1|P age NOTES IN INSURANCE
the capital or to retake possession of the
INSURANCE LAW
Section 1 – This decree shall be known as the
“Insurance Code of 1978”.
Governing Laws
- PD 1460 “A Decree to consolidate and codify all
the Insurance Laws of the Philippines”
- Articles 2011-2012, 2021-2027 and 2166 of the
New Civil Code
Article 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.
Article 2012. Any person who is forbidden from
receiving any donation under Article 739 cannot
be named beneficiary of a life insurance policy
by a person who cannot make any donation to
him, according to said article.
**Article 739 – Donations between persons who
were guilty of adultery or concubinage at the
time of the donation shall be void.
Article 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.
Article 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
Reference: Ateneo Notes
Bem Jamison
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.
Constantino vs. Asia Life
- 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.
Insurance Life vs. Ebrado
- Persons who are guilty of adultery or
concubinage are barred from receiving donation
and they are likewise barred from receiving
proceeds of a life insurance contract from each
other.
Qua Chee Gan vs. Law Union Rock
- Estoppel: It is a well-settled rule that the insurer
at the time of the issuance of a policy has the
knowledge of existing facts, which if insisted on,
would invalidate the contract from its very
inception, such knowledge constitutes a waiver
of conditions in the contract inconsistent with
known facts, and the insurer is estopped
thereafter from asserting the breach of such
conditions.
- Ambiguities: By the reason of the exclusive
control of the insurance company over the
terms of the contract, the ambiguity must be
held strictly against the insurer and liberally in
 2|P age NOTES IN INSURANCE
favour of the insured, especially to avoid
forfeiture.
- Storage of flammable oil: It is a well-settled rule
that keeping of flammable oil in the premises,
though prohibited the policy, DOES NOT
INVALIDATE IT if storing the same is incidental
to the business.
Ty vs. Filipinas Compania de Seguros (FNSI)
- Where 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.
Del Rosario vs. Equitable Insurance
- Ambiguities: By the reason of the exclusive
control of the insurance company over the
terms of the contract, the ambiguity must be
held strictly against the insurer and liberally in
favour of the insured.
Misamis Lumber vs. Capital Insurance
- The literal meaning of the stipulation must
control, it being the actual contract provided for
in the policy.
Verendia vs. CA
- 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.
Section 2 - Whenever used in this Code, the
following terms shall have the respective
meanings hereinafter set forth or indicated,
unless the context otherwise requires:
(1) A “Contract of Insurance” is an agreement
whereby one undertakes for a consideration to
indemnify another against loss, damage or
liability arising from an unknown or contingent
event.
A Contract of Suretyship shall be deemed to be
an insurance contract, within the meaning of this
Code, only if made by a surety who or which, as
such, is doing an insurance business as
hereinafter provided.
Reference: Ateneo Notes
Bem Jamison
(2) The term “doing an insurance business” or
“transacting an insurance business” within the
meaning of this Code, shall include:
(a) Making or proposing to make, as insurer,
any insurance contract;
(b) Making, or proposing to make, as surety,
any contract of suretyship as a vocation and
not as merely incidental to any other
legitimate business or activity of the surety;
(c) Doing any kind of business including a
reinsurance business, specifically recognized as
constituting the doing of an insurance business
within the meaning of this Code;
(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.
In the application of the provisions of this Code,
the fact that no profit is derived from the making
of insurance contracts, agreements or
transactions or that no separate or distinct
consideration is received therefor, shall not be
deemed conclusive to show that the making
thereof does not constitute the doing or
transacting of an insurance business.
(3) As used in this Code, the term “Commissioner”
means the “Insurance Commissioner.”
CONTRACT OF INSURANCE
- Is an agreement whereby one undertakes for a
consideration to indemnify another against loss,
damage, liability, and disability arising from an
unknown or contingent event. (LDLD)
CHARACTERISTICS OF AN INSURANCE CONTRACT
(CAVE PEC)
1. Consensual – perfected by meeting of minds
2. Aleatory – depends upon some contingent
event
3. Voluntary – not compulsory and parties may
incorporate T&C as they may deem convenient
4. Executed – as to the insured after payment of
premium
5. Personal – each party have in view the
character, conduct and credit of the other
6. Executory – as to the insurer as it is not
executed until payment for a loss
7. Conditional – subject to the happening of an
event insured against
 3|P age
ELEMENTS OF AN INSURANCE CONTRACT (COCI)
a. Consent – of the insurer and the insured
b. Object – the transfer of risk of
loss/damage/liability/disability from the insured
to the insurer
c. Consideration – payment of premium
d. Insurable Interest – insured possesses an
interest of some kind susceptible of pecuniary
estimation.
