance policy with
Grepalife naming his wife, as his beneficiary. Canilang was issued ordinary life insurance with the
face value of P19,700.
> On 5 August 1983, Canilang died of "congestive heart failure," "anemia," and "chronic
anemia." The wife as beneficiary, filed a claim with Grepalife which the insurer denied on the ground
that the insured had concealed material information from it.
> Vda Canilang filed a complaint with the Insurance Commissioner against Grepalife contending
that as far as she knows her husband was not suffering from any disorder and that he died of kidney
disorder.
> Grepalife was ordered to pay the widow by the Insurance Commissioner holding that there was no
intentional concealment on the Part of Canilang and that Grepalife had waived its right to inquire into
the health condition of the applicant by the issuance of the policy despite the lack of answers to
"some of the pertinent questions" in the insurance application. CA reversed.
Issue:
Whether or not Grepalife is liable.

Held:
SC took note of the fact that Canilang failed to disclose that hat he had twice consulted Dr. Wilfredo
B. Claudio who had found him to be suffering from "sinus tachycardia" and "acute bronchitis. Under
the relevant provisions of the Insurance Code, the information concealed must be information which
the concealing party knew and "ought to [have] communicate[d]," that is to say, information which
was "material to the contract.

The information which Canilang failed to disclose was material to the ability of Grepalife to estimate
the probable risk he presented as a subject of life insurance. Had Canilang disclosed his visits to his
doctor, the diagnosis made and the medicines prescribed by such doctor, in the insurance
application, it may be reasonably assumed that Grepalife would have made further inquiries and
would have probably refused to issue a non-medical insurance policy or, at the very least, required a
higher premium for the same coverage.

The materiality of the information withheld by Canilang from Grepalife did not depend upon the state
of mind of Jaime Canilang. A man's state of mind or subjective belief is not capable of proof in our
judicial process, except through proof of external acts or failure to act from which inferences as to his
subjective belief may be reasonably drawn. Neither does materiality depend upon the actual or
physical events which ensue. Materiality relates rather to the "probable and reasonable influence of
the facts" upon the party to whom the communication should have been made, in assessing the risk
involved in making or omitting to make further inquiries and in accepting the application for
insurance; that "probable and reasonable influence of the facts" concealed must, of course, be
determined objectively, by the judge ultimately.

SC found it difficult to take seriously the argument that Grepalife had waived inquiry into the
concealment by issuing the insurance policy notwithstanding Canilang's failure to set out answers to
some of the questions in the insurance application. Such failure precisely constituted concealment
on the part of Canilang. Petitioner's argument, if accepted, would obviously erase Section 27 from
the Insurance Code of 1978.

Gen. Insurance & Surety Corp


v. NG Hua - Misrepresentation
106 PHIL 1117
Facts:
> In 1952, General issued a fire policy to Ng Hua to cover the contents of the Central Pomade
Factory owned by him.
> There was a provision in the policy that should there be any insurance already effected or to be
subsequently procured, the insured shall give notice to the insurer.
> Ng Hua declared that there was non. The very next day, the building and the goods stored
therein burned.
> Subsequently, the claim of Ng Hua for the proceeds was denied by General since it discovered
that Ng Hua had obtained an insurance from General Indemnity for the same goods and for the
same period of time.

Issue:
Whether or not General Insurance can refuse to pay the proceeds.

Held:
Yes.
Violation of the statement which is to be considered a warranty entitles the insurer to rescind the
contract of insurance. Such misrepresentation is fatal.

Bautista v. Capital Insurance -


Insurance Policy
1 CA Rep. 228
Facts:
> In 1952, a contract of insurance was entered by the parties, upon PIlar Bautista’s house.
> The policy described the building as “occupied as dwelling only”.
> There was a stipulation to the effect that any misrepresentation of material fact or misdescription
of the property shall render the insurer not liable for its loss.
> Before the policy was issued however, Manuel Leyson, Bautista’s lessee, subleased the ground
floor to ONg, who used it as a factory for the manufacture of shoes. A month later, rubber heels,
soles and canvass were stored therein.
> Subsequently, the house was destroyed by fire. Bautista filed her claims with Capital Insurance,
but the latter denied her claim on the ground of breach of warranty.
> Bautista said that the statement “occupied as dwelling only” was not hers, but of the insurance
agent, and that the policy was in English (which she did not understand) and was never read to her.

Issue:
Whether or not Capital may rescind the contract.

Held:
It can.
Bautista was bound to know the contents of the policy in accepting it. In the absence of fraud, she is
presumed to know the contents of the contract and to have assented to them. Failure to read the
policy is negligence, and the insured is regarded as having assumed the risk of the falsity or
misstatements of its contents.

Soliman v. US Life - Endowment


Life Policy
104 PHIL 1046

Facts:
> US Life issued a 20yr endowment life policy on the joint lives of Patricio Soliman and his wife
Rosario, each of them being the beneficiary of the other.
> In March 1949, the spouses were informed that the premium for Jan 1949 was still unpaid
notwithstanding that the 31-day grace period had already expired, and they were furnished at the
same time long-form health certificates for the reinstatement of the policies.
> In Aprl 1949, they submitted the health certificates and paid the premium due up to said month.
> In Jan. 1950, Rosario died of acute dilatation of the heart, and thereafter Patricio filed a claim for
the proceeds of the insurance.
> US Life denied the claim and it filed a case for rescission on the ground that the health certificates
failed to disclose that Rosario had been suffering from bronchial asthma for three years prior to the
submission.
> Patricio claims that the answers to the questions in the health certificates were made by US Life’s
agent.

Issue:
Whether or not the policy can be rescinded.

Held:
YES.
The spouses in ing the agent to answer some of the blanks in the certificates and afterwards
stamping their signature thereon are presumed to have at least acquiesced in and approved all that
had bee stated therein in their behalf.

Henson v. Philamlife -
Concealment
56 OG 7328

Facts:
> Celestino Henson was insured by Philamlife in 1954 upon his application or a 20-yr endowment
life policy.
> In 1955, the policy lapsed due to non-payment of the premiums.
> Upon payment of the premiums due, the policy was reinstated, but in the application for
reinstatement, Henson did not disclose the fact that he had been previously diagnosed for
pyelonephritis, enlarged liver and hernia. He also did not disclose that he had been examined by a
physician.
> In 1956, Henson died, and his beneficiaries’ claim was rejected by Philamlife on the ground of
concealment.
> The company then filed for rescission. Beneficiaries’ contend that the intent to conceal must be
proven to warrant rescission.

Issue:

Whether or not there is need to prove intent to conceal to warrant rescission.

Held:
NO.
Sec. 26 provides that “a concealment whether intentional or unintentional entitles the injured party to
rescind the contract of insurance”. And aside from this, intent, being a state of the mind is hard to
prove.

According to Sec. 30 of the Insurance Code: 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. In essence therefore, the insured need not have died of the very diseases he
had failed to reveal to the insurance company. It is sufficient that his non-revelation had misled the
insurer in forming its estimate of the disadvantages of the proposed policy reinstatement or in
making its inquiries, in order to entitle the latter to rescind the contract.

Saturnino v. Philamlife - False


Representation
7 SCRA 316
Facts:
> 2 months prior to the insurance of the policy, Saturnino was operated on for cancer, involving
complete removal of the right breast, including the pectoral muscles and the glands, found in the
right armpit.
> Notwithstanding the fact of her operation, Saturnino did not make a disclosure thereof in her
application for insurance.
> She stated therein that she did not have, nor had she ever had, among others listed in the
application, cancer or other tumors; that she had not consulted any physician, undergone any
operation or suffered any injury within the preceding 5 years.
> She also stated that she had never been treated for, nor did she ever have any illness or disease
peculiar to her sex, particularly of the breast, ovaries, uterus and menstrual disorders.
> The application also recited that the declarations of Saturnino constituted a further basis for the
issuance of the policy.

Issue:

Whether or not the insured made such false representation of material facts as to avoid the policy.

Held:
YES.
There can be no dispute that the information given by her in the application for insurance was false,
namely, that she never had cancer or tumors or consulted any physician or undergone any operation
within the preceding period of 5 years.

The question to determine is: Are the facts then falsely represented material? The Insurance Law
provides that “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 proposed contract, or making his inquiries.

The contention of appellants is that the facts subject of the representation were not material in view
of the non-medical nature of the insurance applied for, which does away with the usual requirement
of medical examination before the policy is issued. The contention is without merit. If anything, the
waiver of medical examination renders even more material the information required of the applicant
concerning previous condition of health and diseases suffered, for such information necessarily
constitutes an important factor which the insurer takes into consideration in deciding whether to
issue the policy or not.

Appellants also contend that there was no fraudulent concealment of the truth inasmuch as the
insured herself did not know, since her doctor never told her, that the disease for which she had
been operated on was cancer. In the first place, concealment of the fact of the operation itself was
fraudulent, as there could not have been any mistake about it, no matter what the ailment.

Secondly, in order to avoid a policy, it is not necessary to show actual fraud on the part of the
insured. In this jurisdiction, concealment, whether intentional or unintentional entitled the insurer to
rescind the contract of insurance, concealment being defined as “negligence to communicate that
which a party knows and ought to communicate.” The basis of the rule vitiating the contract in cases
of concealment is that it misleads or deceives the insurer into accepting the risk, or accepting it at a
rate of premium agreed upon. The insurer, relying upon the belief that the insured will disclose
every material fact within his actual or presumed knowledge, is misled into a belief that the
circumstances withheld does not exist, and he is thereby induced to estimate the risk upon a false
basis that it does not exist.

Yu Pang Cheng v. CA- Life


Insurance Policy
105 PHIL 1930

Facts:
> Yu Pang Eng obtained a life insurance policy naming his brother Yu Pang Cheng as beneficiary.
> Eng subsequently died of medullary carcinoma, Grade 4, advanced and lesser curvature.
> Cheng claims the proceeds of the policy.
> Insurance co. refused payment on the ground that the policy was void due to the concealment.

Issue:
Whether or not the policy is void.

Held:
YES.
In the application for the policy, Eng was asked whether he had been ill or had consulted a doctor
due to symptoms or illnesses enumerated in the questionnaire. He answered “ No”, when in fact he
was hospitalized seven months prior to his application for the said policy.
Argente v. West Coast Life
Insurance Co.-
Misrepresentation
51 PHIL 725

Facts:
> A joint life insurance policy was issued to Bernardo Argente and his wife Vicenta upon payment of
premium, by West Coast.
> On Nov. 18, 1925, during the effectivity of the policy, Vicenta died of cerebral
apoplexy. Thereafter, Bernardo claimed payment but was refused.
> It is admitted that in the Medical Examiner’s report, Vicenta, in response to the question asked by
the medical examiner, her replies were as follows:
o “How frequently do you use beer, wine, spirits and other intoxicants?” she answered “beer only
in small quantities”.
o “What physician have you consulted or been treated by within the last 5 years and for what
illness or ailment?” she answered “none”
> It is however, not disputed that in 1924, Vicenta was taken to a hospital for what was first
diagnosed as alcoholism and later changed to manic-depressive psychosis and then again changed
to pscyhonuerosis.

Issue:
Whether or not on the basis of the misrepresentations of Vicenta, Bernardo is barred from recovery.

Held:
YES.
The court found that the representations made by Vicenta in his application for life insurance were
false with respect to her state of health and that she knew and was aware that the representations
so made by her were false. In an action on a life insurance policy where the evidence conclusively
shows that the answers to questions concerning diseases were untrue, the truth or falsity of the
answer becomes the determining factor.

If the policy was procured by fraudulent misrepresentations, the contract of insurance apparently set
forth therein was never legally existent. It can be fairly assumed that had the true facts been
disclosed by the insured, the insurance would never have been granted.
CONCEALMENT
Section 26. A neglect to communicate that which a party knows and ought to communicate is called
a concealment.

What are the four primary concerns of parties to an insurance contract?


In making a contract so highly aleatory such as that of insurance, the parties have four primary
concerns to wit:
1. The correct estimation of the risk which enables the insurer to decide whether he is willing to
assume it, and if so, at what rate or premium;
2. The precise delimitation of the risk which determines the extent of the contingent duty to pay
undertaken by the insurer;
3. Such control of the risk after it is assumed as will enable the insurer to guard against the
increase of the risk because of change in conditions; and
4. Determining whether a loss occurred, and if so, the amount of such loss.

