Insurance Ateneo

INSURANCE REVIEWER- Atty.
Oumson page 1
Most of the content of this reviewer was taken from the Reviewer of lohnbee 5ioson (3-8,J994) edited to include new
jurisprudence and subject matter discussed in class.
THE lNSURANCE CODE OF 1976
(Presdenta Decree No. 1460)
GENERAL PROVlSlONS
Section 1. Ths decree sha be known as the "Insurance Code of 1978"
What is the principle behind insurance7
Insurance s based upon the prncpe of adng another from a oss caused by an unfortunate event.
How old is the concept of insurance7
Very od. Benevoent socetes organzed for the purpose of extendng ad to ther unfortunate members
from a fund contrbuted by a, have been n exstence from the earest tmes. They exsted among the
Egyptans, the Chnese, the Hndus, the Romans, and are known to have been estabshed among the Greeks
as eary as, beeve t or not, 3 B.C.
How did insurance develop in the Philippines7
Pre-Spanish Era - there was no nsurance; every oss was borne by the person or the famy who
suffered the msfortune.
Spanish era - Insurance, n ts present concept, was ntroduced n the Phppnes when Loyds of
London apponted Strachman, Murray & Co., Inc. as ts representatve here.
1898 - Lfe nsurance was ntroduced n ths country wth the entry of Sun Lfe Assurance of Canada n
the oca nsurance market.
1906 - Frst domestc non-fe nsurance company, the Yek Tong Ln Insurance Company, was organzed
1910 - Frst domestc fe nsurance company, the Insuar Lfe Assurance Co., Ltd., was organzed
1939 - Unon Insurance Socety of Canton apponted Russe & Surgs as ts agent n Mana. The busness
transacted the Phppnes was then mted to non-life insurance.
1936 - Soca nsurance was estabshed wth the enactment of Commonweath Act no. 186 whch
created the Government Servce Insurance System (GSIS) whch started operatons n 1937. The Act covers
govt empoyees.
1949 - Government agency was formed to hande nsurance affars, where the Insuar Treasurer was
apponted commssoner ex-offco.
1950 - Rensurance was ntroduced by the Rensurance Company of the Orent when t wrote treates for
both fe and non fe.
1951 - Frst workmens compensaton poo was organzed as the Roya Group Incorporated.
1954 - RA 1161 was enacted whch provded for the organzaton of the Soca Securty System (SSS)
coverng empoyees of the prvate sector.
At present, there are 130 nsurance companes regstered wth the Offce of the Insurance Commssoner.
Of these, 2 are composte nsurance companes (engaged n both fe and non-fe nsurance), 23 are fe
nsurance companes, 101 are non-fe nsurance companes and 4 are rensurance companes.
How did insurance laws develop in the Philippines7
Durng the Spanish Period, the aws on nsurance were found n Tte VII of Book II and Secton III of Tte
III of Book III of the Spansh Code of Commerce; and n Chapters II and IV of Te XII of Book IV of the Spansh
Cv Code of 1889 (whew|)
Durng the American Regime, on Dec. 11, 1914, the Ph Legsature enacted the Insurance Act (Act
2427). Ths Act whch took effect on Iuy 1, 1915 repeaed the provsons of the Spansh Code of Commerce
on Insurance.
When the Cv Code of the Phppnes (RA 386) took effect on August 30, 1950, the provsons of the
Spansh Cv Code of 1889 were kewse repeaed. For qute a ong tme, the Insurance Act was the
governng aw on nsurance n the Phppnes.
On Dec. 18, 1974, PD 612 was promugated, ordanng and nsttutng the Insurance Code of the
Phppnes, thereby repeang Act 2427. PDs 63, 123 and 317 were ssued, amendng PD 612. Fnay PD
1460 whch took effect on Iune 11, 1976 consodated a nsurance aws nto a snge code and ths s what
we know now as the Insurance Code of 1978.
3D SY 2004-2005 rhys aexe
INSURANCE REVIEWER- Atty. Oumson page 2
What are the present laws that govern insurance (also known as the laws we have to know for exams)?
The aws we have to know are, of course, PD 1460, and Artces 2011-2012, 2021-2027 and 2166 of the
New Cv Code.
What do these Civil Code Provisions say7
Art. 2011. The contract of nsurance s governed by speca aws. Matters not expressy provded for n
such speca aws sha be reguated by ths Code.
Art. 2012. Any person who s forbdden from recevng any donaton under Art. 739 cannot be named
benefcary of a fe nsurance pocy by a person who cannot make any donaton to hm, accordng to sad
artce.
Art. 2021. The aeatory contract of fe annuty bnds the debtor to pay an annua penson or ncome
durng the fe of one or more determnate persons n consderaton of a capta consstng of money or other
property, whose ownershp s transferred to hm at once wth the burden of ncome.
Art. 2022. The annuty may be consttuted upon the fe of the person who gves the capta, upon that
of a thrd person, or upon the ves of varous persons, a of whom must be vng at the tme the annuty s
estabshed.
It may aso be consttuted n favor of the person or persons upon whose fe or ves the contract s
entered nto, or n favor of another or other persons.
Art. 2023. Lfe annuty sha be vod f consttuted upon the fe of a person who was aready dead at the
tme the contract was entered nto, or who was at the that tme sufferng from an ness whch caused hs
death wthn twenty days foowng sad date.
Art. 2024. The ack of payment of the ncome due does not authorze the recpent of the fe annuty to
demand the rembursement of the capta or to retake possesson of the property aenated, uness there s a
stpuaton to the contrary; he sha have ony a rght udcay to cam the payment of the ncome n arrears
and to requre a securty for the future ncome, uness there s a stpuaton to the contrary.
Art. 2025. The ncome correspondng to the year n whch the person enoyng t des sha be pan n
proporton to the days durng whch he ved; f the ncome shoud be pad by nstaments n advance, the
whoe amount of the nstament whch began to run durng hs fe sha be pad.
Art. 2026. He who consttutes an annuty by gratutous tte upon hs property, may provde at the tme
the annuty s estabshed that the same sha not be subect to executon or attachment on account of the
obgatons of the recpent of the annuty. If the annuty was consttuted n fraud of credtors, the atter may
ask for executon or attachment of the property.
Art. 2027. No annuty sha be camed wthout frst provng the exstence of the person upon whose fe
the annuty s consttuted.
What is so important about the Civil Code Provisions7
Atty. Oumson never fas to ask about Art. 2012.
Are there special laws that govern insurance7
Yes, but Atty. Oumson dd not te us to ook them up. However, for reference they are:
1. Revsed GSIS Act of 1977 (PD 1146, as amended)
2. Soca Securty Act of 1954 ( RA 1161, (as amended)
3. The Property Insurance Law ( RA 656, as amended by PD 245)
4. Repubc Act No. 4898
5. EO 250; and
6. RA 3591
How do we construe the provisions of the lnsurance Code (lC)7
Snce our present IC s based many on the Insurance Act, whch n turn was taken verbatm from the aw
of Caforna (except for Chap V, whch was taken from the aw of NY), the courts shoud foow n
fundamenta ponts, at east, the constructon paced by Caforna Courts on Caforna aw (and the
constructon paced by the NY Courts on NY aw).
Ths s n accordance wth the we setted rue n statutory constructon that when a statute has been
adopted from some other state or country, and sad statute has prevousy been construed by the courts of
such state or country, the statute s usuay deemed to have been adopted wth the constructon so gven.
Cases:
(1) Constantino v. Asia Life
87 PHlL 248
Facts:
Appea consodates two cases.
Asa fe nsurance Company (ALIC) was ncorporated n Deaware.
For the sum of 175.04 as annua premum duy pad to ALIC, t ssued Pocy No. 93912 whereby t nsured
the fe of Arcado Constantno for 20 years for P3T wth Paz Constantno as benefcary.
Frst premum covered the perod up to Sept. 26, 1942. No further premums were pad after the
frst premum and Arcado ded on Sept. 22, 1944.
Due to Iap occupaton, ALIC cosed ts branch offce n Mana from Ian. 2 1942-1945.
On Aug. 1, 1938, ALIC ssued Pocy no. 78145 coverng the ves of Spouses Tomas Ruz and Agustna
Perata for the sum of P3T for 20 years. The annua premum stpuated was reguary pad from Aug. 1,
1938 up to and ncudng Sept. 30, 1940.
Effectve Aug. 1, 1941, the mode of payment was changed from annuay to quartery and such
quartery premums were pad unt Nov. 18, 1941.
Last payment covered the perod unt Ian. 31, 1942.
Tomas Ruz ded on Feb. 16, 1945 wth Agustna Perata as hs benefcary.
Due to Iap occupaton, t became mpossbe and ega for the nsured to dea wth ALIC. Asde from ths
the nsured borrowed from the pocy P234.00 such that the cash surrender vaue of the pocy was
suffcent to mantan the pocy n force ony up to Sept. 7, 1942.
Both poces contaned ths provson: 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 Constantno and Agustna Perata cam as benefcares, that they are entted to receve the
proceeds of the poces ess a sums due for premums n arrears. They aso aege that non-payment of
the premums were caused by the cosng of ALICs offces durng the war and the mpossbe
crcumstances by the war, therefore, they shoud be excused and the poces shoud not be forfeted.