Note:
- The fact that no profit is derived from the
contract or that no separate or direct
consideration is received for such contract or
transaction is NOT deemed conclusive to show
that no insurance was transacted.
- In order for a surety agreement to come under
the purview of the Insurance Code, the surety
undertaking to ensure the performance of the
obligations must be (a) registered with the
Insurance Commissioner; (b) must have been
issued by the latter with a certificate of
authority; and (c) the person acting as a surety
is habitually engaged as such for a livelihood.
Philamlife vs. Ansaldo
- Based on the Insurance Code, the Insurance
Commissioner has the authority to regulate the
business of insurance. Since the contract of
agency entered into between Philamlife and its
agents is not included within the meaning of
insurance business, the Insurance Commissioner
has no jurisdiction over the legality of the
contract of agency between Philamlife and its
agents.
Section 3 – Any contingent or unknown event,
whether past or future, which may damnify a
person having an insurable interest, or create a
liability against him, may be insured against,
subject to the provisions of this chapter.
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 18 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 PH, 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. – no longer applicable since the age of majority is
now 18 years old per RA 8809
Reference: Ateneo Notes
NOTES IN INSURANCE Bem Jamison
The married woman or the minor herein allowed
to take an insurance policy may exercise all the
rights and privileges of an owner under the policy.
All rights and 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.
WHAT PERILS MAY BE INSURED
1. Any contingent or unknown event whether past
or future which may cause damage to a person
having an insurable interest;
2. Any contingent or unknown event whether past
or future which may create liability against the
person insured;
Section 4 – The preceding section does not
authorize an insurance for or against the drawing
of any lottery, or for against any chance or ticket
in a lottery drawing a price.
CONTRACT OF INSURACE A WAGERING 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 contingency, it is not a
contract of chance.
ESSENTIAL ELEMENTS OF A LOTTERY
1. Consideration
2. Prizes
3. Chance
PRIZES NOT EQUIVALENT TO LOTTERY
- If the prizes do not come out of the fund or
contributions by the participants, no
consideration has been paid and hence, there is
no lottery.
SWEEPSTAKES
- A holder cannot insure himself against failure to
win since it cannot be said that he suffered a
loss of prize when he did not win.
INSURANCE CONTRACT vs. GAMBLING CONTRACT
Insurance Gambling
Parties seek to distribute Parties contemplate gain
loss by reason of through mere chance or
mischance the occurrence of a
contingent event
Insured avoids Gambler courts fortune
misfortune
 4|P age NOTES IN INSURANCE Bem Jamison
Tends to equalize Tends to increase the who is indemnified against, or is to receive a
fortune inequality of fortune certain sum upon the happening of a specified
What one insured gains Essence is whatever one contingency or event. He is the person whose
is not at the expense of person win from a wager loss is the occasion for the payment of the
another insured is lost by the other insurance proceeds by the insurer.
wagering party
Purchase of insurance As soon as the party 3. Beneficiary/Assured
does not create a new makes a wager, he - The person designated by the terms of the
and non-existing risk of creates a risk of loss to policy as the one to receive the proceeds of the
loss to the purchaser himself where no such insurance; the one whose benefit the policy is
since by purchasing, risk existed previously issued and to whom the loss is payable.
there is already an
existing economic loss WHO MAY BE AN INSURER
- A foreign or domestic company may transact
SIMILARITIES business in the PH but must first obtain a
- In both contract, one party promises to pay a certificate of authority for that purpose from
given sum to the other upon the occurrence of a the Insurance Commissioner who has the
given future event, the promise being condition discretion to refuse to issue such certificate if it
upon the payment of, or agreement to pay, a will best promote the interests of the people of
stipulated amount by the other party. this country.
- In either case, one party may receive more than - An individual may also be an insurer, provided
he paid or agreed to pay. he holds a certificate of authority from the
Insurance Commissioner, and provided further
that he is possessed of the capital assets
Section 5 – All kinds of insurance are subject to
required of an insurance corporation doing the
the provisions of this chapter so far as the same kind of business in the PH and invested in
provisions can apply. the same manner.
- Shall include all individuals, partnerships,
Also applies to: associations, or corporations including
- Marine Insurance government-owned or controlled corporations
- Fire Insurance or entities, engaged as principals in the
- Casualty Insurance insurance business, except mutual benefit
- Suretyship associations.