What is concealment?
Concealment is a neglect to communicate that which a party knows and ought to communicate.

What are the requisites of concealment?


There can be no concealment unless:
1) A party knows the fact which he neglects to communicate or disclose to the other;
2) Such party concealing duty bound to disclose such fact to the other
3) Such party concealing makes no warranty of the fact concealed; and
4) The other party has no means of ascertaining the fact concealed

Section 27. A concealment whether intentional or unintentional entitles the injured party to rescind a
contract of insurance.

What is the effect of concealment?


As a rule, failure on the part of the insured to disclose conditions affecting the risk of which he is
aware, makes the contract voidable at the insured’s option. The reason is that insurance policies
are traditionally contracts uberrime fidae, that is, contracts of the outmost good faith. This doctrine is
essential on account of the fact that the full circumstances of the subject-matter of insurance are, as
a rule, known to the insured only, and the insurer, in deciding whether or not to accept a risk, must
rely primarily upon the information supplied to him by the appellant.

In order to rescind a contract on the ground of concealment, must the insurer prove
fraud?
NO. Under Sec. 27, the insurer need not prove fraud in order to rescind a contract on the ground of
concealment. The duty of communication is independent of the intention and is violated by the fact
of concealment, even when there is no intention to deceive. Sec. 27 provides that the effect of
concealment is the same regardless of whether the concealment is intentional or unintentional.

Why does the law make no distinction between international and unintentional
concealment?
Because you have to prove fraud. And if you have to prove fraud, you have to prove intention to
deceive. And it is so hard to prove intention to deceive because we are not mind-readers.

What is the reason behind Sec. 27?


The reason behind the Sec. is that in cases of concealment, the insurer is misled or deceived into
accepting the risk , or accepting it at the rate of premium agreed upon. The insurer, relying upon the
belief that the insured will disclose every material fact within his actual or presumed knowledge, is
misled into a belief that the circumstance withheld does NOT exist, and he is thereby induced to
estimate the risk upon a false basis.

What is the criterion then if we were to apply Sec. 27?


We must ask ourselves the question: Was the insurer misled or deceiving into entering a contract
obligation or in fixing the premium of insurance by the withholding of material information or facts
within the insured’s knowledge or presumed knowledge? The application of Sec 27, necessarily
depends on the answer to this question.

Bachrach v. British American


Insurance Co. - Insurance
Proceeds
17 PHIL 555
Facts:
> Bachrach insured properties of its general furniture shop with British. The properties were
subsequently destroyed by fire.
> Bachrach claims from the insurance company. The claim was denied on the ff grounds:
o The policy was allegedly forfeited because the insured stored varnishes and paints within the
premises;
o Insured stored gasoline in the building; and
o Bachrach executed a chattel mortgage on the properties insured without the consent of the
insured.

Issue:
Whether or not Bachrach can claim the proceeds of the policy.

Held:
Yes.
The policy was NOT forfeited due to the strong paints and varnishes. There was no express
provision pertaining to it and these paints and varnishes are incidental to the business of the insured
to keep the furniture in a saleable condition. The gasoline stored within the premises was in the
reservoir of the car and thus does not violate any provision in the policy. There is no express
prohibition against the execution of a chattel mortgage on the property insured.

Change of Interest In The Thing


Insured
Section 20. Except in the cases specified in the next four sections, and in the cases of life, accident
and health insurance, a change of interest in any part of a thing insured, unaccompanied by a
corresponding change of interest in the insurance, suspends the insurance to an equivalent extent,
until the interests in the thing and the interest in the insurance are vested in the same person.

What is the general rule embodied in this section?


The General Rule is that the mere transfer of the thing insured does not transfer the policy but
suspends it until the same person becomes the owner of both the policy and the thing insured. The
term “change of interest” in this section means absolute transfer of the property insured such as
the conveyance of the property insured by means of an absolute deed of sale.

What are the exceptions to the general rule?


The exceptions, where a change of interest does NOT suspend the insurance are:
1. Life, health and accident insurance (Sec. 20)
2. Change of interest in the thing insured occurs after the injury which results in a loss (Sec. 21)
3. Change of interest in one or more of several things separately insured by one policy (Sec. 22)
4. Change of interest by will or succession on the death of the insured (Sec. 23)
5. Transfer of interest by one of several partners, joint owners or owners in common who are
jointly insured, to the other (Sec. 24)

What is the reason for this provision suspending the insurance in case of change of interest?
The object of the provision is to provide against changes which might supply a motive to destroy the
property, or might lessen the interest of the insurer in protecting and guarding it.

Garcia v. HongKong Fire and


Marine Insurance Co. - Wrong
Policy
45 PHIL 122

Facts:
> Garcia had his merchandise insured by Hongkong Fire and Marine Insurance Co.
> The insurance company however made a mistake and issued a policy covering the building where
the merchandise was stored. (The building was not owned by Garcia)
> The policy was written in English, of which Garcia was ignorant, so he could not have noticed the
error of the insurance company.
> Said policy was later on assigned by Garcia to PNB to secure a loan. PNB acknowledged receipt
of said policy, referring to it as a policy covering the merchandise.
> The insurance company made the necessary endorsements to PNB.
> The building which housed the merchandise was later razed by fire. The insurance company
refused to pay due to the fact that the policy indicates insurance on the building and not on the
merchandise.

Issue:
Whether or not Garcia can collect.

Held:
YES.
The defense of the insurer is purely technical. The mistake was obviously on the part of the insurer
when it issued a wrong policy. It cannot deny such allegation due to the fact that it even confirmed
with PNB the nature of said policy when it was endorsed. Garcia could not have noticed the mistake
due to his ignorance of the English language.
Sharuff and Co. v. Baloise Fire
Insurance Co.- Proceeds of the
Policy
64 SCRA 258

Facts:
> Sharuff and Eskenazi were doing business under the firm name Sharuff and Co.
> They insured their merchandise with Baloise. Later on, Sharuff and Eskenazi entered into a
contract of partnership and thereby changed the firm name to Sharuff and Eskenazi.
> The merchandise insured was subsequently destroyed by fire. Sharuff and Eskenazi filed their
claim against the insurance company.
> Baloise refused to pay on the ground that the policy was issued in the name of Sharuff and Co.
and not Sharuff and Eskenazi.

Issue:
Whether or not the partnership can claim the proceeds of the policy.

Held:
Yes.
The subsequent partnership did not alter the composition of the firm. The people involved are
actually the same. Furthermore, such change of firm name was not made to defraud the insurance
company or some other person.

Cha v. Cha - Insurable Interest


277 SCRA 690 (1997)
Facts:
> Spouses Nilo Cha and Stella Uy-Cha, as lessees, entered into a lease contract with CKS
Development Corporation (CKS), as lessor.
> One of the stipulations of the one (1) year lease contract states: "18. . . . The LESSEE shall not
insure against fire the chattels, merchandise, textiles, goods and effects placed at any stall or store
or space in the leased premises without first obtaining the written consent and approval of the
LESSOR. If the LESSEE obtain(s) the insurance thereof without the consent of the LESSOR then
the policy is deemed assigned and transferred to the LESSOR for its own benefit; . . ."
> Notwithstanding the above stipulation, the Cha spouses insured against loss by fire their
merchandise inside the leased premises for Five Hundred Thousand (P500,000.00) with the United
Insurance without the written consent CKS.
> On the day that the lease contract was to expire, fire broke out inside the leased premises. When
CKS learned of the insurance earlier procured by the Cha spouses (without its consent), it wrote the
United a demand letter asking that the proceeds of the insurance contract (between the Cha
spouses and United) be paid directly to CKS, based on its lease contract with the Cha spouses.
> United refused to pay CKS, alleging that the latter had no insurable interest. Hence, the latter filed
a complaint against the Cha spouses and United.

Issue:
Whether or not CKS can claim the proceeds of the fire insurance.

Held:
NO. CKS has no insurable interest.
Sec. 18 of the Insurance Code provides:
"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."

A non-life insurance policy such as the fire insurance policy taken by petitioner-spouses over their
merchandise is primarily a contract of indemnity. Insurable interest in the property insured must exist
at the time the insurance takes effect and at the time the loss occurs. The basis of such requirement
of insurable interest in property insured is based on sound public policy: to prevent a person from
taking out an insurance policy on property upon which he has no insurable interest and collecting the
proceeds of said policy in case of loss of the property.

In the present case, it cannot be denied that CKS has no insurable interest in the goods and
merchandise inside the leased premises under the provisions of Section 17 of the Insurance Code
which provide:
"Section 17. The measure of an insurable interest in property is the extent to which the insured
might be damnified by loss of injury thereof."

Therefore, CKS cannot, under the Insurance Code — a special law — be validly a beneficiary of the
fire insurance policy taken by the petitioner-spouses over their merchandise. This insurable interest
over said merchandise remains with the insured, the Cha spouses. The automatic assignment of the
policy to CKS under the provision of the lease contract previously quoted is void for being contrary to
law and/or public policy. The proceeds of the fire insurance policy thus rightfully belong to the
spouses Nilo Cha and Stella Uy-Cha (herein co-petitioners). The insurer (United) cannot be
compelled to pay the proceeds of the fire insurance policy to a person (CKS) who has no insurable
interest in the property insured.

Cha v. Cha - Insurable Interest


277 SCRA 690 (1997)
Facts:
> Spouses Nilo Cha and Stella Uy-Cha, as lessees, entered into a lease contract with CKS
Development Corporation (CKS), as lessor.
> One of the stipulations of the one (1) year lease contract states: "18. . . . The LESSEE shall not
insure against fire the chattels, merchandise, textiles, goods and effects placed at any stall or store
or space in the leased premises without first obtaining the written consent and approval of the
LESSOR. If the LESSEE obtain(s) the insurance thereof without the consent of the LESSOR then
the policy is deemed assigned and transferred to the LESSOR for its own benefit; . . ."
> Notwithstanding the above stipulation, the Cha spouses insured against loss by fire their
merchandise inside the leased premises for Five Hundred Thousand (P500,000.00) with the United
Insurance without the written consent CKS.
> On the day that the lease contract was to expire, fire broke out inside the leased premises. When
CKS learned of the insurance earlier procured by the Cha spouses (without its consent), it wrote the
United a demand letter asking that the proceeds of the insurance contract (between the Cha
spouses and United) be paid directly to CKS, based on its lease contract with the Cha spouses.
> United refused to pay CKS, alleging that the latter had no insurable interest. Hence, the latter filed
a complaint against the Cha spouses and United.

Issue:
Whether or not CKS can claim the proceeds of the fire insurance.

Held:
NO. CKS has no insurable interest.
Sec. 18 of the Insurance Code provides:
"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."

A non-life insurance policy such as the fire insurance policy taken by petitioner-spouses over their
merchandise is primarily a contract of indemnity. Insurable interest in the property insured must exist
at the time the insurance takes effect and at the time the loss occurs. The basis of such requirement
of insurable interest in property insured is based on sound public policy: to prevent a person from
taking out an insurance policy on property upon which he has no insurable interest and collecting the
proceeds of said policy in case of loss of the property.

In the present case, it cannot be denied that CKS has no insurable interest in the goods and
merchandise inside the leased premises under the provisions of Section 17 of the Insurance Code
which provide:
"Section 17. The measure of an insurable interest in property is the extent to which the insured
might be damnified by loss of injury thereof."
Therefore, CKS cannot, under the Insurance Code — a special law — be validly a beneficiary of the
fire insurance policy taken by the petitioner-spouses over their merchandise. This insurable interest
over said merchandise remains with the insured, the Cha spouses. The automatic assignment of the
policy to CKS under the provision of the lease contract previously quoted is void for being contrary to
law and/or public policy. The proceeds of the fire insurance policy thus rightfully belong to the
spouses Nilo Cha and Stella Uy-Cha (herein co-petitioners). The insurer (United) cannot be
compelled to pay the proceeds of the fire insurance policy to a person (CKS) who has no insurable
interest in the property insured.