Lower court rued n favor of ALIC.
lssue: May a benefcary n a fe nsurance pocy recover the amount thereof athough the nsured ded
after repeatedy fang to pay the stpuated premums, such faure beng caused by war?
Held: NO.
Due to the express terms of the pocy, non-payment of the premum produces ts avodance. In Garaga
v. Sun Lfe, t was hed that a fe pocy was avoded because the premum had not been pad wthn the tme
fxed; snce by ts express terms, non-payment of any premum when due or wthn the 31

day grace perod
pso fact caused the pocy to apse.
When the fe nsurance pocy provdes that non-payment of premums w cause ts forfeture, war does
NOT excuse non-payment and does not avod forfeture. Essentay, the reason why punctua payments are
mportant s that the nsurer cacuates on the bass of the prompt payments. Otherwse, mauug sa.
It shoud be noted that the partes contracted not ony as to peace tme condtons but aso as to war-
tme condtons snce the poces contaned provsons appcabe expressy to wartme days. The ogca
nference therefore s that the partes contempated the unnterrupted operaton of the contract even f
armed confct shoud ensue.
(2) lnsular Life v. Ebrado
80 SCRA 181
Facts:
Buenaventura Ebrado was ssued by Insuar Lfe Assurance Co. a whoe fe pan for P5,882.00 wth a rder
for Accdenta Death Benefts for the same amount.
Ebrado desgnated Carpona Ebrado as the revocabe benefcary n hs pocy, referrng to her as hs wfe.
Ebrado ded when he was accdentay ht by a fang branch of tree.
Insurer by vrtue of the contract was abe for 11,745.73, and Carpona fed her cam, athough she
admtted that she and the nsured were merey vng as husband and wfe wthout the beneft of
marrage.
Pascuaa Ebrado aso fed her cam as the wdow of the deceased nsured.
Insuar fe fed an nterpeader case and the ower court found n favor of Pascuaa.
lssue: Between Carpona and Pascuaa, who s entted to the proceeds?
Held: Pascuala.
It s qute unfortunate that the Insurance Act or our own Insurance Code does not contan a specfc
provson grossy resoutory of the prme queston at hand. Rather, the genera rues of cv aw shoud be
apped to resove ths vod n the nsurance aw. 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 otherwse specfcay provded for n the nsurance aw, the contract of fe nsurance s
governed by the genera rues of cv aw reguatng 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, donatons between persons who were guty of adutery or concubnage at the
tme of the donaton sha be vod.
In essence, a fe nsurance pocy s no dfferent from cv donatons nsofar as the benefcary s
concerned. Both are founded on the same consderaton of beraty. A benefcary s ke a donee because
from the premums of the pocy whch the nsured pays, the benefcary w receve the proceeds or profts
of sad nsurance. As a consequence, the proscrpton n Art. 739 shoud equay operate n fe nsurance
contracts.
Therefore, snce common-aw spouses are barred from recevng donatons, they are kewse barred from
recevng proceeds of a fe nsurance contract.
(3) Oua Chee Gan v. Law Union Rock
98 PHlL 85
Facts:
Oua Chee Gan, a merchant, owned 4 warehouses n Abay whch were used for the storage or copra and
hemp n whch the appee deas wth excusvey.
The warehouses together wth the contents were nsured wth Law Unon snce 1937 and the oss made
payabe to PNB as mortgagee of the hemp and copra.
A fre of undetermned cause broke out n Iuy 21, 1940 and asted for amost 1 whoe week.
Bodegas 1, 3, and 4 ncudng the merchandse stored were destroyed competey.
Insured then nformed nsurer of the unfortunate event and submtted the correspondng fre cams,
whch were ater reduced to P370T.
Insurer refused to pay camng voatons of the warrantes and condtons, fng of frauduent cams and
that the fre had been deberatey caused by the nsured.
Insured fed an acton before CFI whch rendered a decson n favor of the nsured.
lssues and Resolutions:
(J) WON the policies should be avoided for the reason that there was a breach of warranty.
Under the Memorandum of Warranty, there shoud be no ess than 1 hydrant for each 150 feet of
externa wa measurements of the compound, and snce bodegas nsured had an externa wa per meter of
1640 feet, the nsured shoud have 11 hydrants n the compound. But he ony had 2.
Even so, the nsurer s barred by estoppe to cam voaton of the fre hydrants warranty, because
knowng that the number of hydrants t demanded never exsted from the very begnnng, appeant
nevertheess ssued the poces subect to such warranty and receved the correspondng premums. The
nsurance company was aware, even before the poces were ssued, that n the premses there were ony 2
hydrants and 2 others were owned by the Muncpaty, contrary to the requrements of the warrantes n
queston.
It shoud be cose to connvng at fraud upon the nsured to aow the nsurer to cam now as vod the
poces t ssued to the nsured, wthout warnng hm of the fata defect, of whch the nsurer was nformed,
and after t had msed the nsured nto beevng that the poces were effectve.
Accdg to Amercan Iursprudence: It s a we-setted rue that the nsurer at the tme of the ssuance of a
pocy has the knowedge of exstng facts, whch f nssted on, woud nvadate the contract from ts very
ncepton, such knowedge consttutes a waver of condtons n the contract nconsstent wth known facts,
and the nsurer s stopped thereafter from assertng the breach of such condtons. The reason for the rue s:
To aow a company to accept ones money for a pocy of nsurance whch t knows to be vod and of no
effect, though t knows as t must that the nsured beeves t to be vad and bndng s so contrary to the
dctates of honesty and far deang, as so cosey reated to postve fraud, as to be abhorrent to far-mnded
men. It woud be to aow the company to treat the pocy as vad ong enough to get the premum on t, and
eave t at berty to repudate t the next moment.
Moreover, takng nto account the we-known rue that ambgutes or obscurtes must strcty be
nterpreted aganst the party that cause them, the memorandum of warranty nvoked by the nsurer bars the
atter from questonng the exstence of the appances caed for, snce ts nta expresson "the undernoted
appances for the extncton of fre beng kept on the premses nsured hereby.." admts of the nterpretaton
as an admsson of the exstence of such appances whch nsurer cannot now contradct, shoud the paroe
evdence appy.
(2) WON the insured violated the hemp warranty provision against the storage of gasoline since insured
admitted there were 36 cans of gasoline in 8odega 2 which was a separate structure and not affected by
the fire.
It s we to note that gasone s not specfcay mentoned among the prohbted artces sted n the so-
caed hemp warranty. The cause reed upon by the nsurer speaks of "os". Ordnary, os mean
ubrcants and not gasone or kerosene. Here agan, by reason of the excusve contro of the nsurance
company over the terms of the contract, the ambguty must be hed strcty aganst the nsurer and beray
n favor of the nsured, specay to avod a forfeture.
Furthermore, the gasone kept was ony ncdenta to the nsureds busness. It s a we setted rue that
keepng of nfammabe os n the premses though prohbted by the pocy does NOT vod t f such keepng
s ncdenta to the busness. Aso, the hemp warranty forbade the storage ony n the budng to whch the
nsurance appes, and/or n any budng communcatng therewth; and t s undsputed that no gasone was
stored n the burnt bodegas and that Bodega No. 2 whch was where the gasone was found stood soated
from the other bodegas.

(4) Ty v. Filipinas Compaia de Seguros
17 SCRA 364
Facts:
Ty was empoyed as a mechanc operator by Braodway Cotton Factory at Grace Park, Caoocan.
In 1953, he took persona accdent poces from 7 nsurance companes (6 defendants), on dfferent
dates, effectve for 12 mos.
On Dec. 24. 1953, a fre broke out n the factory were Ty was workng. A hevy obect fe on hs hand
when he was tryng to put out the fre.
From Dec. 1953 to Feb. 6, 1954 Ty receved treatment at the Nat Orthopedc Hospta for sx sted
nures. The attendng surgeon certfed that these nures woud cause the temporary tota dsabty of
Tys eft hand.
Insurance companes refused to pay Tys cam for compensaton under the poces by reason of sad
dsabty of hs eft hand. Ty fed a compant n the muncpa court who decded n hs favor.
CFI reversed on the ground that under the unform terms of the poces, parta dsabty due to oss of
ether hand of the nsured, to be compensabe must be the resut of amputaton.
lssue: WON Ty shoud be ndemnfed under hs accdent poces.
Held. NO.
SC aready rued n the case of Ty v. FNSI that were the nsurance poces defne parta dsabty as oss
of ether hand by amputaton through the bones of the wrst, the nsured cannot recover under sad poces
for temporary dsabty of hs eft hand caused by the fractures of some fngers. The provson s cear
enough to nform the party enterng nto that contract that the oss to be consdered a dsabty entted to
ndemnty, must be severance or amputaton of the affected member of the body of the nsured. In the
words of Atty. Oumson: Aba gago paa sya, Snab ng oss by amputaton, pnagpptan pa nyang fracture
ang ang kaangan.
(5) Del Rosario v. Equitable lnsurance
118 PHlL 349
Facts:
Equtabe Insurance ssued a fe Insurance pocy to de Rosaro bndng tsef to pay P1,000 to P3,000 as
ndemnty.