- Life Insurance
INSURANCE CORPORATION
- One formed or organized to save any person or
Section 6 – Every person, partnership,
persons or other corporations harmless from
association or corporation duly authorized to loss, damage or liability arising from any
transact insurance business as elsewhere unknown or future contingent event, or to
provided in this Code, may be an insurer. indemnify or to compensate any person or
persons or other corporations for any such loss,
damage, or liability, or to guarantee the
PARTIES TO THE CONTRACT OF INSURANCE performance of or compliance with a
1. Insurer contractual obligations or the payment of debts
- The party who assumes or accepts the risk of of others.
loss and undertakes for a consideration to
indemnify the insured or to pay him a certain *The business of insurance is affected with public
sum on the happening of a specified interest and is subject to regulation by the state by
contingency or event. The business of insurance virtue of the exercise of police power or in the
may be carried on by individuals just as much as interest of public convenience and the general good
by corporations and associations. The state itself of the people.
may go into insurance business.

2. Insured
- The second party to the contract; is the person
in whose favour the contract is operative and

Reference: Ateneo Notes

 5|P age NOTES IN INSURANCE
Section 7 – Anyone except a public enemy may
be insured.
REQUISITES TO BE INSURED
1. He must be competent to enter into contract
2. He must possess an insurable interest in the
subject of insurance
3. He must not be a public enemy
Public enemy – it is a nation with who the PH is at
war, and it includes every citizen or subject of such
nation.
EFFECT OF WAR ON EXISTING INSURANCE
CONTRACTS
1. Property insurance – the insurance policy
ceases to be valid and enforceable as soon as
the insured becomes a public enemy.
2. Life Insurance – 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.
Section 8 – Unless the policy otherwise provides,
where a mortgagor of the property effects
insurance in his own name providing that a loss
shall be payable to the mortgage, or assigns a
policy of insurance to a mortgagee, the insurance
is deemed to be upon the interest of the
mortgagor, who does not cease to be party to the
original contract, and any act of his, prior to the
loss, which would otherwise avoid the insurance,
will have the same effect, although the property
is in the hands of the mortgagee, but any act
which, under the contract of insurance, is to be
performed by the mortgagor, may be performed
by the mortgagee named therein, with the same
effect as if it had been performed by the
mortgagor.
IF BOTH MORTGAGOR AND MORTGAGEE INSURE
THE SAME PROPERTY
- Allowed. No double insurance. The mortgagor
and the mortgagee each have an insurable
interest in the property mortgaged, such
interest being separate and distinct from other.
Reference: Ateneo Notes
Bem Jamison
INSURABLE INTEREST
a. Mortgagor
- As the owner, has an insurable interest to the
extent of the value of the property even if the
mortgaged debt is equal to such value. The
reason is that the loss or destruction of the
property insured will not extinguish the
mortgaged debt.
- Cannot recover beyond the full amount of the
loss
b. Mortgagee
- Has insurable interest to the extent of the debt
secured, such interest continues until the
mortgage debt is extinguished.
- Cannot recover in excess of the credit at the
time of the loss.
IF MORTGAGOR EFFECTS INSURANCE IN HIS OWN
NAME AND PROVIDES THAT LOSS IS PAYABLE TO
MORTGAGEE
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 mortgagor 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.
*Same effect if the mortgagee effects insurance in
behalf of the mortgagor.
Saura Import Export Co. vs. PISC
- 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.
Palilieo vs. Cosio
- 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.
 6|P age NOTES IN INSURANCE
Section 9 – If an insurer assents to the transfer of
an insurable from a mortgagor to a mortgagee,
and, at the time of his assent, imposes further
obligations on the assignee, making a new
contract with him, the acts of the mortgagor
cannot affect the rights of said assignee.
This an exception to the general rule provided in
Section 8.
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 whim he depends wholly
in part for education or support, or in whom
he has a pecuniary interest;
c. Or any person under a legal obligation to
him for the payment of money, or respecting
property or services, of which death or
illness might delay or prevent the
performance; and
d. Of any person upon whose life any estate or
interest vested in him depends.
INSURABLE INTEREST
- A person is said to have insurable interest in the
subject matter insured where he has 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.
IMPORTANCE OF THE 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.
*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.
Castro vs. Insurance Commissioner
- Mere relationship of uncle and
nephew/employer and employee is not
sufficient to provide an insurable interest on the
life of the insured.
Reference: Ateneo Notes
Bem Jamison
Section 11 – The insured shall have the right to
change the beneficiary he designated in the
policy, unless he has expressly waived his right in
the said policy.
BENEFICIARY
- Is a person whether natural or juridical for
whose benefit the policy is issued and is the
recipient of the proceeds of the insurance.