Lopez v. Del Rosario


44 PHIL 98
Facts:
> Benita Del Rosario is the owner of a bonded warehouse in Manila where copra and other
merchandise are deposited.
> Among those who had copra deposited in the warehouse was Froilan Lopez, the owner of 14
warehouse receipts with a declared value of P107,990.40 in his name.
> Del Rosario secured insurance on the warehouse and its contents with 5 different insurance
companies in the amount of P404,800.
> All policies were in the name of Del Rosario, except for one (with Nat’l Insurance Co.) for 40T, in
favor of Compania Copra de Tayabas.
> The warehouse and its contents were destroyed by fire. When Bayne, a fire loss adjuster, failed
to effect a settlement between the Insurance companies and Del Rosario, the latter authorized Atty.
Fisher to negotiate with the Companies.
> An agreement was reached to submit the matter to arbitration. The claims by different people
who had stored copra in the warehouse were settled with the exception of Friolan Lopez.
> A case was filed in CFI by Lopez. The court awarded him the sum of P88,492.21 with legal
interest.

Issue:

Whether or not Del Rosario acted as the agent of Lopez in taking out the insurance on the contents
of the warehouse or whether she acted as the reinsurer of the copra.

Held:
She acted as the agent of Lopez.
The agency can be deduced from the warehouse receipts, the insurance policies and the
circumstances surrounding the transaction. Under any aspect, Del Rosario is liable. The law is that
a policy effected by a bailee and covering by its terms in his own property and property held in trust,
inures, in the event of loss, equally and proportionately to the benefit of all owners of the property
insured. Even if one secured insurance covering his own goods and goods stored with him, and
even if the owner of the stored goods did not request or know the insurance, and did not ratify it
before the payment of the loss, it has been held by a reputable court that the warehouseman is liable
to the owner of such stored goods for his share.

In a case of contributing policies, adjustments of loss made by an expert or by a board of arbitrators


may be submitted to the court NOT as evidence of the facts stated therein, or as obligatory, but for
the purpose of assisting the court in calculating the amount of liability.

Filipino Merchants v. CA-


Insurable Interest
179 SCRA 638
Facts:
> The Chao Tiek Seng a consignee of the shipment of fishmeal loaded on board the vessel SS
Bougainville and unloaded at the Port of Manila on or about December 11, 1976 and seeks to
recover from Filipino the amount of P51,568.62 representing damages to said shipment which has
been insured by Filipino.
> Filipino brought a third party complaint against Compagnie Maritime Des Chargeurs Reunis
and/or E. Razon, Inc. seeking judgment against the third party defendants in case judgment is
rendered against it.
> It appears from the evidence presented that Chao insured said shipment with Filipino for the sum
of P267,653.59 for the goods described as 600 metric tons of fishmeal in gunny bags of 90 kilos
each from Bangkok, Thailand to Manila against all risks under warehouse to warehouse terms.
> Actually, what was imported was 59.940 metric tons not 600 tons at $395.42 a ton.
> The fishmeal in 666 gunny bags were unloaded from the ship on December 11, 1976 at Manila
unto the arrastre contractor E. Razon, Inc. and Filipino’s surveyor ascertained and certified that in
such discharge 105 bags were in bad order condition as jointly surveyed by the ship's agent and the
arrastre contractor.
> Based on said computation the Chao made a formal claim against the Filipino for P51,568.62. A
formal claim statement was also presented by the plaintiff against the vessel, but the Filipino refused
to pay the claim.

Issues & Resolutions:


Filipino contends that an "all risks" marine policy has a technical meaning in insurance in that before
a claim can be compensable it is essential that there must be "some fortuity," "casualty" or
"accidental cause" to which the alleged loss is attributable and the failure of herein private
respondent, upon whom lay the burden, to adduce evidence showing that the alleged loss to the
cargo in question was due to a fortuitous event precludes his right to recover from the insurance
policy.

SC did not uphold this contention. An "all risks policy" should be read literally as meaning all risks
whatsoever and covering all losses by an accidental cause of any kind. The terms "accident" and
"accidental", as used in insurance contracts, have not acquired any technical meaning. They are
construed by the courts in their ordinary and common acceptance. Thus, the terms have been taken
to mean that which happens by chance or fortuitously, without intention and design, and which is
unexpected, unusual and unforeseen. An accident is an event that takes place without one's
foresight or expectation; an event that proceeds from an unknown cause, or is an unusual effect of a
known cause and, therefore, not expected.

Coverage under an "all risks" provision of a marine insurance policy creates a special type of
insurance which extends coverage to risks not usually contemplated and avoids putting upon the
insured the burden of establishing that the loss was due to the peril falling within the policy's
coverage; the insurer can avoid coverage upon demonstrating that a specific provision expressly
excludes the loss from coverage. A marine insurance policy providing that the insurance was to be
"against all risks" must be construed as creating a special insurance and extending to other risks
than are usually contemplated, and covers all losses except such as arise from the fraud of the
insured. The burden of the insured, therefore, is to prove merely that the goods he transported
have been lost, destroyed or deteriorated. Thereafter, the burden is shifted to the insurer to prove
that the loss was due to excepted perils. To impose on the insured the burden of proving the precise
cause of the loss or damage would be inconsistent with the broad protective purpose of "all risks"
insurance.

In the present case, there being no showing that the loss was caused by any of the excepted perils,
the insurer is liable under the policy

Filipino contends that Chao does not have insurable interest, being only a consignee of the goods.

Anent the issue of insurable interest, SC upheld the ruling of the CA that Chao, as consignee of the
goods in transit under an invoice containing the terms under "C & F Manila," has insurable interest in
said goods.

Section 13 of the Insurance Code defines insurable interest in property as 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. In principle, anyone has an insurable interest
in property who derives a benefit from its existence or would suffer loss from its destruction whether
he has or has not any title in, or lien upon or possession of the property. 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.

Chao, as vendee/consignee of the goods in transit has such existing interest therein as may be the
subject of a valid contract of insurance. His interest over the goods is based on the perfected
contract of sale. The perfected contract of sale between him and the shipper of the goods operates
to vest in him an equitable title even before delivery or before he performed the conditions of the
sale. The contract of shipment, whether under F.O.B., C.I.F., or C. & F. as in this case, is
immaterial in the determination of whether the vendee has an insurable interest or not in the goods
in transit. The perfected contract of sale even without delivery vests in the vendee an equitable title,
an existing interest over the goods sufficient to be the subject of insurance
Zenith Insurance Corporation
v. The Insurance Commission-
Insurable Interest
87 OG 6249

Facts:
> Zenith entered into an insurance contract, denominated as Equipment Floater Policy covering a
Kato Bachoe including its accessories and appurtenances thereof, from loss of
damage. Complainant paid the stipulated premiums therefore.
> Within the period of effectivity of the policy, the two pieces of hydraulic wheel gear pumps, which
are considered appurtenances and/or parts attached to and/or installed in the Kato BAchoe were
lost, stolen and/or illegally detached by unknown thieves or malefactors
> Despite repeated assurances by Zenith’s soliciting agent, it refused and failed to settle and pay
complainant’s insurance claim.
> Complainant seeks not only the payment of said insurance claim of 70T plus legal interest, atty’s
fees, and litigation expenses, but also the revocation or cancellation of the license of Zenith to do
insurance business.
> Zenith on the other hand contends that:
o Complainant is not the real party in interest since the policy carries with it a designated loss
payee, the BA Finance Corp
o The policy insures against loss or damage caused by fire and lightning, etc, while theft or
robbery is NOT insured against in the policy, it not having been expressly mentioned
o Loss nevertheless is excluded under the exception of “infidelity exclusion” by the operator who
left it unguarded, unattended and deserted while entrusted to him, and for failure to give timely
notice of loss
o Complainant and/or BA Finance is guilty of concealment and misrepresentation at the time they
secured the policy, because at the time it became operative, the complainant was NOT yet the
owner of the property insured, the property still hot having been delivered to him, and BA finance
had no insurable interest yet, henceforth, the contract of insurance was VOID AB INITIO for lack of
insurable interest at the time the insurance took effect.

Issues and Resolutions:


(1) Whether or not the loss through theft or robbery claimed is within the coverage of the policy.
The Insurance Commissioner, as reiterated by the SC, found for the complainant in this wise: While
the policy enumerated the risks covered, it does NOT, however, in its express terms, limit
compensability to that stated in the enumeration. The enumerated risks excluded did not include
theft or robbery committed or perpetrated by an unidentified culprit, hence the complainant’s claim
for damages is compensable.

The foregoing policy is supported by the long time honored doctrine of “contra proferentem: which
provides that: “any ambiguity in the policy shall be resolved in favor of the insured and against the
insurer”. This is true because insurance contracts are essentially contracts of adhesion and
applicants for insurance have no choice but to accept the terms and conditions in the policy even if
they are not in full accord therewith.

(2) Whether or not the complainant was with insurable interest therein when the said policy contract
was procured.
The complainant has insurable interest in the insured property at the time of the procurement of the
insurance policy. As the CC provides, “the contract of sale is perfected at the moment there is a
meeting of minds upon the thing which is the object of the contract and upon the price,” and Sec. 15
of the IC allows the insurance of a mere contingent or expectant interest in anything if the same is
founded on an actual right to the thing, or upon any valid contract.

As this is the case, mere possession of an equitable title, like that pertaining to the buyer, gives rise
to insurable interest in the property in which such title inheres. Furthermore, considering that
Zenith’s agent had been fully apprised of the circumstances prior to the actual issuance of the policy
and the endorsement, it cannot now allege that complainant has no insurable interest on the
property insured. Zenith is now precluded by the equitable principle of estoppel from impugning and
dishonoring the very insurance policy contract it issued and the endorsement and increase in the
coverage made through its duly authorized agent.

Traders Insurance and Surety


Co. v. Golangco- Insurance
Proceeds
95 PHIL 826
Facts:
> A decision was rendred in Civil Case No. 6306 granting Golangco the right to collect rentals from
a building in Sta. Cruz, Manila.
> Golangco then sought fire insurance from Traders. Before the policy was issued, Golangco made
a full and clear exposal of his interests in the premises, i.e. that he was not the owner.
> The fire policy that defendant issued covered only all of Golangco’s interest in the premises and
his right to collect the rentals.
> The building burned down in a fire and Golangco sought to collect from Traders. Traders denied
any liability on the ground that since Golangco was not the owner of the premises then he had no
insurable interest in the same and consequently, he could not collect the insurance proceeds.

Issue:

Whether or not plaintiff can claim the insurance proceeds.

Held.
YES.
Both at the time of the issuance of the policy and at the time of the fire, plaintiff Golangco was in
legal possession of the premises, collecting rentals from its occupant. It seems plain that if the
premises were destroyed as they were, by fire, Golangco would be, as he was, directly damnified
thereby; and hence he had an insurable interest therein.

Suter v. Union Surety-


Insurable Interest
51 OG 1905
Facts:
> Suter, the managing partner of Morcoin Co., insured two juke boxes with Union Surety for
P4,000.
> Subsequently, the two juke boxes were destroyed by fire.
> Suter now claims from Union Surety, the latter denying the claims on the grounds that:
o The properties were allegedly overvalued, it having been proven that the juke boxes cost only
P774.00
o Suter had no insurable interest since the properties insured belong to Morcoin Co.

Issues and Resolutions:


(1) Whether or not the juke boxes were overvalued.
No. While acquisition cost is only P774.00, this does not include taxes, freight insurance, shipping
cost, and other improvements made thereon. The value of the property is determine at the time it
was insured and not the time it was acquired.

(2) Whether or not Suter had insurable interest.


YES, Suter had insurable interest. The test for insurable interest in property is whether or not the
insured will benefit in the property’s reservation or continued existence, or suffer a direct pecuniary
loss in its destruction. Suter, being the managing partner will clearly benefit in the juke boxes’
preservation and would also be affected by its destruction.

Insurable Interest In Insurance


Section 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.

What is existing interest?


Existing interest in property is the legal or equitable title on the property.

What is an inchoate interest?


It is an interest which has not yet ripened, such as the interest of a stockholder in the property of the
corporation which he owns stocks.

In what kind of expectancy may insurable interest consist?


The expectancy MUST be coupled with an existing interest in that, out of which such expectancy
arises. Examples would be: a farmer insuring future crops that he will grow on his land, or a
workman insuring the building which he was contracted to repair.