De Rosaro ded n a boatng accdent. The hers fed a cam and Equtabe pad them P1,000.
The her fed a compant for recovery of the baance of P2,000, camng that the nsurere shoud pay
hm P3,000 as stated n the pocy.
lssue: WON the her s entted to recover P3,000.
Held: YES.
Generay accepted prncpes or rung on nsurance, enuncate that where there s an ambguty wth
respect to the terms and condtons of the pocy, the same sha be resoved aganst the one responsbe
thereof. The nsured has tte, f any, partcpaton n the preparaton of the pocy. The nterpretaton of
obscure stpuatons n a contract shoud not favor the party who cause the obscurty.
(6) Misamis Lumber v. Capital lnsurance
123 Phil 1077
Facts:
Msams umber nsured ts motor car for P14T wth Capta Insurance. The pocy stpuated that the
nsured may authorze the repar of the vehce necesstated by damage and the abty of the nsured s
mted to 150.
Car met an accdent and was repared by Moros Motors at a tota cost of P302.27. Msams made a
report of the accdent to Capta who refused to pay the cost of the repars.
lssue: WON the nsurer s abe for the tota amount of the repar.
Held: NO.
The nsurance pocy stpuated that f t s the nsured who authorzed the repar, the abty of the
nsurer s mted to 150. The tera meanng of the stpuaton must contro, t beng the actua contract,
expressy and pany provded for n the pocy.
(7) Verendia v. CA
217 SCRA 1993
Facts:
Fdety and Surety Insurance Company (Fdety) ssued Fre Insurance Pocy No. F-18876 effectve
between Iune 23, 1980 and Iune 23, 1981 coverng Rafae (Rex) Verenda's resdenta n the amount of
P385,000.00. Desgnated as benefcary was the Monte de Pedad & Savngs Bank.
Verenda aso nsured the same budng wth two other companes, namey, The Country Bankers
Insurance for P56,000.00 and The Deveopment Insurance for P400,000.00.
Whe the three fre nsurance poces were n force, the nsured property was competey destroyed by
fre.
Fdety apprased the damage amountng to 385,000 when t was accordngy nformed of the oss.
Despte demands, Fdety refused payment under ts pocy, thus promptng Verenda to fe a compant
for the recovery of 385,000
Fdety, averred that the pocy was avoded by reason of over-nsurance, that Verenda macousy
represented that the budng at the tme of the fre was eased under a contract executed on Iune 25,
1980 to a certan Roberto Garca, when actuay t was a Marceo Garca who was the essee.
lssue: WON Verenda can cam on the nsurance despte the msrepresentaton as to the essee and the
overnsurance.
Held: NOPE.
The contract of ease upon whch Verenda rees to support hs cam for nsurance benefts, was entered
nto between hm and one Robert Garca, a coupe of days after the effectvty of the nsurance pocy. When
the rented resdenta budng was razed to the ground, t appears that Robert Garca was st wthn the
premses. However, accordng to the nvestgaton by the poce, the budng appeared to have "no
occupants" and that Mr. Roberto Garca was "rentng on the othersde of sad compound" These peces of
evdence bee Verenda's uncorroborated testmony that Marceo Garca whom he consdered as the rea
essee, was occupyng the budng when t was burned.
Ironcay, durng the tra, Verenda admtted that t was not Robert Garca who sgned the ease contract
but t was Marceo Garca cousn of Robert, who had aso been payng the rentas a the whe. Verenda,
however, faed to expan why Marceo had to sgn hs cousn's name when he n fact he was payng for the
rent and why he (Verenda) hmsef, the essor, aowed such a ruse. Fdety's concusons on these proven
facts appear, therefore, to have suffcent bases: Verenda concocted the ease contract to defect
responsbty for the fre towards an aeged "essee", nfated the vaue of the property by the aeged
monthy renta of P6,500) when n fact, the Provnca Assessor of Rza had assessed the property's far
market vaue to be ony P40,300.00, nsured the same property wth two other nsurance companes for a
tota coverage of around P900,000, and created a dead-end for the aduster by the dsappearance of Robert
Garca.
Bascay a contract of ndemnty, an nsurance contract s the aw between the partes. Its terms and
condtons consttute the measure of the nsurer's abty and compance therewth s a condton precedent
to the nsured's rght to recovery from the. As t s aso a contract of adheson, an nsurance contract shoud
be beray construed n favor of the nsured and strcty aganst the nsurer company whch usuay prepares
t
.
Consderng, however, the foregong dscusson pontng to the fact that Verenda used a fase ease
contract to support hs cam under Fre Insurance Pocy, the terms of the pocy shoud be strcty construed
aganst the nsured. Verenda faed to ve by the terms of the pocy, specfcay Secton 13 thereof whch s
expressed n terms that are cear and unambguous, that a benefts under the pocy sha be forfeted "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 lnsured or anyone acting in his behalf to obtain any benefit
under the policy". Verenda, havng presented a fase decaraton to support hs cam for benefts n the form
of a frauduent ease contract, he forfeted a benefts theren by vrtue of Secton 13 of the pocy n the
absence of proof that Fdety waved such provson
There s aso no reason to concude that by submttng the subrogaton recept as evdence n court,
Fdety bound tsef to a "mutua agreement" to sette Verenda's cams n consderaton of the amount of
P142,685.77. Whe the sad recept appears to have been a fed-up form of Fdety, no representatve of
Fdety had sgned t. It s even ncompete as the bank spaces for a wtness and hs address are not fed
up. More sgnfcanty, the same recept states that Verenda had receved the aforesad amount. However,
that Verenda had not receved the amount stated theren, s proven by the fact that Verenda hmsef fed
the compant for the fu amount of P385,000.00 stated n the pocy. It mght be that there had been efforts
to sette Verenda's cams, but surey, the subrogaton recept by tsef does not prove that a settement had
been arrved at and enforced. Thus, to nterpret Fdety's presentaton of the subrogaton recept n evdence
as ndcatve of ts accesson to ts "terms" s not ony wantng n ratona bass but woud be substtutng the
w of the Court for that of the partes
Section 2. Whenever used n ths Code, the foowng terms sha have the respectve meanngs
herenafter set forth or ndcated, uness the context otherwse requres:
(1) A "Contract of Insurance" s an agreement whereby one undertakes for a consderaton to
ndemnfy another aganst oss, damage or abty arsng from an unknown or contngent event.
A contract of suretyshp sha be deemed to be an nsurance contract, wthn the meanng of ths
Code, ony f made by a surety who or whch, as such, s dong an nsurance busness as herenafter
provded.
(2) The term "dong an nsurance busness" or "transactng an nsurance busness" wthng the
meanng of ths Code, sha ncude:
(a) Makng or proposng to make, as nsurer, any nsurance contract;
(b) Makng, or proposng to make, as surety, any contract of suretyshp as a vocaton and not
as merey ncdenta to any other egtmate busness or actvty of the surety;
(c) Dong any knd of busness ncudng a rensurance busness, specfcay recognzed as
consttutng the dong of an nsurance busness wthn the meanng of ths Code;
(d) Dong or proposng to do any busness n substance equvaent to any of the foregong n
a manner desgned to evade the provsons of ths code.
In the appcaton of the provsons of ths Code, the fact that no proft s derved from the makng
of nsurance contracts, agreements or transactons or that no separate or dstnct consderaton s
receved therefor, sha not be deemed concusve to show that the makng thereof does not
consttute the dong or transactng of an nsurance busness.
(3) As used n ths Code, the term "Commssoner" means the "Insurance Commssoner."
ls the definition of a contract of insurance under Sec. 2 sufficient7
De Leon beeves that t s not. He opnes that the defnton does Not ncude Lfe nsurance whch s a
contract upon a condton rather than a contract to ndemnfy for nor recovery can fuy repay a benefcary
for the oss of fe whch s beyond pecunary vaue.
A better defnton he thnks, s that of Vance who sad that a "contract of insurance is an agreement by
which one party, for a consideration, promises to pay money or its equivalent, or to do some act valuable to
the insured or his nominee, upon the happening of a loss, damage, liability or disability arising from an
unknown or contingent event."
What are the characteristics of an insurance contract7
A contract of nsurance has the foowng characterstcs:
1. Consensual - perfected by the meetng of the mnds of the partes
2. Voluntary - t s not compusory and the partes may ncorporate such terms and condtons as they
may deem convenent whch w be bndng provded they are not aganst the aw or pubc pocy
3. Aleatory - depends upon some contngent event
4. Executed - as to the nsured after the payment of the premum
5. Executory - as to the nsurer as t s not executed unt payment for a oss
6. Conditional - subect to condtons the prncpa one of whch s the happenng of the event nsured
aganst
7. Personal - each party n the contract have n vew the character, credt and conduct of the other
What are the elements of an insurance contract7
Lke any other contract, an nsurance contract must have consent of the partes, obect and cause or
consderaton. The partes who gve ther consent n ths contract are the nsurer and nsured. The obect of
the contract s the transferrng or dstrbutng of the rsk of oss, damage, abty or dsabty from the
nsured to the nsurer. The cause or consderaton of the contract s the premum whch the nsured pays the
nsurer.