WHO CAN BE A BENEFICIARY
- General Rule: Any person can be a beneficiary.
- Exception: The only persons disqualified from
being a beneficiary are those not qualified to
receive donations under Article 739. They
cannot be named beneficiaries of a life
insurance policy by the person who cannot
make any donation to him. The disqualification
does not extend to the illegitimate children, and
as such, they may be made beneficiaries.
Article 2012. Any person who is forbidden from
receiving any donation under Article 739 cannot
be named beneficiary of a life insurance policy
by a person who cannot make any donation to
him.
Article 739. The following donations shall be
void:
1. Those made between persons who were
guilty of adultery or concubinage at the
time of the donation;
2. Those made between persons found guilty
of the same criminal offense, in
consideration thereof;
3. Those made to a public officer, or his wife,
descendants and ascendants by reason of
his office.
RULE ON THE CHANGE OF BENEFICIARY
- 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.
WHEN SUCH RIGHT IS LOST
- Extinguished at death and cannot be exercised
by his personal representatives or assignees.
- If it is expressly waived in the policy, the insured
has no power to make such change without the
consent of the beneficiary.
 7|P age NOTES IN INSURANCE
RULE IN CASE OF TERMINATION OF MARRIAGE
- Article 43 FC: The termination of subsequent
marriage produces the following effects: (4) The
innocent spouse may revoke the designation of
the other spouse who acted in bad faith as a
beneficiary in any insurance policy even if such
designation be stipulated as irrevocable.
- Article 64 FC: After the finality of the decree of
legal separation, the innocent spouse may
revoke the designation of the offending spouse
as beneficiary in any insurance policy. The
revocation or change in the designation of the
insurance beneficiary shall take effect upon
written notification to the insured.
- Article 50 FC: The effects provided for in
paragraph 4 of Article 43 shall also apply in the
proper cases to marriages which are declared
void ab initio or annulled by final judgment
under Article 4 and 45.
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 wilfully 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
Those related to the decedent in the order
mentioned in the rules of intestate succession such
as:
1. The legitimate children;
2. The mother and father, 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
c. Nephews and nieces
7. In default of the above, the State shall be
entitled to receive the insurance proceeds.
*If there is remaining beneficiaries named who are
qualified, the proceeds must be paid to them since
the insurance contract is the law between the
parties. Section 12 applies only if there is no
stipulation as to who are the other beneficiaries.
Section 13 – Every interest in property, whether
real or personal, or any relation thereto, or
liability in respect thereof, of such nature that a
contemplated peril might directly damnify the
insured, is an insurable interest.
Reference: Ateneo Notes
Bem Jamison
INSURABLE INTEREST IN PROPERTY
- 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.
Harvardian Colleges vs. Country Bankers Insurance
- The test in determining insurable interest in
property is whether one 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.
Section 14 – An insurable interest on 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.
An existing interest: Is the legal or equitable title on
the property.
An inchoate interest: An interest which has not yet
ripened, such as the interest of a stockholder in the
property of the corporation which he owns stocks.
Expectancy: The expectancy must be coupled with
an existing interest in that, out of which such
expectancy arises, e.g. a farmer insuring future crops
that will grow on his land, or workman insuring the
building which he was contracted to repair.
Zenith Insurance vs. Insurance Commissioner
- 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.
Section 15 – A carrier or depository of any kind
has an insurable interest in a thing held by him as
such, to the extent of his liability but not to
exceed the value thereof.
Rationale:
The loss of the thing may make the carrier or
depositary liable to the owner of the goods, to the
extent of the value of the goods, and the law
therefore allows such a carrier or depositary to
insure his possible liability therefor.
 8|P age NOTES IN INSURANCE
Amount of insurable interest: Up to the extent of his
liability and not to exceed the value of the thing.
Section 16 – A mere contingent or expectant
interest in anything, not founded on an actual
right to the thing, nor upon any valid contract for
it, is not insurable.
*Mere hope or expectation of a benefit which may
be frustrated by the happening of some event
uncoupled with any present legal right will not
support a contract of insurance.
Example: A son cannot insure the property of his
father which he expects to inherit from the latter or a
husband insuring the paraphernal property of his
wife: the reason being that their interest is merely an
expectancy of inheriting, and the rights to succession
are transmitted only from the moment of the death
of the decedent.
Section 17 – The measure of an insurable
interest in the property is the extent to which the
insured might be damnified by the loss or injury
thereof.
Rationale: It is against public policy to profit from a
loss.