Harvardian Colleges v. Country


Bankers Insurance Corp.
1 CARA 2

Facts:
> Harvardian is a family corporation, the stockholders of which are Ildefonso Yap, Virginia King Yap
and their children.
> Prior to Aug. 9, 1979, an agent of Country Bankers proposed to Harvardian to insure its school
building. Although at first reluctant, Harvardian agreed.
> Country Banks sent an inspector to inspect the school building and agreed to insure the same for
P500,000 for which Harvardian paid an annual premium of P2,500.
> On Aug. 9, 1979, Country Bankers issued to Harvardian a fire insurance policy. On March 12,
1980, (39 days before I was born… hehehehe )during the effectivity of said insurance policy, the
insured property was totally burned rendering it a total loss.
> A claim was made by plaintiff upon defendant but defendant denied it contending that plaintiff had
no insurable interest over the building constructed on the piece of land in the name of the late
Ildefonso Yap as owner.
> It was contended that both the lot and the building were owned by Ildefonso Yap and NOT by the
Harvardian Colleges.

Issue:
Whether or not Harvardian colleges has a right to the proceeds.

Held:
Harvardian has a right to the proceeds.
Regardless of the nature of the title of the insured or even if he did not have title to the property
insured, the contract of fire insurance should still be upheld if his interest in or his relation to the
property is such that he will be benefited in its continued existence or suffer a direct pecuniary loss
from its destruction or injury. The test in determining insurable interest in property is whether one
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.

Here Harvardian was not only in possession of the building but was in fact using the same for
several years with the knowledge and consent of Ildefonso Yap. It is reasonably fair to assume that
had the building not been burned, Harvardian would have been allowed the continued use of the
same as the site of its operation as an educational institution. Harvardian therefore would have
been directly benefited by the preservation of the property, and certainly suffered a pecuniary loss by
its being burned.

Meaning Of "Nearest Relative" In


Life Insurance
Section 12. The interest of a beneficiary in a life insurance policy shall be forfeited when the
beneficiary is the principal, accomplice or accessory in willfully bringing about the death of the
insured; in which event, the nearest relative of the insured shall receive the proceeds of said
insurance if not otherwise qualified.

Who are the “nearest relatives” mentioned here?


Those related to the decedent in the order mentioned under the rules of intestate succession such
as: (the order of the following relatives are as follows)
1. The legitimate children;
2. The father and mother, if living;
3. The grandfather and grandmother; or ascendants nearest in degree, if living;
4. The illegitimate children;
5. The surviving spouse; and
6. The collateral relatives, to wit:
a. Brothers and sisters of the full blood;
b. Brothers and sisters of the half-blood; and
c. Nephews and nieces
7. In default of the above, the STATE shall be entitled to receive the insurance proceeds.

Problem:

Clark is insured. His nearest relatives are:


1) Anakin, the legitimate child
2) Jor-el and Kyla, the legitimate father and mother
3) Lolo and Lola, grandfather and grandmother (or ascendants in the nearest degree)
4) Bastardo, the illegitimate child
5) Lois Lane, the surviving spouse
6) Collateral relatives to wit:
a) Kuya, brother of full blood
b) Alf, brother of half blood
c) Nep, nephew

What if all of the above are nowhere to be found?


Then the State of Krypton is entitled to the proceeds.

Suppose that Lois Lane masterminded a plan to kill Clark and Anakin carried it out. Anakin and Lois
were convicted of murder. However, they are also instituted as beneficiaries in the insurance policy
of Clark, and the proceeds are the only properties available for distribution to the heirs. In case all
three are convicted who gets the proceeds?

Since Anakin, the legitimate child and Lois, the surviving spouse are no longer entitled to the
proceeds, then following the rules on intestate succession, the proceeds must be divided between
the legitimate parents (Jor-el and Kyla) who get ½ of the proceeds and the Illegitimate child
(Bastardo) who gets the other half.
Same facts above, but it was only Lois Lane who was instituted as beneficiary. Is Anakin still
entitled to the insurance proceeds?

At first glance the answer might be YES, because according to Section 12, it is only the interest of
the beneficiary which is forfeited, and since Anakin was not instituted as beneficiaries, then his
interest is still intact. HOWEVER, there is a proviso in Sec. 12, which states: ” the nearest relative of
the insured shall received the proceeds of said insurance if not otherwise qualified”. Meaning, in
order to find out if Anakin is qualified, reference must be made to laws of succession.

According to Art. 1024 of the CC, the provisions relating to incapacity by will are equally applicable
to intestate succession; and according to Art. 1032 (2), any person who has been convicted of an
attempt against the life of the testator is incapable of succeeding by reason of
unworthiness. Hence, the correct answer to this problem is NO. Anakin is not entitled to the
proceeds and subsequently the insurance proceeds will be divided as provided for in the first
answer.

In case Anakin and Lois are not convicted, but both are instituted as beneficiaries of Clark, can they
still collect the proceeds?
There is no law or jurisprudence that treats of this situation. There must be a conviction before
Sec. 12 can operate to disqualify or forfeit the interests of Anakin and Lois. Sec. 12 speaks of
“principals, accomplice or accessory”, and there must therefore be a conviction of the beneficiaries
as either of the three to the crime against the insured.

Suppose Anakin and Lois are not convicted and they are not instituted as beneficiaries of Clark, can
they now collect the proceeds?

In this case, Sec. 12 is no longer the relevant provision, but Art. 1032 (2) of the CC. However, it is
submitted (by JohnBee Sioson) that there must be a final conviction in order for Art. 1032 to apply,
i.e., to bar Anakin and Lois from collecting on the ground of unworthiness. Furthermore, Art. 1034
says: In order to judge the capacity of the heir, devisee or legatee, his qualifications at the time of
the death of the decedent shall be the criterion. In cases falling under Nos. 2, 3 & 5 of Art. 1032, it
shall be necessary to wait until final judgment is rendered.

Elle Driver, Beatrix Kiddo & O-Ren Ishi are all creditors of Bill. All three are instituted as
beneficiaries of Bill. Elle fails to qualify since she is Bill’s concubine. Beatrix on the other hand,
eager to claim the insurance proceeds, used the “5 point exploding heart technique” she learned
from Pai Mei, killing Bill. O-Ren now claims the proceeds of the insurance. However, her claim is
opposed by BB, Bill’s legitimate daughter who contends that according to Sec. 12, it is the nearest
relative who should get the proceeds, meaning her. Between BB and O-Ren, who is entitled to get
the proceeds?
O-Ren Ishi gets the proceeds because it was stipulated in the contract of insurance (I think she’ll use
it to surgically graft her scalp back since it was sliced by Beatrix using a Hatori Hanzo
Sword). Remember that the insurance contract is the law between the parties and hence it must be
followed by the insurance company. Sec. 12 ONLY applies if there is NO stipulation in the contract
of insurance as to who are the other beneficiaries of the proceeds.

Vda. De Consuegra v. GSIS -


Retirement Insurance Benefits
37 SCRA 315
Facts:
> Jose Consuegra was employed as a shop foreman of the Office of the District Engineer in Surigao
Del Norte.
> When he was still alive, he contracted two marriages:
o First – Rosario Diaz; 2 children = Jose Consuegra Jr. and Pedro but both predeceased him
o 2nd – Basilia Berdin; 7 children. (this was contracted in GF while the first marriage subsisted)
> Being a GSIS member when he died, the proceeds of his life insurance were paid by the GSIS to
Berdin and her children who were the beneficiaries named in the policy.
> Since he was in the gov’t service for 22.5028 years, he was entitled to retirement insurance
benefits, for which no beneficiary was designated.
> Both families filed their claims with the GSIS, which ruled that the legal heirs were Diaz who is
entitled to one-half or 8/16 of the retirement benefits and Berdin and her children were entitled to the
remaining half, each to receive an equal share of 1/16.
> Berdin went to CFI on appeal. CFI affirmed GSIS decision.

Issue:
To whom should the retirement insurance benefits be paid?

Held:
Both families are entitled to half of the retirement benefits.
The beneficiary named in the life insurance does NOT automatically become the beneficiary in the
retirement insurance. When Consuegra, during the early part of 1943, or before 1943, designated
his beneficiaries in his life insurance, he could NOT have intended those beneficiaries of his life
insurance as also the beneficiaries of his retirement insurance because the provisions on retirement
insurance under the GSIS came about only when CA 186 was amended by RA 660 on June 18,
1951.
Sec. 11(b) clearly indicates that there is need for the employee to file an application for retirement
insurance benefits when he becomes a GSIS member and to state his beneficiary. The life
insurance and the retirement insurance are two separate and distinct systems of benefits paid out
from 2 separate and distinct funds.

In case of failure to name a beneficiary in an insurance policy, the proceeds will accrue to the estate
of the insured. And when there exists two marriages, each family will be entitled to one-half of the
estate.

SSS v. Davac - SSS Benefits


17 SCRA 863
Facts:
> Davac was an SSS member, and designated Candelaria Davac, his alleged wife, as his
beneficiary.
> When he died, both his first wife, Lourdes and his second wife, Candelaria filed claims for the
death benefits.
> Due to the conflicting claims, the SSS filed a petition praying that both of them be required to
interplead and litigate the conflicting claims.
> The death benefits were awarded to Candelaria Davac.

Issue:
Who is entitled to the SSS benefits?

Held:

Candelaria.
Under the SSS Act, the beneficiary as recorded by the employee’s employer is the one entitled to
the death benefits, hence they should go to Candelaria. Lourdes contends that the designation
made in the person of Candelaria who is party in a bigamous marriage is null and void for being
against Art. 739 of the CC. SC held that the disqualification mentioned in Art. 739 is NOT applicable
to Candelaria, because she was not guilty of concubinage , there bieing NO proof that she had
actual knowledge of the previous marriage of her husband.

Philamlife v. Pineda - Life


Insurance
175 SCRA 416
Facts:
> On Jan. 15 1963, Dimayuga processed an ordinary life insurance policy from Philamlife and
designated his wife and children as irrevocable beneficiaries.
> On Feb. 22, 1980, Dimayuga filed a petition in court to amend the designation of the beneficiaries
in his policy from irrevocable to revocable.
> Lower Court granted the petition.

Issue:
Whether or not the court erred in granting Dimayuga’s petition.

Held:
YES.
Under the Insurance Act, 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. The policy
contract states that the designation of the beneficiaries is irrevocable. Therefore, based on the said
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 poicy may be legally and validly effected. The
contract between the parties is the law binding on them. (This case rule is no longer controlling
under the Insurance Code.)

Villanueva v. Oro - Insurance


Proceeds
81 PHIL 464
Facts:
> West Coast Life Insurance Company issued two policies of insurance on the life of Esperanza
Villanueva, one for 2T, maturing April 1, 1943; and other for 3T maturing Mar. 31, 1943.
> In both policies, West agreed to pay 2T either to Esperanza if still living on Apr 1, 1943; or to
beneficiary Bartolome Villanueva, or the father of the insured immediately upon receipt of the proof
of death of Esperanza.
> The policy also gave her the right to change the beneficiary.
> In 1940, Bartolome died, and he was substituted as beneficiary under the policies by Mariano,
Esparanza’s brother.
> Esperanza died in 1944 without having collected the insurance proceeds. Adverse claims for the
proceeds were presented by the estate of Esperanza on one hand and by Mariano on the other.
> CFI held that the estate of Esperanza was entitled to the proceeds to the exclusion of the
beneficiary.
Issue:
Whether or not the beneficiary is entitled to the proceeds.

Held:
NO.
Under the policies, the insurer obligated itself to pay the insurance proceeds to: (1) the insured if the
latter lived on the dates of maturity; or (2) the beneficiary if the insured died during the continuance
of the policies. The first contingency excludes the second, and vice versa. In other words, as the
insured Esperanza was living on April 1 and March 31, 1943, the proceeds are payable exclusively
to her or to her estate unless she had before her death otherwise assigned the matured policies.

The beneficiary could be entitled to said proceeds only in default of the first contingency. To sustain
the beneficiary’s claim would be to altogether eliminate from the policies the condition that the
insurer “agrees to pay to the insured if living.”