What is an additional element of an insurance contract7
Insurabe Interest. Ths means that the nsured possesses an nterest of some knd susceptbe of
pecunary estmaton.
How are insurance contracts classified7
Insurance contracts are cassfed as foows?
1) Lfe nsurance contracts
a) Indvdua (Sectons 179-183, 227)
b) Group Lfe (Sectons 50 and 228)
c) Industra Lfe (Sectons 229-231)
2) Non-Lfe Insurance Contracts
a) Marne (Sectons 99-166)
b) Fre (Sectons 167-173)
c) Casuaty (Secton 174)
3) Contracts of Suretyshp and bondng (Sectons 175-178)
How are insurance contracts construed7
Ambgutes or obscurtes must be strcty nterpreted aganst the party that caused them. As the
nsurance pocy s prepared soey by the nsurer, the ambgutes sha be construed aganst t and n favor
of the nsured. (Oua Chee Gan)
What does the term "doing insurance business" include7
The term "dong an nsurance busness or "transactng an nsurance busness" ncudes:
a) Makng or proposng to make, as nsurer, any nsurance contract;
b) Makng, or proposng to make, as surety, any contract of suretyshp as a vocaton and not as merey
ncdenta to any other egtmate busness or actvty of the surety;
c) Dong any knd of busness ncudng a rensurance busness, specfcay recognzed as consttutng
the dong of an nsurance busness wthn the meanng of ths Code;
d) Dong or proposng to do any busness n substance equvaent to any of the foregong n a manner
desgned to evade the provsons of ths code.
Does the fact that no profit was derived from the transaction nor a separate consideration
received therefore mean that no insurance business was transacted7
No. Fact that no proft s derved from the contract or transacton or that no separate or drect
consderaton s receved for such contract or transacton s NOT deemed concusve to show that no
nsurance busness was transacted.
Will any suretyship agreement amount to an insurance contract7
No. In order for a suretyshp agreement to come under the purvew of the Insurance Code, the Surety
undertakng to ensure the performance of the obgatons must be regstered wth the Insurance
Commssoner and must have been ssued by the atter wth a certfcate of authorty. Furthermore, the
person actng as a surety s habtuay engaged as such for a vehood.
Cases:
(8) Philamlife v. Ansaldo
234 SCRA 509
Facts:
Ramon M. Paterno sent a etter-compant to the Insurance Commssoner aegng certan probems
encountered by agents, supervsors, managers and pubc consumers of the Phamfe as a resut of
certan practces by sad company.
Commssoner requested pettoner Rodrgo de os Reyes, n hs capacty as Phamfe's presdent, to
comment on respondent Paterno's etter.
The compant prays that provsons on charges and fees stated n the Contract of Agency executed
between Phamfe and ts agents, as we as the mpementng provsons as pubshed n the agents'
handbook, agency buetns and crcuars, be decared as nu and vod. He aso asked that the amounts
of such charges and fees aready deducted and coected by Phamfe n connecton therewth be
rembursed to the agents, wth nterest at the prevang rate reckoned from the date when they were
deducted
Manue Ortega, Phamfe's Senor Assstant Vce-Presdent and Executve Assstant to the Presdent,
asked that the Commssoner frst rue on the questons of the ursdcton of the Insurance Commssoner
over the subect matter of the etters-compant and the ega standng of Paterno.
Insurance Commssoner set the case for hearng and sent subpoena to the offcers of Phamfe. Ortega
fed a moton to quash the subpoena aegng that the Insurance company has no ursdcton over the
subect matter of the case and that there s no compant suffcent n form and contents has been fed.
The moton to quash was dened.
lssue: WON the nsurance commssoner had ursdcton over the egaty of the Contract of Agency between
Phamfe and ts agents.
Held: No, it does not have iurisdiction.
The genera reguatory authorty of the Insurance Commssoner s descrbed n Secton 414 of the
Insurance Code, to wt:
"The lnsurance 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, Secton 415 provdes:
"ln addition to the administrative sanctions provided elsewhere in this Code, the lnsurance
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 lnsurance
Commissioner, or any commission of irregularities, and/or conducting business in an unsafe or
unsound manner as may be determined by the lnsurance 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 pan readng of the above-quoted provsons show that the Insurance Commssoner has the authorty
to reguate the busness of nsurance, whch s defned as foows:
"(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. (lnsurance Code, 5ec. 2
I2I)
Snce the contract of agency entered nto between Phamfe and ts agents s not ncuded wthn the
meanng of an nsurance busness, Secton 2 of the Insurance Code cannot be nvoked to gve ursdcton
over the same to the Insurance Commssoner. Expresso unus est excuso aterus.
(9) Philamcare v. CA
379 SCRA 356 (2002)
Facts:
Ernan Trnos, apped for a heath care coverage wth Phamcare. In the standard appcaton form, he
answered NO to the foowng queston: "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? (lf Yes, give details)"
The appcaton was approved for a perod of one year from March 1, 1988 to March 1, 1989. He was a
ssued Heath Care Agreement, and under such, he was entted to ava of hosptazaton benefts,
whether ordnary or emergency, sted theren. He was aso entted to ava of "out-patent benefts" such
as annua physca examnatons, preventve heath care and other out-patent servces.
Upon the termnaton of the agreement, the same was extended for another year from March 1, 1989 to
March 1, 1990, then from March 1, 1990 to Iune 1, 1990. The amount of coverage was ncreased to a
maxmum sum of P75,000.00 per dsabty.
Durng the perod of hs coverage, Ernan suffered a heart attack and was confned at the Mana Medca
Center (MMC) for one month begnnng March 9, 1990.
Whe her husband was n the hospta, Iuta tred to cam the benefts under the heath care agreement.
However, Phamcare dened her cam sayng that the Heath Care Agreement was vod.
Accordng to Phamcare, there was conceament regardng Ernan's medca hstory.
Doctors at the MMC aegedy dscovered at the tme of Ernan's confnement that he was
hypertensve, dabetc and asthmatc, contrary to hs answer n the appcaton form.
Iuta had no choce but to pay the hosptazaton expenses hersef, amountng to about P76,000.00
After her husband was dscharged from the MMC, he was attended by a physca therapst at home.
Later, he was admtted at the Chnese Genera Hospta (CGH). Due to fnanca dffcutes, Iuta brought
her husband home agan. In the mornng of Apr 13, 1990, Ernan had fever and was feeng very weak.
Iuta was constraned to brng hm back to the CGH where he ded on the same day.
Iuta nsttuted, an acton for damages aganst Phamcare. She asked for rembursement of her
expenses pus mora damages and attorney's fees. RTC decded n favor of Iuta. CA affrmed.
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 lnsurance Code Title 6,
5ec. 48 does not apply.
SC hed that n the case at bar, the nsurabe nterest of respondent's husband n obtanng the heath
care agreement was hs own heath. The heath care agreement was n the nature of non-fe nsurance,
whch s prmary a contract of ndemnty. Once the member ncurs hospta, medca or any other expense
arsng from sckness, nury or other stpuated contngent, the heath care provder must pay for the same to
the extent agreed upon under the contract.
Under the tte Cam procedures of expenses, Phamcare. had 12 mos from the date of ssuance of the
Agreement wthn whch to contest the membershp of the patent f he had prevous ament of asthma, and
sx months from the ssuance of the agreement f the patent was sck of dabetes or hypertenson. The
perods havng expred, the defense of conceament or msrepresentaton no onger e.
Petitioner argues that respondent's husband concealed a material fact in his application. lt 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.
Phamcare cannot rey on the stpuaton regardng "Invadaton of agreement" whch 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 assaed by pettoner was n response to the queston reatng to the medca hstory of the
appcant. Ths argey depends on opnon rather than fact, especay comng from respondent's husband
who was not a medca doctor. Where matters of opnon or udgment are caed for, answers made n good
fath and wthout ntent to deceve w not avod a pocy 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 frauduent ntent on the part of the nsured must be estabshed to warrant rescsson of the
nsurance contract. Conceament as a defense for the heath care provder or nsurer to avod abty s an
affrmatve defense and the duty to estabsh such defense by satsfactory and convncng evdence rests
upon the provder or nsurer. In any case, wth or wthout the authorty to nvestgate, pettoner s abe for
cams made under the contract. Havng assumed a responsbty under the agreement, pettoner s bound
to answer the same to the extent agreed upon. In the end, the abty of the heath care provder attaches
once the member s hosptazed for the dsease or nury covered by the agreement or whenever he avas of
the covered benefts whch he has prepad.
Under Secton 27 of the Insurance Code, "a conceament enttes the nured party to rescnd a contract
of nsurance." The rght to rescnd shoud be exercsed prevous to the commencement of an acton on the
contract. In ths case, no rescsson was made. Besdes, the canceaton of heath care agreements as n
nsurance poces requre the concurrence of the foowng condtons:
1. Pror notce of canceaton to nsured;
2. Notce must be based on the occurrence after effectve date of the pocy of one or more of the
grounds mentoned;
3. Must be n wrtng, maed or devered to the nsured at the address shown n the pocy;
4. Must state the grounds reed upon provded n Secton 64 of the Insurance Code and upon
request of nsured, to furnsh facts on whch canceaton s based.