Note: Anything that reduces or diminishes the loss,
reduces and diminishes the amount which the
insurer is bound to pay, i.e. if the person at fault paid
the insured for the damage caused, notwithstanding
the insurance; hence, the insurer is only bound to
pay the remaining balance, if any.
Ang Ka Yu vs. Phoenix Assurance
- A person having a mere possession of the
property may insure it to its full value and in his
own name, even when he is not responsible for
its safekeeping. The reason is that even if he is
not interested in the safety and preservation of
such because it belongs to a third person, said
person still has insurable interest because he
stands either to benefit from their continued
existence or to be prejudiced by their
destruction.
Cha vs. Cha
- Insurable interest in the property insured must
exist at the time the insurance takes effect and
at the time the loss occurs.
- The lessor cannot validly be the beneficiary of
the fire insurance policy taken by Sps. Cha over
Reference: Ateneo Notes
Bem Jamison
their merchandise since the insurable interest
remains with the insured – the spouses.
- The automatic assignment of the policy to the
lessor in the lease contract is void for being
contrary to law and public policy
Section 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.
*No insurable interest, no contract of insurance.
Sharuff and Co. vs. Baloise Fire Insurance Co.
- The subsequent partnership did not alter the
composition of the firm. The people involved
are actually the same. The change in the firm
name was not made to defraud the insurance
company or some other person.
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 the 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.
“In the meantime” – during the intervening period
between the time of effectivity and the time of loss.
WHEN MUST INSURABLE INTEREST EXIST
a. Life Insurance – at the time the insurance takes
effect, but it need not exist thereafter or when
the loss occurs.
b. Property Insurance – at the time the insurance
takes effect and at the time of the loss, but it
need not exist in the meantime.
Section 20 – Except in cases specified in the next
four sections, and in the case 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.
Rationale: To provide against changes which might
supply a motive to destroy the property or might
 9|P age NOTES IN INSURANCE
lessen the interest of the insurer in protecting and
guarding it.
“Change of interest”: Absolute transfer of the
property insured such as the conveyance of the
property insured by means of an absolute deed of
sale.
GENERAL RULE:
- 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.
EXCEPTIONS:
Where a change of interest does not suspend the
insurance:
1. Life, health, and accident insurance
2. Change of interest in the thing insured occurs
after the injury which results in the loss.
3. Change of interest in one or more of several
things separately insured by one policy.
4. Change of interest by will or succession on the
death of the inured.
5. Transfer of interest by one of several partners,
joint owners or owners in common who are
jointly insured, to the other.
Section 21 – A change in interest in a thing
insured, after the occurrence of an injury which
results in a loss, does not affect the right of the
insured to the indemnity for the loss.
Section 22 – A change in interest in one or more
of several distinct things, separately insured by
one policy, does not avoid the insurance as to
the others.
*If the two or more things are not separately valued
in the policy and the premium was meant to cover
both or all things, the sale of one thing affects the
insurance of the others.
Section 23 – A change in interest, by will or
succession on the death of the insured, does not
avoid the insurance; and his interest in the
insurance passes to the person taking his
interest in the thing insured.
Reference: Ateneo Notes
Bem Jamison
Section 24 – A transfer of interest by one of
several partners, joint owners, or owners in
common, who are jointly insured, to the others,
does not avoid the insurance, even though it has
been agreed that the insurance shall cease upon
the alienation of thing insured.
Rationale: The interest is transferred to a co-
partner; hence, the transfer does not affect the risk
because no new party is brought into the
contractual relationship with the insurer.
Exception: If the policy contains the stipulation that
“In case of ANY sale or transfer or change of title of
any property insured by this company, or of any
undivided interest therein, such insurance will be
void and cease”
EFFECT IS SALE IS MADE TO A STRANGER
- Contract will be avoided because the risk is
already affected since a new party is brought
into the contract of insurance.
- Ends the contract of insurance only as to the
interest of the transferor and does not affect
the insurance of the other partners, joint
owners or co-owners.
Section 25 – Every stipulation in a policy of
insurance for the payment of loss whether the
person insured has or has not any interest in the
property to be insured, or that the policy shall be
received as proof of such interest, and every
policy executed by way of gaming or wagering, is
VOID.
TWO TYPES OF STIPULATIONS AVOIDED UNDER
THIS SECTION
1. Stipulation for the payment of loss whether or
not the insured has any interest in the subject
matter of the insurance (except life insurance)
Reason: Insurable interest is a requisite of a valid
contract of insurance. Lack of this avoids the
contract.
2. Stipulation that the policy will be received as
proof of insurable interest
Reason: Insurer is permitted to show lack of
insurable interest even after the issuance of the
policy (Section 83)