This conclusion tallies with American Authorities who say that: The interest of the insured in the
proceeds of the insurance depends upon his survival of the expiration of the endowment
period. Upon the insured’s death, within the period, the beneficiary will take, as against the personal
representatives the endowment period, the benefits are payable to him or to his assignee,
notwithstanding a beneficiary is designated in the policy. (AmJur and Couch Cyclopedia of
Insurance Law)

Nario v. Philamlife Insurance


Company - Loan Application
and Surrender of Policy
20 SCRA 434
Facts:
> Mrs. Nario applied for and was issued a life Insurance policy (no. 503617) by PHILAMLIFE under
a 20-yr endowment plant, with a face value of 5T. Her husband Delfin and their unemancipated son
Ernesto were her revocable beneficiaries.
> Mrs. Nario then applied for a loan on the above policy with PHILAMLIFE w/c she is entitled to as
policy holder, after the policy has been in force for 3 years. The purpose of such loan was for the
school expenses of Ernesto.
> The application bore the written signature and consent of Delfin in 2 capacities
o As one of the irrevocable beneficiaries of the policy
o As father-guardian of Ernesto and also the legal administrator of the minor’s properties pursuant
to Art. 320 of the CC.
> PHILAMLIFE denied the loan application contending that written consent of the minor son must
not only be given by his father as legal guardian but it must also be authorized by the court in a
competent guardianship proceeding.
> Mrs. Nario then signified her decision to surrender her policy and demand its cash value which
then amounted to P 520.
> PHILAMLIFE also denied the surrender of the policy on the same ground as that given in
disapproving the loan application.
> Mrs. Nario sued PHILAMLIFE praying that the latter grant their loan application and/or accept the
surrender of said policy in exchange for its cash value.
> PHILAMLIFE contends that the loan application and the surrender of the policy involved acts of
disposition and alienation of the property rights of the minor, said acts are not within the power of
administrator granted under Art. 320 in relation to art. 326 CC, hence court authority is required.

Issue:
Whether or not PHILAMLIFE was justified in refusing to grant the loan application and the surrender
of the policy.

Held:
YES.

SC agreed with the trial court that the vested interest or right of the beneficiaries in the policy should
be measured on its full face value and not on its cash surrender value, for in case of death of the
insured, said beneficiaries are paid on the basis of its face value and in case the insured should
discontinue paying premiums, the beneficiaries may continue paying it and are entitled to automatic
extended term or paid-up insurance options and that said vested right under the policy cannot be
divisible at any given time.

SC also agreed with TC that the said acts (loan app and surrender) constitute acts of disposition or
alienation of property rights and not merely management or administration because they involve the
incurring or termination of contractual obligations.

Under the laws (CC and rules of Court) The father is constituted as the minor’s legal administrator of
the propty, and when the propty of the child is worth more than P2T (as in the case at bar, the
minor’s propty was worth 2,500 his ½ share as beneficiary), the father a must file a petition for
guardianship and post a guardianship bond. In the case at bar, the father did not file any petition for
guardianship nor post a guardianship bond, and as such cannot possibly exercise the powers vested
on him as legal administrator of the minor’s property. The consent give for and in behalf of the son
without prior court authorization to the loan application and the surrender was insufficient and
ineffective and PHILAMLIFE was justified in disapproving the said applications.
Assuming that the propty of the ward was less than 2T, the effect would be the same, since the
parents would only be exempted from filing a bond and judicial authorization, but their acts as legal
administrators are only limited to acts of management or administration and not to acts of
encumbrance or disposition.

Souther Luzon Employee’s


Association v. Golpeo -
Insurance Beneficiaries
96 PHIL 83
Facts:
> SLEA is composed of laborers and employees of the LTBC and BTC (now BLTB Co.), and one of
its purposes is mutual aid of its members and their dependents in case of death.
> Roman Concepcion was a member until his death in 1950.
> In 1949, SLEA adopted a resolution providing that: A member may, if he chooses, put down his
common law wife and/or children he had with her as his beneficiaries; and such person so named by
the member will be the sole persons to be recognized by SLEA regarding claims for condolence
contributions.
> Roman listed as his beneficiaries Aquilina Maloles and their 4 children. After his death, SLEA was
able to collect voluntary contribution from its members amounting to P2,205.
> Three sets of claimants to the amount presented themselves to the association namely:
o Juanita Golpeo, legal wife, and her children
o Aquilina Maloles, the common law wife, and her children
o Elsie Hicban, another common law wife of Roman, and her child.
> SLEA then filed an action for interpleader against the 3 conflicting claimants.
> Trial court rendered a decision declaring Maloles and her children the sole beneficiaries of the
amount citing Del Val v. Del Val.
> Only Golpeo appealed. She argues that:
> The insurance code does not apply since the association is not an insurance company but a
mutual benefit association.
> The stipulation between SLEA and Roman was void for being contrary to law, public morals and
public policy, pursuant to Art. 739 of the CC ( donations between persons guilty of concubinage at
the time of donation are void)
Issue:

Whether or not Golpeo, the legal wife is entitled to the amount.

Held:
NO.
First of all, the lower court did not consider the association as a regular insurance company, but
merely ruled that the death benefit in question is analogous to insurance. Besides, even the
Administrative Code describes a mutual benefit company as one which provides any method of life
insurance among its members out of dues or assessments collected from its membership.

Secondly, without considering the intimation in the brief for Maloles that Golpeo, by her silence and
actions had acquiesced in the illicit relations between her husband and Maloles, Golpeo’s argument
would certainly NOT apply to the children of Maloles likewise named beneficiaries by the
deceased. As a matter of fact, the NCC recognizes certain successional rights of illegitimate
children.

Insurance Beneficiary
What is a beneficiary?
A beneficiary is a person whether natural or juridical for whose benefit the policy is issued and is the
recipient of the proceeds in the insurance.

Who can be a beneficiary?


Any person in general can be a beneficiary.

Are there any exceptions?


Yes. The only persons disqualified from being a beneficiary are those not qualified to receive
donations under Art. 739. They cannot be named beneficiaries of a life insurance policy by the
person who cannot make any donation to him.

In case of adultery, concubinage does the disqualification extend to the illegitimate


children?
NO. The disqualification does not extend to the children, and as such, they may be made
beneficiaries.
What is the old rule regarding revocability of designation of beneficiary as
enunciated in the case of Gercio v. Sunlife?
The OLD rule is: When the insured did NOT expressly reserve his right to revoke the designation of
his beneficiary, such designation is irrevocable and he cannot change his beneficiary without the
consent of the latter.

What is the current rule?


The rule now is: The insured has the power to revoke the designation of the beneficiary even without
the consent of the latter, whether or not such power is reserved in the policy. Such right must be
exercised specifically in the manner set forth in the policy or contract. It is of course, extinguished at
his death and CANNOT be exercised by his personal representatives or assignees.

Under the current rule, when does the insured lose the right to change the
beneficiary?
When the right to change the beneficiary is expressly waived in the policy, the insured has no power
to make such change without the consent of the beneficiary.

What if the beneficiary dies before the insured and the insured did not change the
designation, who gets the proceeds?
There is a divergence of opinion, but the general trend is to give it to the estate of the beneficiary.

El Oriente v. Posadas -
Taxability of Insurance
Proceeds
56 PHIL 147 (1931)
Facts:
> El Oriente in order to protect itself against the loss that it might suffer by reason of the death of its
manager, A. Velhagen, who had had more than thirty-five (35) years of experience in the
manufacture of cigars in the Philippines, procured from the Manufacturers Life Insurance Co., of
Toronto, Canada, thru its local agent E. E. Elser, an insurance policy on the life of the said A.
Velhagen for the sum of $50,000, United States currency designating itself as the beneficiary.
> El Oriente paid for the premiums due thereon and charged as expenses of its business all the said
premiums and deducted the same from its gross incomes as reported in its annual income tax
returns, which deductions were allowed upon a showing that such premiums were legitimate
expenses of its business.
> Upon the death of A. Velhagen in 1929, the El Oriente received all the proceeds of the said life
insurance policy, together with the interests and the dividends accruing thereon, aggregating
P104,957.88
> CIR assessed El Oriente for deficiency taxes because El Oriente did not include as income the
proceeds received from the insurance.

Issue:
Whether or not the proceeds of insurance taken by a corporation on the life of an important official to
indemnify it against loss in case of his death, are taxable as income under the Philippine Income Tax
Law

Held:
NOT TAXABLE.
In Chapter I of the Tax Code, is to be found section 4 which provides that, "The following incomes
shall be exempt from the provisions of this law: (a) The proceeds of life insurance policies paid to
beneficiaries upon the death of the insured . . ." Section 10, as amended, in Chapter II On
Corporations, provides that, "There shall be levied, assessed, collected, and paid annually upon the
total net income received in the preceding calendar year from all sources by every corporation . . .a
tax of three per centum upon such income . . ." Section 11 in the same chapter, provides the
exemptions under the law, but neither here nor in any other section is reference made to the
provisions of section 4 in Chapter I.

Under the view we take of the case, it is sufficient for our purposes to direct attention to the
anomalous and vague condition of the law. It is certain that the proceeds of life insurance policies
paid to individual beneficiaries upon the death of the insured are exempt. It is not so certain that the
proceeds of life insurance policies paid to corporate beneficiaries upon the death of the insured are
likewise exempt. But at least, it may be said that the law is indefinite in phraseology and does not
permit us unequivocally to hold that the proceeds of life insurance policies received by corporations
constitute income which is taxable

It will be recalled that El Oriente, took out the insurance on the life of its manager, who had had more
than thirty-five years' experience in the manufacture of cigars in the Philippines, to protect itself
against the loss it might suffer by reason of the death of its manager. We do not believe that this fact
signifies that when the plaintiff received P104,957.88 from the insurance on the life of its manager, it
thereby realized a net profit in this amount. It is true that the Income Tax Law, in exempting
individual beneficiaries, speaks of the proceeds of life insurance policies as income, but this is a very
slight indication of legislative intention. In reality, what the plaintiff received was in the nature of an
indemnity for the loss which it actually suffered because of the death of its manager.

Gercio v. Sun Life - Insurance


Beneficiary
48 PHIL 53
Facts:
> Sunlife issued a life insurance policy to Gercio, the former agreeing to insure the life of Gercio for
2T to be paid to him on Feb. 1, 1930 or if he should die before said date, then to his wife Andrea,
should she survive him; otherwise to the executor, administrator of Gercio.
> The policy did not include any provision reserving to Gercio the right to change the beneficiary.
> The wife was convicted of adultery and a decree of divorce was issued.
> Gercio notified Sunlife that he had revoked his donation in favor of Andrea and that he had
designated his present wife Adela as his beneficiary.
> Sunlife refused to change the beneficiary.

Issue:
Whether or not Gercio may change the beneficiary in the policy.

Held:
NO.
If the policy contains no provision authorizing a change of beneficiary without the beneficiary’s
consent, the insured cannot make such change. It is held that a life insurance policy of a husband
made payable to his wife as a beneficiary is the separate property of the beneficiary and beyond the
control of the husband. (NOTE: this case is based on the old rule under the Insurance Act)

Court also held that the designation of a beneficiary that is originally valid does NOT render it invalid
dut to a subsequent cessation of the interests between the beneficiary and insured.

Lincoln National Life v. San


Juan - Life Insurance
CA GR 34588-88, Nov. 27, 1971
Facts:
> An employer insured the life of the employee with two insurance companies.
> The insurance totaled 200T and the only beneficiaries were the employer and his wife.
> A severed head was later found, purportedly that of the insured employee.
> The insurance companies refused to pay on the ground that the employer had no insurable
interest in the life of the employee.
Issue:
Whether or not the employer can recover the proceeds of a life insurance policy of his employee.

Held:
NO.
The insured was a tenant in a coconut land owned by the employer and his earning were barely that
of a farm laborer. It was established that the insured could not have afforded the insurance policies
drawn on his life. Many more policies were found to have been issued with the employee/tenant as
insured and the employer and his wife as beneficiaries.

The policies were also found to have been acquired in quick succession. It was found that the
various postal money orders issued in payment of the premiums were made by the employer. It
appears that, based on the circumstances and evidence, the insurance was really taken out by the
employer.