None of the above pre-condtons was fufed n ths case. When the terms of nsurance contract contan
mtatons on abty, courts shoud construe them n such a way as to precude the nsurer from non-
compance wth hs obgaton. Beng a contract of adheson, the terms of an nsurance contract are to be
construed strcty aganst the party whch prepared the contract - the nsurer. By reason of the excusve
contro of the nsurance company over the terms and phraseoogy of the nsurance contract, ambguty must
be strcty nterpreted aganst the nsurer and beray n favor of the nsured, especay to avod forfeture.
Ths s equay appcabe to Heath Care Agreements. The phraseoogy used n medca or hospta servce
contracts, such as the one at bar, must be beray construed n favor of the subscrber, and f doubtfu or
reasonaby susceptbe of two nterpretatons the constructon conferrng coverage s to be adopted, and
excusonary causes of doubtfu mport shoud be strcty construed aganst the provder.
CHAPTER 1
CONTRACT OF lNSURANCE
TlTLE l - WHAT MAY BE lNSURED
Section 3. Any contngent or unknown event, whether past or future, whch may damnfy a
person havng an nsurabe nterest, or create a abty aganst hm, may be nsured aganst, subect
to the provsons of ths chapter.
The consent of the husband s not necessary for the vadty of an nsurance pocy taken out by
the marred woman on her fe or that of her chdren.
Any mnor of the age of eghteen years or more, may notwthstandng such mnorty, contract for
fe, heath and accdent nsurance, wth any nsurance company duy authorzed to do busness n
the Phppnes, provded the nsurance s taken on hs own fe and the benefcary apponted s the
mnors estate or the mnors father, mother, husband, wfe, chd, brother or sster.
The marred woman or the mnor heren aowed to take out an nsurance pocy may exercse a
the rghts and prveges of an owner under a pocy.
A rghts, tte and nterest n the pocy of nsurance taken out by an orgna owner on the
fe or heath of a mnor sha automatcay vest n the mnor upon the death of the orgna owner,
uness otherwse provded n the pocy.
What perils or risk may be insured7
The foowng rsks may be nsured:
1. Any contngent or unknown event whether past or future whch may cause damage to a person
havng an nsurabe nterest; or
2. Any contngent or unknown event, whether past or future, whch may create abty aganst the
person nsured.
May a married woman take out an insurance7 lf so, on what7
Yes. A marred woman may take out an nsurance on her fe or that of her chdren even wthout the
consent of her husband. She may kewse take out an nsurance on the fe of her husband, her parapherna
property, or on property gven to her by her husband.
May a minor take out an insurance7
Thrd par of Sec. 3 s no onger appcabe, snce the age of maorty s now 18 years od (RA 8809, Dec.
13, 1989).
Atty Ouimson asked us to look at a few provisions of law with respect to this section. What are
they7
Art. 1174 (NCC). Except n cases expressy specfed by the aw, or when t s otherwse decared by
stpuaton, or when the nature of the obgaton requres the assumpton of rsk, no person sha be
responsbe for those events whch, coud not be foreseen, or whch, though foreseen, were nevtabe.
Art. 110 (FC). The spouses retan the ownershp, possesson, admnstraton and enoyment of ther
excusve propertes.
Ether spouse may durng the marrage, transfer the admnstraton of hs or her excusve property to the
other by means of a pubc nstrument, whch sha be recorded n the regstry of property of the pace where
the property s ocated.
Art. 1327 (NCC). The foowng cannot gve consent to a contract:
(1) Unemancpated mnors;
(2) Insane or demented persons, and deaf-mutes who do not know how to wrte.
Art. 1390 (NCC). The foowng contracts are vodabe or annuabe, even though there may have been
no damage to the contractng partes:
(1) Those where one of the partes s ncapabe of gvng consent to a contract;
(2) Those where the consent s vtated by mstake, voence, ntmdaton, undue nfuence or fraud.
These contracts are bndng, uness they are annued by a proper acton n court. They are susceptbe
of ratfcaton.
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
J4, A insured the 5 vessels against perils of the 5outh China 5ea Lost or Not Lost" with 8 lnsurance Co.
Without the knowledge of both parties, the ships had already sunk on Aug. J4. ls 8 lnsurance Co. liable for
the ships?
Yes. Ths s an exampe of a past unknown event because the snkng of the shp s a past event at the
tme that the pocy took effect. The contract s vad and B Insurance Co. s abe because he agreed to pay
even though the shp be aready ost. An nsurance aganst an unknown past event s pecuar ony to
marine nsurance. However, Atty. Oumson sad n cass that nowadays, most f not a nsurance companes
no onger nsure a past event snce technoogy has progressed n such a manner that a shps current status
can easy be known whe the appcaton s beng processed.
Case.
(10) Philamcare v. CA (repeat - Case #09)
379 SCRA 356
Facts:
examination.
grounds mentoned;
Section 4. The precedng secton does not authorze an nsurance for or aganst the drawng of
any ottery, or for aganst any chance or tcket n a ottery drawng a prze.
ls a contract of insurance a wagering or gambling contract7
NO. A contract of nsurance s a contract of ndemnty and not a wagerng or gambng contract.
Athough t s true that an nsurance contract s aso based on a contngency, t s not a contract of chance.
What is the concept of a lottery7
The term "ottery" extends to a schemes for the dstrbuton of przes by chance, such as pocy payng,
gft exhbton, prze concerts, raffes at fars, etc. and varous forms of gambng.
What are the three essential elements of lottery7
Consderaton, przes and chance.
There s consderaton of prce ad f t appears that the przes offered by whatever name they may be
caed came out of the fund rased by the sae of chances among the partcpants n order to wn the przes.
Are all prizes equivalent to a lottery7
If the przes do not come out of the fund or contrbutons by the partcpants, no consderaton has been
pad and consequent, there s no ottery. Ex: A company, to promote the sae of certan products, resorts to a
scheme whch envsons the gvng away for free of certan przes for the purchase of sad products, for the
partcpants are not requred to pay more than the usua prce o the products.
Can a sweepstakes holder insure himself against the failure of his ticket to win7
NO. It cannot be sad that he suffered a "oss" of prze when he dd not wn. The faure to wn a prze
woud not damnfy or create a abty aganst hm.
What are the distinctions between an insurance contract and a wagering contract7
A contract of nsurance s a contract of ndemnty and not a wagerng, or gambng contract.(Sec. 25)
Whte t s based on a contngency, t s not a contract of chance and s not used for proft. The dstnctons
are the foowng:
lnsurance Contract Gambling contract
Partes seek to dstrbute oss by reason of
mschance
Partes contempate gan through mere chance
or the occurrence of a contngent event.
Insured avods msfortune. Gamber courts fortune
Tends to equaze fortune. Tends to ncrease the nequaty of fortune.
What one nsured gans s not at the expense of
another nsured. The entre group of nsureds
provdes through the premums pad, the funds
whch make possbe the payment of a cams;
Essence s whatever one person wns from a
wager s ost by the other wagerng party.
Purchase of nsurance does not create a new and
non-exstng rsk of oss to the purchaser. In
purchasng nsurance, the nsurer faces an
aready exstng rsk of economc oss.
As soon as a party makes a wager, he creates a
rsk of oss to hmsef where no such rsk exsted
prevousy.
What are the similarities between an insurance contract and a gambling contract7
They are smar n ony one respect. In both, one party promses to pay a gven sum to the other upon
the occurrence of a gven future event, the promse beng condton upon the payment of, or agreement to
pay, a stpuated amount by the other party to the contract.
In ether case, one party may receve more, much more, than he pad or agreed to pay.
Problems.
A, 8, C and D decided to join a bungee jumping competition. They contributed PJ,000 each to a fund
available for the use of any member who is injured in the contest. ls this insurance or gambling?
Ths s an nsurance contract. Each member contrbutes to a common fund, out of whch one s
rembursed for the osses that he may suffer.
5uppose A, 8, C, and D agree that the whole amount of 4T would be given to the one who swings nearest to
the ground. ls this insurance or gambling?
Ths s now a gambng contract. The partes are now contempatng a gan based upon uncertan events.
Section 5. A knds of nsurance are subect to the provsons of ths chapter so far as the
provsons can appy.
What is the applicability of the provisions of Chapter 17
Provsons of Chap 1 on "The Contract of Insurance" (Secs 1-98) are aso appcabe to marne Insurance
(Secs. 99-166), Fre nsurance (Secs. 167-173), Casuaty Insurance (Sec. 174), Suretyshp (Secs. 175-178),
Lfe Insurance (Secs. 179-183), and to any other knd of nsurance (Sec. 2) so far as sad provsons can
appy. Matters not expressy provded for n the Insurance Code and speca aws are reguated by the CC.
So, an nsurance contract under RA 1611 (Soca Securty Act of 1954) sha be governed prmary by the
sad aw and subsdary by Chap. 1 of the Insurance Code, and n the absence of the appcabe provsons n
both aws, the pertnent provsons of the CC sha be apped.
TlTLE ll - PARTlES TO THE CONTRACT
Section 6. Every person, partnershp, assocaton or corporaton duy authorzed to transact
nsurance busness as esewhere provded n ths Code, may be an nsurer.
Who are the parties to the contract of insurance7
The lnsurer s the party who assumes or accepts the rsk of oss and undertakes for a consderaton to
ndemnfy the nsured or to pay hm a certan sum on the happenng of a specfed contngency or event. The
busness of nsurance may be carred on by ndvduas ust as much as by corporatons and assocatons.
The state tsef may go nto nsurance busness.
The insured, or the second party to the contract, s the person n whose favor, the contract s operatve
and who s ndemnfed aganst, or s to receve a certan sum upon the happenng of a specfed contngency
or event. He s the person whose oss s the occason for the payment of the nsurance proceeds by the
nsurer.
ls the insured always the person to whom the proceeds are paid7
No. The person pad may be the beneficiary desgnated n the pocy. A common exampe of ths
stuaton s a fe nsurance pocy where the proceeds are not gven to the nsured but to a thrd party
desgnated by the nsured.
What is the nature of the relationship between the insurer and the insured7
It s that of a contngent debtor and credtor, subect to the condtons of the pocy and NOT that of
trustee and cestu que trust.
How are the terms assurer, insured and assured used in insurance7
Accdg to Backs Law, Insurer s synonymous wth the term "assurer" or "underwrter".
The terms "nsured" and "assured" are generay used nterchangeaby; but strcty speakng, the term
"insured" refers to the owner of the property nsured or the person whose fe s the subect of the contract
of nsurance, whe "assured" refers to the person for whose beneft the nsurance s granted.
For ex: A wfe nsures the fe of her husband for her own beneft. The wfe s the assured, and the
husband the nsured. The wfe s the owner of the pocy but she s not the nsured.
In property nsurance, ke fre nsurance, the nsure s aso the assured where the proceeds are payabe
to hm.
Assured s aso used sometmes as a synonym of "benefcary." The beneficiary s the person
desgnated by the terms of the pocy as the one to receve the proceeds of the nsurance. He s the thrd
party n a contract of fe nsurance, whose beneft the pocy s ssued and to whom the oss s payabe.
Who may be an insurer7
A foregn or domestc nsurance company may transact busness n the Phppnes but must frst obtan a
certfcate of authorty for that purpose from the Insurance Commssoner who has the dscreton to refuse to
ssue such certfcate f t w best promote the nterests of the peope of ths country. (Sec. 187)
An ndvdua may aso be an nsurer, provded he hods a certfcate of authorty from the Insurance
Commssoner, and provded further that he s possessed of the capta assets requred of an nsurance
corporaton dong the same knd of busness n the Phppnes and nvested n the same manner. (Secs. 184-
186)
What is an insurance corporation7
IC defnes t as one formed or organzed to save any person or persons or other corporatons harmess
from oss, damage, or abty arsng from any unknown or future or contngent event, or to ndemnfy or to
compensate any person or persons or other corporatons for any such oss, damage, or abty, or to
guarantee the performance of or compance wth contractua obgatons or the payment of debts of others.
(Sec. 185) The ast part of the statement refers to suretyshp. (Sec. 175)
What does the term "insurer" and "insurance company" include7
It ncudes ndvduas, partnershps, assocatons or corporatons, ncudng GOCCs or enttes, engaged
as prncpas n the nsurance busness, except mutua beneft assocatons. It sha aso ncude professona
rensurers as defned n Sec. 280 (Sec. 184)
ls the Business of lnsurance affected with public interest7
Yes. It s therefore, subect to reguaton and contro by the state by vrtue of the exercse of ts poce
power or n the nterest of pubc convenence and the genera good of the peope.
Atty. Ouimson asked us to look at Sec. 184-185 for the meaning of "insurer", "insurance
company", and "lnsurance corporation"; and Sec. 187 for the certificate of authority required to
transact insurance business. What do these sections provide7
Sec. 184. For the purposes of ths Code, the term "insurer" or "insurance company" sha ncude a
ndvduas, partnershps, assocatons, or corporatons ncudng government-owned or controed
corporatons or enttes, engaged as prncpas n the nsurance busness, excepting mutua beneft
assocatons. Uness the context otherwse requres, the term sha aso ncude professona rensurers
defned n Sec. 280. "Domestic Company" sha ncude companes formed, organzed or exstng under the
aws of the Phppnes. "Foreign Company," when used wthout mtaton, sha ncude companes formed,
organzed, or exstng under any ws other than those of the Phppnes.
Sec. 185. Corporatons formed or organzed to save any person or persons or other corporatons
harmess from oss, damage, or abty arsng from any unknown or future or contngent event, or to
ndemnfy or to compensate any person or persons or other corporatons for any such oss, damage, or
abty, or to guarantee the performance of or compance wth contractua obgatons or the payment of
debts of others sha be known as "insurance corporations."
The provsons of the Corporaton Law sha appy to a nsurance corporatons now or hereafter engaged
n busness n the Phppnes n so far as they do not confct wth the provsons of ths chapter.
Sec. 187. No nsurance company sha transact any nsurance busness n the Phppnes unt after t
sha have obtaned a certfcate of authorty for that purpose from the Commssoner upon appcaton
therefore and payment by the company concerned of the fees herenafter prescrbed.
The Commssoner may refuse to ssue a certfcate of authorty to any nsurance company f, n hs
udgment, such refusa w best promote the nterests of the peope of ths country. No such certfcate of
authorty sha be granted to any such company unt the Commssoner sha have satsfed hmsef by such
examnaton as he may make and such evdence as he may requre that such company s quafed by the
aws of the Phppnes to transact busness theren, that the grant of such authorty appears to be ustfed n
the ght of oca economc requrements, and that the drecton and admnstraton, as we as the ntegrty
and responsbty of the organzers and admnstrators, the fnanca organzaton and the amount of capta,
notwthstandng the provsons of secton 188, reasonaby assure the safety of the nterests of the
pocyhoders and the pubc.
In order to mantan the quaty of the management of nsurance companes and afford better protecton
of pocyhoders and the pubc n genera, any person of good mora character, unquestoned ntegrty and
recognzed competence may be eected or apponted drector or offcer of nsurance companes. The
Commssoner sha prescrbe the quafcatons of the executve offcers and other key offcas of nsurance
companes for the purposes of ths secton.
No person sha concurrenty be a drector and/or offcer of an nsurance company and an adustment
company.
Incumbent drectors and/or offcers affected by the above provsons are hereby aowed to hod on to
ther postons unt the end of ther terms or two years from the effectvty of the Decree, whchever s
shorter.
Before ssung such certfcate of authorty, the Commssoner must be satsfed that the name of the
company s not that of any other known company transactng a smar busness n the Phppnes, or a name
so smar as to be cacuated to msead the pubc.
Such certfcate of authorty sha expre on the ast day of Iune of each year and sha be renewed
annuay f the company s contnung to compy wth the provsons of ths Code or the crcuars, nstructons,
rungs or decsons of the Commssoner. Every company recevng any such certfcate of authorty sha be
subect to the provsons of ths Code and other reated aws and to the ursdcton and supervson of the
Commssoner.
No nsurance company may be authorzed to transact n the Phppnes the busness of fe and non-fe
nsurance concurrenty, uness specfcay authorzed to do so, provded however, that the terms "fe" and
"non-fe" nsurance sha e deemed to ncude heath, accdent and dsabty nsurance.
No nsurer company sha have any equty n an adustment company and nether sha an adustment
company have an equty n an nsurance company.
Insurance companes and adustment companes presenty affected by the above provsons sha have
two years from the effectvty of the Decree wthn whch to dvest of ther stockhodngs.
Section 7. Anyone except a pubc enemy may be nsured.
What are the requisites in order that a person may be insured in a contact of insurance7
There are 3 requstes namey:
c) He must be competent to enter nto a contract.
d) He must possess an nsurabe nterest n the subect of nsurance.
e) He must NOT be a pubc enemy.
What is a public enemy7
It s a naton wth whom the Phppnes s at war, and t ncudes every ctzen or subect of such naton.
What is the effect of war on the existing insurance contracts between the Philippines and a
citizen or subiect of a public enemy, with respect to property insurance7
Wth respect to property nsurance, the rue adopted n the Ph s that an nsurance pocy ceases to be
vad and enforceabe as soon as the nsured becomes a pubc enemy.
What is the effect of war on the existing insurance contracts between the Philippines and a
citizen or subiect of a public enemy, with respect to life insurance7
Three doctrnes have arsen.
(1) Connecticut Rule - there are two eements n the consderaton for whch the annua premum
s pad:
a. The mere protecton for the year; and
b. The prvege of renewng the contract for each succeedng year by payng the
premum for that year at the tme agreed upon.
Accdg. to ths vew, the payments of the premums are a condton precedent, the non-performance
of whch (as when the performance woud be ega) necessary defeats the rght to renew the contract.
(2) New York Rule - apparenty foowed by the number of decsons. War between the states n
whch the partes resde merey suspends the contracts of fe nsurance and that upon the tender of
premums due by the nsured or hs representatves after the war has termnated revves the contract
whch becomes fuy operatve.
(3) US Rule - decared the contract not merey suspended but s abrogated by reason of non-
payment of premums, snce the tme of the payment s pecuary of the essence of the contract.