Col. C. Castro v. Insurance


Commissioner - Insurable
Interest
GR. 55836, Feb. 16, 1981
Facts:
> Castro applied for insurance on the life of his driver. On the basis of such application, Insular Life
issued policy No. 934943 effective July 18, 1979.
> The policy applied for and issued was on a 20-yr endowment plan for the sum of P25T with
double indemnity in case of accidental death.
> Castro paid the first quarterly premium of P309.95. About 3 months later, on Oct. 16, 1959, the
insured driver was allegedly shot to death by unknown persons. (hmmm… sounds fishy…)
> Castro then filed a claim for the total benefits of 50T under the policy.
> Insular life denied the claim on the ground that the policy was VOID. Insular instead refunded to
Castro the premiums he had paid.

Issue:
Whether or not Castro has an insurable interest in his driver.
Held:
NO.
The requirement of insurable interest to support a contract of insurance is based upon consideration
of public policy which renders wager policies INVALID. To sustain a contract of this character it must
appear that there is a real concern in the life of the party whose death would be the cause of
substantial loss to those who are named as a beneficiary.

Mere relationship of uncle and nephew, employer and employee is NOT sufficient to provide an
insurable interest on the life of the insured. It must be shown that the destruction of the life of the
insured would cause pecuniary loss to the complainant. This, Castro failed to prove.

INSURABLE INTEREST
Section 10. Every person has an insurable interest in the life and health:
(a) Of himself, of his spouse and of his children;
(b) Of any person on whom he depends wholly 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.

What is insurable interest?


Insurable interest is one the most basic of all requirements in insurance. In general, a person is
deemed to have insurable interest in the subject matter insured where he ha a relation or connection
with or concern in it that he will derive pecuniary benefit or advantage from its preservation and will
suffer pecuniary loss or damage from its destruction, termination or injury by the happening of the
event insured against.

Why must there be an insurable interest?


It is essential for validity and enforceability of the contract or policy. A policy issued to a person
without interest in the subject matter is a mere wager policy or contract.

When is there insurable interest in life insurance?


In life insurance, Insurable interest exists where there is reasonable ground founded on the relations
of the parties whether pecuniary, contractual or by blood or affinity, and to expect some benefit or
advantage from the continuance of the life of the insured.
Problem:
A takes an insurance policy on his life and names his friend X as beneficiary, and another insurance
on the life of Y in consideration of “love and affection” with A as a beneficiary. Which of the two
insurances, if any, is valid and which, if any, is void?

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

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

Grepalife v. CA - Real Party In


Interest
316 SCRA 677
Facts:
> A contract of group life insurance was executed between Grepalife and DBP. Grepalife agreed to
insure the lives of eligible housing loan mortgagors of DBP.
> Dr. Wilfredo Leuterio, a physician and a housing debtor of DBP applied for membership in the
group life insurance plan.
> In an application form, Dr. Leuterio answered questions concerning his health stating that he is in
good health and has never consulted a physician for or a heart condition, high blood pressure,
cancer, diabetes, lung, kidney or stomach disorder or any other physical impairment.
> Grepalife issued the insurance coverage of Dr. Leuterio, to the extent of his DBP mortgage
indebtedness amounting to eighty-six thousand, two hundred (P86,200.00) pesos.
> Dr. Leuterio died due to "massive cerebral hemorrhage." Consequently, DBP submitted a death
claim to Grepalife.
> Grepalife denied the claim alleging that Dr. Leuterio was not physically healthy when he applied
for an insurance coverage and insisted that Dr. Leuterio did not disclose that he had been suffering
from hypertension, which caused his death. Allegedly, such non-disclosure constituted concealment
that justified the denial of the claim.
> The widow of the late Dr. Leuterio, filed a complaint against Grepalife for "Specific Performance
with Damages." During the trial, Dr. Hernando Mejia, who issued the death certificate, was called to
testify. Dr. Mejia’s findings, based partly from the information given by the widow, stated that Dr.
Leuterio complained of headaches presumably due to high blood pressure. The inference was not
conclusive because Dr. Leuterio was not autopsied, hence, other causes were not ruled out.
> RTC ruled in favor of widow and against Grepalife. Grepalife appealed contending that the wife
was not the proper party in interest to file the suit, since it is DBP who insured the life of Dr. Leuterio.

Issue:
Whether or not the widow is the real party in interest, (not DBP) and has legal standing to file the
suit.

Held:
YES.
Grepalife alleges that the complaint was instituted by the widow of Dr. Leuterio, not the real party in
interest, hence the trial court acquired no jurisdiction over the case. It argues that when the Court of
Appeals affirmed the trial court’s judgment, Grepalife was held liable to pay the proceeds of
insurance contract in favor of DBP, the indispensable party who was not joined in the suit.

To resolve the issue, we must consider the insurable interest in mortgaged properties and the
parties to this type of contract. The rationale of a group insurance policy of mortgagors, otherwise
known as the "mortgage redemption insurance," is a device for the protection of both the mortgagee
and the mortgagor. On the part of the mortgagee, it has to enter into such form of contract so that in
the event of the unexpected demise of the mortgagor during the subsistence of the mortgage
contract, the proceeds from such insurance will be applied to the payment of the mortgage debt,
thereby relieving the heirs of the mortgagor from paying the obligation.

In a similar vein, ample protection is given to the mortgagor under such a concept so that in the
event of death; the mortgage obligation will be extinguished by the application of the insurance
proceeds to the mortgage indebtedness. Consequently, where the mortgagor pays the insurance
premium under the group insurance policy, making the loss payable to the mortgagee, the insurance
is on the mortgagor’s interest, and the mortgagor continues to be a party to the contract. In this type
of policy insurance, the mortgagee is simply an appointee of the insurance fund, such loss-payable
clause does not make the mortgagee a party to the contract.

The insured private respondent did not cede to the mortgagee all his rights or interests in the
insurance, the policy stating that: "In the event of the debtor’s death before his indebtedness with the
Creditor [DBP] shall have been fully paid, an amount to pay the outstanding indebtedness shall first
be paid to the creditor and the balance of sum assured, if there is any, shall then be paid to the
beneficiary/ies designated by the debtor." When DBP submitted the insurance claim against
petitioner, the latter denied payment thereof, interposing the defense of concealment committed by
the insured. Thereafter, DBP collected the debt from the mortgagor and took the necessary action of
foreclosure on the residential lot of private respondent

And since a policy of 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 it whatever the
insured might have recovered, 14 the widow of the decedent Dr. Leuterio may file the suit against
the insurer, Grepalife.
As to the question of whether there was concealment, CA held as affirmed by the SC that contrary to
Grepalife’s allegations, there was no sufficient proof that the insured had suffered from hypertension.
Aside from the statement of the insured’s widow who was not even sure if the medicines taken by
Dr. Leuterio were for hypertension, the appellant had not proven nor produced any witness who
could attest to Dr. Leuterio’s medical history.

The fraudulent intent on the part of the insured must be established to entitle the insurer to rescind
the contract. Misrepresentation as a defense of the insurer to avoid liability is an affirmative defense
and the duty to establish such defense by satisfactory and convincing evidence rests upon the
insurer. In the case at bar, the petitioner failed to clearly and satisfactorily establish its defense, and
is therefore liable to pay the proceeds of the insurance

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.

Saura Import Export Co. v.


Philippine International Surety
- Cancellation of Policy
118 PHIL 150

Facts:
> On Dec. 26, 1952, Saura mortgaged to PNB its registered parcel of land in Davao to secure the
payment of a promissory note of P27T.
> A building of strong materials which was also owned by Saura, was erected on the parcel of land
and the building had always been covered by insurance even before the execution of the mortgage
contract.
> Pursuant to the mortgage agreement which required Saura to insure the building and its contents,
it obtained a fire insurance for P29T from PISC for a period of 1 year starting Oct. 2, 1954.
> The mortgage also required Saura to endorse the insurance policy to PNB. The memo stated:
Loss if any, payable to PNG as their interest may appear, subject to the terms, conditions and
warranties of this policy.
> The policy was delivered to PNB by Saura.
> On Oct. 15, 1954, barely 13 days after the issuance of the fire insurance, PISC canceled the
same, effective as of the date of issue. Notice of the cancellation was sent to PNB in writing and
was received by the bank on Nov. 8, 1954.
> On Apr. 6, 1955, the building and its contents worth P4,685 were burned. On April 11, 1985,
Saura filed a claim with PISC and mortgagee bank.
> Upon presentation of notice of loss with PNB, Saura learned for the first time that the policy had
been previously canceled by PISC, when Saura’s folder in the bank’s file was opened and the notice
of the cancellation by PISC was found.

Issue:

Whether or not there was proper cancellation of the policy?

Held:
NO.
The policy in question does NOT provide for the notice of cancellation, its form or period. The
Insurance Law does not likewise provide for such notice. This being the case, it devolves upon the
Court to apply the generally accepted principles of insurance, regarding cancellation of the insurance
policy by the insurer.

Actual notice of cancellation in a clear and unequivocal manner, preferably in writing should be given
by the insurer to the insured so that the latter might be given an opportunity to obtain other
insurance for his own protection. The notice should be personal to the insurer and not to and/or
through any unauthorized person by the policy. Both the PSIC and the PNB failed, wittingly or
unwittingly to notify Saura of the cancellation made.

The insurer contends that it gave notice to PNB as mortgagee of the property and that was already
substantial compliance with its duty to notify the insured of the cancellation of the policy. But notice
to the bank, as far as Saura herein is concerned, is not effective notice. PISC is then ordered to pay
Saura P29T, the amount involved in the policy subject matter of this case.

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, SMB’s general manager, approached Law Union for insurance to the extent of 15T upon
the property. In the application, Brias stated that SMB’s 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 SMB’s 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
it’s 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 SMB’s 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 owner’s 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.

Mortgagor and Mortgagee


Insuring The Same Property
Is it alright if both the mortgagor and the mortgagee insure the same property?
YES. The mortgagor and the mortgagee have each an insurable interest in the property mortgaged,
and this interest is separate and distinct from the other. Consequently, insurance taken by one in his
own name only and in his favor alone does not inure to the benefit of the other. And in case both of
them take out separate insurance policies on the same property, or one policy covering their
respective interests, the same is not open to the objection that there is double insurance.

What is the extent of the insurable interest of the mortgagor?


The mortgagor of the property, as owner has an insurable interest to the extent of the value of the
property, even if the mortgage debt is equal to such value. The reason is that the loss or destruction
of the property insured will NOT extinguish the mortgage debt.

What is the extent of the insurable interest of the mortgagee?


The mortgagee or his assignee has an insurable interest in the mortgaged property to the extent of
the debt secured, such interest continues until the mortgage debt is extinguished.

Up to what extent can each recover?


The mortgagor cannot recover upon the insurance beyond the full amount of the loss, and the
mortgagee cannot recover in excess of the credit at the time of the loss.
Under Sec. 8, what are the effects of insurance when the mortgagor effects insurance
in his own name and provides that the loss be payable to the mortgagee?
The legal effects of this are:
(1) The contract is deemed to be upon the interest of the mortgagor, hence he does NOT cease to
be a party to the contract;
(2) Any action of the mortgage prior to the loss which would otherwise avoid the insurance affects
the mortgagee even if the property is in the hands of the mortgagee;
(3) Any act which under the contract of insurance is to be performed by the mortgagor, may be
performed by the mortgagee;
(4) In case of loss, the mortgagee is entitled to the proceeds to the extent of his credit; and
(5) Upon recovery by the mortgagee to the extent of his credit, the debt is extinguished.

What is the effect if the mortgagee effects insurance on behalf of the mortgagor?
Practically the same rules apply. Upon the destruction of the property, then the mortgagee is
entitled to receive the proceeds equal to the amount of the mortgage credit. Such payment operates
to discharge the debt.

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.

What is the effect of war on the


existing insurance contracts
between the Philippines and a
citizen or subject of a public
enemy, with respect to
property insurance?
With respect to property insurance, the rule adopted in the Phil is that an insurance policy ceases to
be valid and enforceable as soon as the insured becomes a public enemy.

What is a public enemy?


It is a nation with whom the Philippines is at war, and it includes every citizen or subject of such
nation.
What is the effect of war on the existing insurance contracts between the Philippines
and a citizen or subject of a public enemy, with respect to life insurance?
Three doctrines have arisen.
(1) Connecticut Rule – there are two elements in the consideration for which the annual premium
is paid:
a. The mere protection for the year; and
b. The privilege of renewing the contract for each succeeding year by paying the premium for
that year at the time agreed upon.