However, the nsured s entted to the cash or reserve vaue of the pocy (f any) whch s the excess of
the premums pad over the actua rsk carred durng the years when the pocy had been n force.
We foow the US Rule.
Problem.
8 is sideswiped by a balut vendor. 8ecause he was previously indicted for many other crimes including
illegal possession of balisongs, he was declared Metro Manilas Public Enemy No.J. lf A wants to secure
insurance on the life of 8, may the insurer refuse on the grounds that 8 is a public enemy and therefore may
not be insured under 5ec. 7 of the lC?
NO. Sec. 7 speaks of a pubc enemy ony n reference to a naton wth whom the Ph s at war and every
ctzen and or subect thereof.
Cases.
(11) Filipinas Cia de Seguros v. Christern Huenfeld & Co.
80 PHlL 54
Facts:
Oct. 1, 1941, Domestc Corp Chrstern, after payment of the premum, obtaned from Fpnas, fre pocy
no. 29333 for P100T coverng merchandse contaned n a budng ocated n Bnondo.
On Feb. 27, 1942, durng the Iap occupaton, the budng and the nsured merchandse were burned.
Chrstern submtted to Fpnas ts cam.
Savaged goods were sod and the tota oss of Chrstern was P92T.
Fpnas dened abty on the ground that Chrstern was an enemy corp and cannot be nsured.
lssue: WON Fpnas s abe to Chrstern, Huenfed & Co.
Held: NO.
Maorty of the stockhoders of Chrstern were German subects. Ths beng so, SC rued that sad
corporaton became an enemy corporaton upon the war between the US and Germany. The Ph Insurance
Law n Sec. 8 provdes that anyone except a pubc enemy may be nsured. It stands to reason that an
nsurance pocy ceases to be aowabe as soon as an nsured becomes a pubc enemy.
The purpose of the war s to crppe the power ad exhaust the resources of the enemy, and t s
nconsstent that one country shoud destroy ts enemy property and repay n nsurance the vaue of what
has been so destroyed, or that t shoud n such manner ncrease the resources of the enemy or render t ad.
A ndvduas who compose the begerent powers, exst as to each other, n a state of utter excuson
and are pubc enemes. Chrstern havng become an enemy corporaton on Dec. 10. 1941, the nsurance
pocy ssued n hs favor on Oct. 1, 1941 by Fpnas had ceased to be vad and enforceabe, and snce the
nsured goods were burned after Dec. 10, 1941, and durng the war, Chrstern was NOT entted to any
ndemnty under sad pocy from Fpnas.
Eementary rues of ustce requre that the premum pad by Chrstern for the perod covered by the
pocy from Dec. 10, 1941 shoud be returned by Fpnas.
Section 8. Uness the pocy otherwse provdes, where a mortgagor of the property effects
nsurance n hs own name provdng that a oss sha be payabe to the mortgagee, or assgns a
pocy of nsurance to a mortgagee, the nsurance s deemed to be upon the nterest of the
mortgagor, who does not cease to be a party to the orgna contract, and any act of hs, pror to the
oss, whch woud otherwse avod the nsurance, w have the same effect, athough the property s
n the hands of the mortgagee, but any act whch, under the contract of nsurance, s to be
performed by the mortgagor, may be performed by the mortgagee theren named, wth the same
effect as f t had been performed by the mortgagor.
ls it alright if both the mortgagor and the mortgage insure the same property7
YES. The mortgagor and the mortgagee have each an nsurabe nterest n the property mortgaged, and
ths nterest s separate and dstnct from the other. Consequenty, nsurance taken by one n hs own name
ony and n hs favor aone does not nure to the beneft of the other. And n case both of them take out
separate nsurance poces on the same property, or one pocy coverng ther respectve nterests, the same
s not open to the obecton that there s doube nsurance.
What is the extent of the insurable interest of the mortgagor7
The mortgagor of the property, as owner has an nsurabe nterest to the extent of the vaue of the
property, even f the mortgage debt s equa to such vaue. The reason s that the oss or destructon of the
property nsured w NOT extngush the mortgage debt.
What is the extent of the insurable interest of the mortgagee7
The mortgagee or hs assgnee has an nsurabe nterest n the mortgaged property to the extent of the
debt secured, such nterest contnues unt the mortgage debt s extngushed.
Up to what extent can each recover7
The mortgagor cannot recover upon the nsurance beyond the fu amount of the oss, and the mortgagee
cannot recover n excess of the credt at the tme of the oss.
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 mortgagee7
The ega effects of ths are:
(1) The contract s deemed to be upon the nterest of the mortgagor, hence he does NOT cease to be
a party to the contract;
(2) Any acton of the mortgage pror to the oss whch woud otherwse avod the nsurance affects
the mortgagee even f the property s n the hands of the mortgagee;
(3) Any act whch under the contract of nsurance s to be performed by the mortgagor, may be
performed by the mortgagee;
(4) In case of oss, the mortgagee s entted to the proceeds to the extent of hs credt; and
(5) Upon recovery by the mortgagee to the extent of hs credt, the debt s extngushed.
What is the effect if the mortgagee effects insurance on behalf of the mortgagor7
Practcay the same rues appy. Upon the destructon of the property, then the mortgagee s entted to
receve the proceeds equa to the amount of the mortgage credt. Such payment operates to dscharge the
debt.
Atty. Ouimson wants us to look at Art. 2127 CC. What does it say7
Art. 2127. The mortgage extends to the natura accesson, to the mprovements, growng fruts, and the
rents or ncome not yet receved when the obgaton becomes due, and to the amount of the ndemnty
granted or owng to the propretor from the nsurers of the property mortgaged, or n vrtue of expropraton
for pubc use, wth the decaratons, ampfcatons and mtatons estabshed by aw, whether the estate
remans n the possesson of the mortgagor, or t passes nto the hands of a thrd person.
Problems.
A is the owner of a house worth J0T which he mortgaged to 8 to secure a loan of 5T. What is the insurable
interests of each?
Insurabe nterest of A, mortgagor s P10T, whe the nsurabe nterest of B, mortgagee s P5T.
A insured for JM her house with the policy providing that the loss shall be payable to 8. The house was
mortgaged to 8 as security for a loan of P750T. lt was totally destroyed by accidental fire. Who may recover
on the policy?
B, the mortgagee may receve the 1M but s entted ony to the extent of hs credt of P750T, and he
sha hod as trustee for A, mortgagor, the excess of P250T.
5upposing before the fire occurred 8 had already been paid, who, if at all, will receive the proceeds?
A w receve the proceeds. The reason s that A effected the nsurance n hs own name and he dd NOT
cease to be a party to the contract athough t was provded that the ndemnty be pad to B.
5uppose it was 8, mortgagee who insured the house for JM. lf the loss occurred before 8 was paid who is
entitled to receive the proceeds?
B. But B can ony recover P750T, the amount of her credt.
What if the loss occurred after 8 was paid, can he still receive the proceeds?
No. Upon payment of the debt, B ost hs nsurabe nterest n the property.
Will A get the proceeds?
No. Because A was never a party to the contract. It s mportant to note that t was B, mortgagee who
effected the nsurance.
Cases:
(12) San Miguel Brewery v. Law Union Rock lnsurance Company
40 PHlL 674
Facts:
On Ian. 12, 1918, Dunn mortgaged a parce of and to SMB to secure a debt of 10T.
Mortgage contract stated that Dunn was to have the property nsured at hs own expense, authorzng
SMB to choose the nsurers and to receve the proceeds thereof and retan so much of the proceeds as
woud cover the mortgage debt.
Dunn kewse authorzed SMB to take out the nsurance pocy for hm.
Bras, SMBs genera manager, approached Law Unon for nsurance to the extent of 15T upon the
property. In the appcaton, Bras stated that SMBs nterest n the property was merey that of a
mortgagee.
Law Unon, not wantng to ssue a pocy for the entre amount, ssued one for P7,500 and procured
another pocy of equa amount from Fpnas Ca de Seguros. Both poces were ssued n the name of
SMB ony and contaned no reference to any other nterests n the propty. Both poces requred
assgnments to be approved and noted on the pocy.
Premums were pad by SMB and charged to Dunn. A year ater, the poces were renewed.
In 1917, Dunn sod the property to Hardng, but no assgnment of the poces was made to the atter.
Property was destroyed by fre. SMB fed an acton n court to recover on the poces. Hardng was
made a defendant because by vrtue of the sae, he became the owner of the property, athough the
poces were ssued n SMBs name.
SMB sought to recover the proceeds to the extent of ts mortgage credt wth the baance to go to
Hardng.
Insurance Companes contended that they were not abe to Hardng because ther abty under the
poces was mted to the nsurabe nterests of SMB ony.
SMB eventuay reached a settement wth the nsurance companes and was pad the baance of ts
mortgage credt. Hardng was eft to fend for hmsef. Tra court rued aganst Hardng. Hence the
appea.
lssue: WON the nsurance companes are abe to Hardng for the baance of the proceeds of the 2 poces.
Held: NOPE.
Under the Insurance Act, the measure of nsurabe nterest n the property s the extent to whch the
nsured mght be damnfed by the oss or nury thereof. Aso t s provded n the IA that the nsurance sha
be apped excusvey to the proper nterest of the person n whose name t s made. Undoubtedy, SMB as
the mortgagee of the property, had an nsurabe nterest theren; but t coud NOT, an any event, recover
upon the two poces an amount n excess of ts mortgage credt.