(2) New York Rule – apparently followed by the number of decisions. War between the states in
which the parties reside merely suspends the contracts of life insurance and that upon the tender of
premiums due by the insured or his representatives after the war has terminated revives the contract
which becomes fully operative.

(3) US Rule – declared the contract not merely suspended but is abrogated by reason of non-
payment of premiums, since the time of the payment is peculiarly of the essence of the
contract. However, the insured is entitled to the cash or reserve value of the policy (if any) which is
the excess of the premiums paid over the actual risk carried during the years when the policy had
been in force.

We follow the US Rule.

Problem.

B is sideswiped by a balut vendor. Because he was previously indicted for many other crimes
including illegal possession of balisongs, he was declared Metro Manila’s Public Enemy No.1. If A
wants to secure insurance on the life of B, may the insurer refuse on the grounds that B is a public
enemy and therefore may not be insured under Sec. 7 of the IC?

NO. Sec. 7 speaks of a public enemy only in reference to a nation with whom the Phil is at war and
every citizen and or subject thereof.

What are the requisites in


order that a person may be
insured in a contact of
insurance?
There are 3 requisites namely:
a) He must be competent to enter into a contract.
b) He must possess an insurable interest in the subject of insurance.
c) He must NOT be a public enemy.

What does the term “insurer”


and “insurance company”
include?
It includes individuals, partnerships, associations or corporations, including GOCC’s or entities,
engaged as principals in the insurance business, except mutual benefit associations. It shall also
include professional reinsurers as defined in Sec. 280 (Sec. 184)

Is the Business of Insurance affected with public interest?


Yes. It is therefore, subject to regulation and control by the state by virtue of the exercise of its
police power or in the interest of public convenience and the general good of the people.

What is an insurance
corporation?
The Insurance Code defines it as one formed or organized to save any person or persons or other
corporations harmless from loss, damage, or liability arising from any unknown or future or
contingent event, or to indemnify or to compensate any person or persons or other corporations for
any such loss, damage, or liability, or to guarantee the performance of or compliance with
contractual obligations or the payment of debts of others. (Sec. 185) The last part of the statement
refers to suretyship. (Sec. 175)

Who may be an insurer?


A foreign or domestic insurance company may transact business in the Philippines but must first
obtain a certificate of authority for that purpose from the Insurance Commissioner who has the
discretion to refuse to issue such certificate if it will best promote the interests of the people of this
country. (Sec. 187)

An individual may also be an insurer, provided he holds a certificate of authority from the Insurance
Commissioner, and provided further that he is possessed of the capital assets required of an
insurance corporation doing the same kind of business in the Philippines and invested in the same
manner. (Secs. 184-186)

Parties to the contract of


insurance
The Insurer is the party who assumes or accepts the risk of loss and undertakes for a consideration
to indemnify the insured or to pay him a certain sum on the happening of a specified contingency or
event. The business of insurance may be carried on by individuals just as much as by corporations
and associations. The state itself may go into insurance business.

The insured, or the second party to the contract, is the person in whose favor, the contract is
operative and who is indemnified against, or is to receive a certain sum upon the happening of a
specified contingency or event. He is the person whose loss is the occasion for the payment of the
insurance proceeds by the insurer.

Is the insured always the person to whom the proceeds are paid?
No. The person paid may be the beneficiary designated in the policy. A common example of this
situation is a life insurance policy where the proceeds are not given to the insured but to a third party
designated by the insured.

What is the nature of the relationship between the insurer and the insured?
It is that of a contingent debtor and creditor, subject to the conditions of the policy and NOT that of
trustee and cestui que trust.

Distinctions between an
insurance contract and a
wagering contract
A contract of insurance is a contract of indemnity and not a wagering, or gambling contract.(Sec.
25) White it is based on a contingency, it is not a contract of chance and is not used for profit. The
distinctions are the following:
Insurance Contract Gambling contract
Parties seek to distribute loss by reason of Parties contemplate gain through mere chance or
mischance the occurrence of a contingent event.
Insured avoids misfortune. Gambler courts fortune
Tends to equalize fortune. Tends to increase the inequality of fortune.
What one insured gains is not at the expense of Essence is whatever one person wins from a
another insured. The entire group of insureds wager is lost by the other wagering party.
provides through the premiums paid, the funds
which make possible the payment of all claims;
Purchase of insurance does not create a new and As soon as a party makes a wager, he creates a
non-existing risk of loss to the purchaser. In risk of loss to himself where no such risk existed
purchasing insurance, the insurer faces an previously.
already existing risk of economic loss.

Similarities between an insurance contract and a gambling contract?


They are similar in only one respect. In both, one party promises to pay a given sum to the other
upon the occurrence of a given future event, the promise being condition upon the payment of, or
agreement to pay, a stipulated amount by the other party to the contract.

In either case, one party may receive more, much more, than he paid or agreed to pay.

Insurance Contract Versus


Wagering or Gambling Contract
Is a contract of insurance a wagering or gambling contract?
NO. A contract of insurance is a contract of indemnity and not a wagering or gambling
contract. Although it is true that an insurance contract is also based on a contingency, it is not a
contract of chance.

What is the concept of a lottery?


The term “lottery” extends to all schemes for the distribution of prizes by chance, such as policy
playing, gift exhibition, prize concerts, raffles at fairs, etc. and various forms of gambling.
What are the three essential elements of lottery?
Consideration, prizes and chance.
There is consideration of price aid if it appears that the prizes offered by whatever name they may
be called came out of the fund raised by the sale of chances among the participants in order to win
the prizes.

Are all prizes equivalent to a lottery?


If the prizes do not come out of the fund or contributions by the participants, no consideration has
been paid and consequent, there is no lottery. Ex: A company, to promote the sale of certain
products, resorts to a scheme which envisions the giving away for free of certain prizes for the
purchase of said products, for the participants are not required to pay more than the usual price o
the products.

Can a sweepstakes holder insure himself against the failure of his ticket to win?
NO. It cannot be said that he suffered a “loss” of prize when he did not win. The failure to win a
prize would not damnify or create a liability against him.

Perils or Risks That May Be


Insured
The following risks may be insured:

1. Any contingent or unknown event whether past or future which may cause damage to a
person having an insurable interest; or
2. Any contingent or unknown event, whether past or future, which may create liability against
the person insured.

May a married woman take out an insurance? If so, on what?


Yes. A married woman may take out an insurance on her life or that of her children even without the
consent of her husband. She may likewise take out an insurance on the life of her husband, her
paraphernal property, or on property given to her by her husband.

May a minor take out an insurance?


Third par of Sec. 3 is no longer applicable, since the age of majority is now 18 years old (RA 8809,
Dec. 13, 1989).
Section 3 Insurance Code:
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.

The consent of the husband is not necessary for the validity of an insurance policy taken out by the
married woman on her life or that of her children.

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.

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 in the policy.

Related Provisions:
Art. 1174 (NCC). Except in cases expressly specified by the law, or when it is otherwise declared by
stipulation, or when the nature of the obligation requires the assumption of risk, no person shall be
responsible for those events which, could not be foreseen, or which, though foreseen, were
inevitable.

Art. 110 (FC). The spouses retain the ownership, possession, administration and enjoyment of their
exclusive properties.
Either spouse may during the marriage, transfer the administration of his or her exclusive property to
the other by means of a public instrument, which shall be recorded in the registry of property of the
place where the property is located.

Art. 1327 (NCC). The following cannot give consent to a contract:


(1) Unemancipated minors;
(2) Insane or demented persons, and deaf-mutes who do not know how to write.

Art. 1390 (NCC). The following contracts are voidable or annullable, even though there may have
been no damage to the contracting parties:
(1) Those where one of the parties is incapable of giving consent to a contract;
(2) Those where the consent is vitiated by mistake, violence, intimidation, undue influence or fraud.

These contracts are binding, unless they are annulled by a proper action in court. They are
susceptible of ratification.

Problem:
A, wanted to open a medicinal herb shop. He placed a long distance phone call to Taiwan and
talked to an exporter who willingly agreed to consign several tons of ginsengs with him on the
condition that he will come and pick the goods up. A then sent 5 of his cargo vessels to
Taiwan. The ships left on August 9. On August 14, A insured the 5 vessels against perils of the
South China Sea “Lost or Not Lost” with B Insurance Co. Without the knowledge of both parties, the
ships had already sunk on Aug. 14. Is B Insurance Co. liable for the ships?
Yes. This is an example of a past unknown event because the sinking of the ship is a past event at
the time that the policy took effect. The contract is valid and B Insurance Co. is liable because he
agreed to pay even though the ship be already lost. An insurance against an unknown past event is
peculiar only to marine insurance. However, Atty. Quimson said in class that nowadays, most if not
all insurance companies no longer insure a past event since technology has progressed in such a
manner that a ship’s current status can easily be known while the application is being processed.

Philamcare v. CA- Health Care


Agreement
379 SCRA 356 (2002)
Facts:
> Ernani Trinos, applied for a health care coverage with Philamcare. In the standard application
form, he answered NO to the following question: “Have you or any of your family members ever
consulted or been treated for high blood pressure, heart trouble, diabetes, cancer, liver disease,
asthma or peptic ulcer? (If Yes, give details)”
> The application was approved for a period of one year from March 1, 1988 to March 1, 1989. He
was a issued Health Care Agreement, and under such, he was entitled to avail of hospitalization
benefits, whether ordinary or emergency, listed therein. He was also entitled to avail of "out-patient
benefits" such as annual physical examinations, preventive health care and other out-patient
services.
> Upon the termination of the agreement, the same was extended for another year from March 1,
1989 to March 1, 1990, then from March 1, 1990 to June 1, 1990. The amount of coverage was
increased to a maximum sum of P75,000.00 per disability.
> During the period of his coverage, Ernani suffered a heart attack and was confined at the Manila
Medical Center (MMC) for one month beginning March 9, 1990.
> While her husband was in the hospital, Julita tried to claim the benefits under the health care
agreement. However, Philamcare denied her claim saying that the Health Care Agreement was void.
> According to Philamcare, there was concealment regarding Ernani's medical history.

• Doctors at the MMC allegedly discovered at the time of Ernani's confinement that he was
hypertensive, diabetic and asthmatic, contrary to his answer in the application form.

> Julita had no choice but to pay the hospitalization expenses herself, amounting to about
P76,000.00
> After her husband was discharged from the MMC, he was attended by a physical therapist at
home. Later, he was admitted at the Chinese General Hospital (CGH). Due to financial difficulties,
Julita brought her husband home again. In the morning of April 13, 1990, Ernani had fever and was
feeling very weak. Julita was constrained to bring him back to the CGH where he died on the same
day.
> Julita instituted, an action for damages against Philamcare. She asked for reimbursement of her
expenses plus moral damages and attorney's fees. RTC decided in favor of Julita. CA affirmed.

Issues and Resolutions:


Philamcare brought the instant petition for review, raising the primary argument that a health care
agreement is not an insurance contract; hence the "incontestability clause" under the Insurance
Code Title 6, Sec. 48 does not apply.

SC held that in the case at bar, the insurable interest of respondent's husband in obtaining the health
care agreement was his own health. The health care agreement was in the nature of non-life
insurance, which 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.

Under the title Claim procedures of expenses, Philamcare. had 12 mos from the date of issuance of
the Agreement within which to contest the membership of the patient if he had previous ailment of
asthma, and six months from the issuance of the agreement if the patient was sick of diabetes or
hypertension. The periods having expired, the defense of concealment or misrepresentation no
longer lie.
Petitioner argues that respondent's husband concealed a material fact in his application. It appears
that in the application for health coverage, petitioners required respondent's husband to sign an
express authorization for any person, organization or entity that has any record or knowledge of his
health to furnish any and all information relative to any hospitalization, consultation, treatment or any
other medical advice or examination.

Philamcare cannot rely on the stipulation regarding "Invalidation of agreement" which reads:
Failure to disclose or misrepresentation of any material information by the member in the application
or medical examination, whether intentional or unintentional, shall automatically invalidate the
Agreement from the very beginning and liability of Philamcare shall be limited to return of all
Membership Fees paid. An undisclosed or misrepresented information is deemed material if its
revelation would have resulted in the declination of the applicant by Philamcare or the assessment of
a higher Membership Fee for the benefit or benefits applied for.
The answer assailed by petitioner was in response to the question relating to the medical history of
the applicant. This largely depends on opinion rather than fact, especially coming from respondent's
husband who was not a medical doctor. Where matters of opinion or judgment are called for,
answers made in good faith and without intent to deceive will not avoid a policy even though they are
untrue. Thus,
(A)lthough false, a representation of the expectation, intention, belief, opinion, or judgment of the
insured will not avoid the policy if there is no actual fraud in inducing the acceptance of the risk, or its
acceptance at a lower rate of premium, and this is likewise the rule although the statement is
material to the risk, if the statement is obviously of the foregoing character, since in such case the
insurer is not justified in relying upon such statement, but is obligated to make further inquiry. There
is a clear distinction between such a case and one in which the insured is fraudulently and
intentionally states to be true, as a matter of expectation or belief, that which he then knows, to be
actually untrue, or the impossibility of which is shown by the facts within his knowledge, since in
such case the intent to deceive the insurer is obvious and amounts to actual fraud.
The fraudulent intent on the part of the insured must be established to warrant rescission of the
insurance contract. Concealment as a defense for the health care provider or insurer to avoid liability
is an affirmative defense and the duty to establish such defense by satisfactory and convincing
evidence rests upon the provider or insurer. In any case, with or without the authority to investigate,
petitioner is liable for claims made under the contract. Having assumed a responsibility under the
agreement, petitioner is bound to answer the same to the extent agreed upon. In the end, the liability
of the health care provider attaches once the member is hospitalized for the disease or injury
covered by the agreement or whenever he avails of the covered benefits which he has prepaid.
Under Section 27 of the Insurance Code, "a concealment entitles the injured party to rescind a
contract of insurance." The right to rescind should be exercised previous to the commencement of
an action on the contract. In this case, no rescission was made. Besides, the cancellation of health
care agreements as in insurance policies require the concurrence of the following conditions:

1. Prior notice of cancellation to insured;


2. Notice must be based on the occurrence after effective date of the policy of one or more of
the grounds mentioned;
3. Must be in writing, mailed or delivered to the insured at the address shown in the policy;
4. Must state the grounds relied upon provided in Section 64 of the Insurance Code and upon
request of insured, to furnish facts on which cancellation is based.

None of the above pre-conditions was fulfilled in this case. When the terms of insurance contract
contain limitations on liability, courts should construe them in such a way as to preclude the insurer
from non-compliance with his obligation. Being a contract of adhesion, the terms of an insurance
contract are to be construed strictly against the party which prepared the contract — the insurer. By
reason of the exclusive control of the insurance company over the terms and phraseology of the
insurance contract, ambiguity must be strictly interpreted against the insurer and liberally in favor of
the insured, especially to avoid forfeiture. This is equally applicable to Health Care Agreements. The
phraseology used in medical or hospital service contracts, such as the one at bar, must be liberally
construed in favor of the subscriber, and if doubtful or reasonably susceptible of two interpretations
the construction conferring coverage is to be adopted, and exclusionary clauses of doubtful import
should be strictly construed against the provider.
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 letters-complaint 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.

What does the term “doing


insurance business” include?
The term “doing an insurance business or “transacting an insurance business” includes:
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;
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.
Does the fact that no profit was derived from the transaction nor a separate
consideration received therefore mean that no insurance business was transacted?
No. Fact that no profit is derived from the contract or transaction or that no separate or direct
consideration is received for such contract or transaction is NOT deemed conclusive to show that no
insurance business was transacted.

Will any suretyship agreement amount to an insurance contract?


No. In order for a suretyship agreement to come under the purview of the Insurance Code, the
Surety undertaking to ensure the performance of the obligations must be registered with the
Insurance Commissioner and must have been issued by the latter with a certificate of
authority. Furthermore, the person acting as a surety is habitually engaged as such for a livelihood.

Construction of Insurance
Contracts
Ambiguities or obscurities must be strictly interpreted against the party that caused them. As the
insurance policy is prepared solely by the insurer, the ambiguities shall be construed against it and
in favor of the insured. (Qua Chee Gan)

Kinds Of Insurance Contract


Insurance contracts are classified as follows:

1) Life insurance contracts


a) Individual (Sections 179-183, 227)
b) Group Life (Sections 50 and 228)
c) Industrial Life (Sections 229-231)

2) Non-Life Insurance Contracts


a) Marine (Sections 99-166)
b) Fire (Sections 167-173)
c) Casualty (Section 174)
3) Contracts of Suretyship and bonding (Sections 175-178)

Elements of an Insurance
Contract
Like any other contract, an insurance contract must have consent of the parties, object and cause or
consideration. The parties who give their consent in this contract are the insurer and insured. The
object of the contract is the transferring or distributing of the risk of loss, damage, liability or disability
from the insured to the insurer. The cause or consideration of the contract is the premium which the
insured pays the insurer.

Additional Element of an Insurance Contract


Insurable Interest. This means that the insured possesses an interest of some kind susceptible of
pecuniary estimation.

Characteristics of an
Insurance Contract
A contract of insurance has the following characteristics:

1. Consensual – perfected by the meeting of the minds of the parties


2. Voluntary – it is not compulsory and the parties may incorporate such terms and conditions
as they may deem convenient which will be binding provided they are not against the law or
public policy
3. Aleatory – depends upon some contingent event
4. Executed – as to the insured after the payment of the premium
5. Executory – as to the insurer as it is not executed until payment for a loss
6. Conditional – subject to conditions the principal one of which is the happening of the event
insured against
7. Personal – each party in the contract have in view the character, credit and conduct of the
other

Verendia v. CA - Insurance
Policy
217 SCRA 1993
Facts:
> Fidelity and Surety Insurance Company (Fidelity) issued Fire Insurance Policy No. F-18876
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

Misamis Lumber v. Capital


Insurance - Insurance Policy
123 Phil 1077
Facts:
> Misamis lumber insured it’s motor car for P14T with Capital Insurance. The policy stipulated that
the insured may authorize the repair of the vehicle necessitated by damage and the liability of the
insured is limited to 150.
> Car met an accident and was repaired by Morosi Motors at a total cost of P302.27. Misamis
made a report of the accident to Capital who refused to pay the cost of the repairs.

Issue:
Whether or not the insurer is liable for the total amount of the repair.
Held: NO.
The insurance policy stipulated that if it is the insured who authorized the repair, the liability of the
insurer is limited to 150. The literal meaning of the stipulation must control, it being the actual
contract, expressly and plainly provided for in the policy.

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.

Ty v. Filipinas Compañia 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 Nat’l Orthopedic Hospital for six
listed injuries. The attending surgeon certified that these injuries would cause the temporary total
disability of Ty’s left hand.
> Insurance companies refused to pay Ty’s 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.

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.

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 1942-1945.
> 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 ALIC’s 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, non-payment 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.

Laws That Govern Insurance


Under The Civil Code:
Art. 2011. The contract of insurance is governed by special laws. Matters not expressly provided for
in such special laws shall be regulated by this Code.

Art. 2012. 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.

Art. 2021. The aleatory contract of life annuity binds the debtor to pay an annual pension or income
during the life of one or more determinate persons in consideration of a capital consisting of money
or other property, whose ownership is transferred to him at once with the burden of income.

Art. 2022. The annuity may be constituted upon the life of the person who gives the capital, upon
that of a third person, or upon the lives of various persons, all of whom must be living at the time the
annuity is established.

It may also be constituted in favor of the person or persons upon whose life or lives the contract is
entered into, or in favor of another or other persons.

Art. 2023. Life annuity shall be void if constituted upon the life of a person who was already dead at
the time the contract was entered into, or who was at the that time suffering from an illness which
caused his death within twenty days following said date.

Art. 2024. The lack of payment of the income due does not authorize the recipient of the life annuity
to demand the reimbursement of the capital or to retake possession of the property alienated, unless
there is a stipulation to the contrary; he shall have only a right judicially to claim the payment of the
income in arrears and to require a security for the future income, unless there is a stipulation to the
contrary.
Art. 2025. The income corresponding to the year in which the person enjoying it dies shall be pain
in proportion to the days during which he lived; if the income should be paid by installments in
advance, the whole amount of the installment which began to run during his life shall be paid.

Art. 2026. He who constitutes an annuity by gratuitous title upon his property, may provide at the
time the annuity is established that the same shall not be subject to execution or attachment on
account of the obligations of the recipient of the annuity. If the annuity was constituted in fraud of
creditors, the latter may ask for execution or attachment of the property.

Art. 2027. No annuity shall be claimed without first proving the existence of the person upon whose
life the annuity is constituted.

Special Laws That Govern Insurance

1. Revised GSIS Act of 1977 (PD 1146, as amended)


2. Social Security Act of 1954 ( RA 1161, (as amended)
3. The Property Insurance Law ( RA 656, as amended by PD 245)
4. Republic Act No. 4898
5. EO 250; and
6. RA 3591

How to construe provisions of the Insurance Code


Since our present IC is based mainly on the Insurance Act, which in turn was taken verbatim from
the law of California (except for Chap V, which was taken from the law of NY), the courts should
follow in fundamental points, at least, the construction placed by California Courts on California law
(and the construction placed by the NY Courts on NY law).

This is in accordance with the well settled rule in statutory construction that when a statute has been
adopted from some other state or country, and said statute has previously been construed by the
courts of such state or country, the statute is usually deemed to have been adopted with the
construction so given.

History of Insurance in The


Philippines
Development of Insurance in The Philippines
Pre-Spanish Era - there was no insurance; every loss was borne by the person or the family who
suffered the misfortune.
Spanish era – Insurance, in its present concept, was introduced in the Philippines when Lloyd’s of
London appointed Strachman, Murray & Co., Inc. as its representative here.
1898 – Life insurance was introduced in this country with the entry of Sun Life Assurance of Canada
in the local insurance market.
1906 – First domestic non-life insurance company, the Yek Tong Lin Insurance Company, was
organized
1910 – First domestic life insurance company, the Insular Life Assurance Co., Ltd., was organized
1939 – Union Insurance Society of Canton appointed Russel & Surgis as its agent in Manila. The
business transacted the Philippines was then limited to non-life insurance.
1936 – Social insurance was established with the enactment of Commonwealth Act no. 186 which
created the Government Service Insurance System (GSIS) which started operations in 1937. The
Act covers gov’t employees.
1949 – Government agency was formed to handle insurance affairs, where the Insular Treasurer
was appointed commissioner ex-officio.
1950 – Reinsurance was introduced by the Reinsurance Company of the Orient when it wrote
treaties for both life and non life.
1951 – First workmen’s compensation pool was organized as the Royal Group Incorporated.
1954 – RA 1161 was enacted which provided for the organization of the Social Security System
(SSS) covering employees of the private sector.

At present, there are 130 insurance companies registered with the Office of the Insurance
Commissioner. Of these, 2 are composite insurance companies (engaged in both life and non-life
insurance), 23 are life insurance companies, 101 are non-life insurance companies and 4 are
reinsurance companies.

Development of insurance LAWS develop in the Philippines?


During the Spanish Period, the laws on insurance were found in Title VII of Book II and Section III
of Title III of Book III of the Spanish Code of Commerce; and in Chapters II and IV of Tile XII of Book
IV of the Spanish Civil Code of 1889 (whew!)

During the American Regime, on Dec. 11, 1914, the Phil Legislature enacted the Insurance Act (Act
2427). This Act which took effect on July 1, 1915 repealed the provisions of the Spanish Code of
Commerce on Insurance.

When the Civil Code of the Philippines (RA 386) took effect on August 30, 1950, the provisions of
the Spanish Civil Code of 1889 were likewise repealed. For quite a long time, the Insurance Act was
the governing law on insurance in the Philippines.
On Dec. 18, 1974, PD 612 was promulgated, ordaining and instituting the Insurance Code of the
Philippines, thereby repealing Act 2427. PD’s 63, 123 and 317 were issued, amending PD
612. Finally PD 1460 which took effect on June 11, 1976 consolidated all insurance laws into a
single code and this is what we know now as the Insurance Code of 1978.