By vrtue of the Insurance Act, nether Dunn nor Hardng coud have recovered from the two poces.
Wth respect to Hardng, when he acqured the property, no change or assgnment of the poces had been
undertaken. The poces mght have been worded dfferenty so as to protect the owner, but ths was not
done.
If the wordng had been: "Payable to 5M8, mortgagee, as its interests may appear, remainder to
whomsoever, during the continuance of the risk, may become owner of the interest insured", t woud have
proved an ntenton to nsure the entre nterest n the property, NOT merey SMBs and woud have shown to
whom the money, n case of oss, shoud be pad. Unfortunatey, ths was not what was stated n the poces.
If durng the negotaton for the poces, the partes had agreed that even the owners nterest woud be
covered by the poces, and the poces had nadvertenty been wrtten n the form n whch they were
eventuay ssued, the ower court woud have been abe to order that the contract be reformed to gve effect
to them n the sense that the partes ntended to be bound. However, there s no cear and satsfactory proof
that the poces faed to refect the rea agreement between the partes that woud ustfy the reformaton of
these two contracts.
(13) Saura lmport Export Co. v. Philippine lnternational Surety
118 PHlL 150
Facts:
On Dec. 26, 1952, Saura mortgaged to PNB ts regstered parce of and n Davao to secure the payment
of a promssory note of P27T.
A budng of strong materas whch was aso owned by Saura, was erected on the parce of and and the
budng had aways been covered by nsurance even before the executon of the mortgage contract.
Pursuant to the mortgage agreement whch requred Saura to nsure the budng and ts contents, t
obtaned a fre nsurance for P29T from PISC for a perod of 1 year startng Oct. 2, 1954.
The mortgage aso requred Saura to endorse the nsurance pocy to PNB. The memo stated: Loss if any,
payable to PNC as their interest may appear, subject to the terms, conditions and warranties of this
policy.
The pocy was devered to PNB by Saura.
On Oct. 15, 1954, barey 13 days after the ssuance of the fre nsurance, PISC canceed the same,
effectve as of the date of ssue. Notce of the canceaton was sent to PNB n wrtng and was receved
by the bank on Nov. 8, 1954.
On Apr. 6, 1955, the budng and ts contents worth P4,685 were burned. On Apr 11, 1985, Saura fed
a cam wth PISC and mortgagee bank.
Upon presentaton of notce of oss wth PNB, Saura earned for the frst tme that the pocy had been
prevousy canceed by PISC, when Sauras foder n the banks fe was opened and the notce of the
canceaton by PISC was found.
lssue: WON there was proper canceaton of the pocy?
Held. NO.
The pocy n queston does NOT provde for the notce of canceaton, ts form or perod. The Insurance
Law does not kewse provde for such notce. Ths beng the case, t devoves upon the Court to appy the
generay accepted prncpes of nsurance, regardng canceaton of the nsurance pocy by the nsurer.
Actua notce of canceaton n a cear and unequvoca manner, preferaby n wrtng shoud be gven by
the nsurer to the insured so that the atter mght be gven an opportunty to obtan other nsurance for hs
own protecton. The notce shoud be persona to the nsurer and not to and/or through any unauthorzed
person by the pocy. Both the PSIC and the PNB faed, wttngy or unwttngy to notfy Saura of the
canceaton made.
The nsurer contends that t gave notce to PNB as mortgagee of the property and that was aready
substanta compance wth ts duty to notfy the nsured of the canceaton of the pocy. But notce to the
bank, as far as Saura heren s concerned, s not effectve notce. PISC s then ordered to pay Saura P29T, the
amount nvoved n the pocy subect matter of ths case.
(14) Palilieo v. Cosio
97 PHlL 919
Facts:
On Dec. 18, 1951, Paeo obtaned from Coso a oan of P12T.
To secure payment, Coso requred Paeo to sgn a document known as "condtona sae of resdenta
budng", purportng to convey to Coso, wth a rght to repurchase (on the part of Paeo), a two-story
budng of strong materas beongng to Paeo.
After executon of the document, Coso nsured the budng aganst fre wth Assocated Insurance &
Surety Co. (Assocated) for 15T.
The nsurance pocy was ssued n the name of Coso.
The budng was party destroyed by fre and after proper demand, Coso was abe to coect from the
nsurance company an ndemnty of P13,107.
Paeo demanded from Coso that she be credted wth the necessary amount to pay her obgaton out of
the nsurance proceeds, but Coso refused to do so.
Tra Court found that the debt had an unpad baance of P12T. It decared the obgaton of Paeo to
Coso fuy compensated by vrtue of the proceeds coected by Coso and further hed that the excess of
P1,107 (13,107 - 12,000) be refunded to Paeo
lssue: WON the tra court was ustfed n consderng the obgaton of Paeo fuy compensated by the
nsurance amount that Coso was abe to coect from Assocated, and WON the tra court was correct n
requrng Coso to refund the excess of P1,107 to Paeo.
Held. NO and NO.
The rue s that "where a mortgagee, ndependenty of the mortgagor, nsures the mortgaged property n
hs own name and for hs own nterest, he s entted to the nsurance proceeds n case of oss, but n such
case, he s not aowed to retan hs cam aganst the mortgagor, but s passed by subrogaton to the nsurer
to the extent of the money pad."
The ower court erred n decarng that the proceeds of the nsurance taken out by Coso on the property
nsured to the beneft of Paeo and n orderng the former to dever to the atter, the dfference between the
ndebtedness and the amount of nsurance receved by Coso. In the ght of ths rung, the correct souton
woud be that the proceeds of the Insurance be devered to Coso, but her cam aganst Paeo shoud be
consdered assgned to the nsurance company who s deemed subrogated to the rghts of Coso to the
extent of the money pad as ndemnty.
(15) Grepalife v. CA
316 SCRA 677
Facts:
A contract of group fe nsurance was executed between Grepafe and DBP. Grepafe agreed to nsure
the ves of egbe housng oan mortgagors of DBP.
Dr. Wfredo Leutero, a physcan and a housng debtor of DBP apped for membershp n the group fe
nsurance pan.
In an appcaton form, Dr. Leutero answered questons concernng hs heath statng that he s n good
heath and has never consuted a physcan for or a heart condton, hgh bood pressure, cancer,
dabetes, ung, kdney or stomach dsorder or any other physca mparment.
Grepafe ssued the nsurance coverage of Dr. Leutero, to the extent of hs DBP mortgage ndebtedness
amountng to eghty-sx thousand, two hundred (P86,200.00) pesos.
Dr. Leutero ded due to "massve cerebra hemorrhage." Consequenty, DBP submtted a death cam to
Grepafe.
Grepafe dened the cam aegng that Dr. Leutero was not physcay heathy when he apped for an
nsurance coverage and nssted that Dr. Leutero dd not dscose that he had been sufferng from
hypertenson, whch caused hs death. Aegedy, such non-dscosure consttuted conceament that
ustfed the dena of the cam.
The wdow of the ate Dr. Leutero, fed a compant aganst Grepafe for "Specfc Performance wth
Damages." Durng the tra, Dr. Hernando Mea, who ssued the death certfcate, was caed to testfy.
Dr. Meas fndngs, based party from the nformaton gven by the wdow, stated that Dr. Leutero
companed of headaches presumaby due to hgh bood pressure. The nference was not concusve
because Dr. Leutero was not autopsed, hence, other causes were not rued out.
RTC rued n favor of wdow and aganst Grepafe. Grepafe appeaed contendng that the wfe was not
the proper party n nterest to fe the sut, snce t s DBP who nsured the fe of Dr. Leutero.
lssue: WON the wdow s the rea party n nterest, (not DBP) and has ega standng to fe the sut.
Held: YES.
Grepafe aeges that the compant was nsttuted by the wdow of Dr. Leutero, not the rea party n
nterest, hence the tra court acqured no ursdcton over the case. It argues that when the Court of Appeas
affrmed the tra courts udgment, Grepafe was hed abe to pay the proceeds of nsurance contract n
favor of DBP, the ndspensabe party who was not oned n the sut.
To resove the ssue, we must consder the nsurabe nterest n mortgaged propertes and the partes to
ths type of contract. The ratonae of a group nsurance pocy of mortgagors, otherwse known as the
"mortgage redempton nsurance," s a devce for the protecton of both the mortgagee and the mortgagor.
On the part of the mortgagee, t has to enter nto such form of contract so that n the event of the
unexpected demse of the mortgagor durng the subsstence of the mortgage contract, the proceeds from
such nsurance w be apped to the payment of the mortgage debt, thereby reevng the hers of the
mortgagor from payng the obgaton.
In a smar ven, ampe protecton s gven to the mortgagor under such a concept so that n the event of
death; the mortgage obgaton w be extngushed by the appcaton of the nsurance proceeds to the
mortgage ndebtedness. Consequenty, where the mortgagor pays the nsurance premum under the group
nsurance pocy, makng the oss payabe to the mortgagee, the nsurance s on the mortgagors nterest,
and the mortgagor contnues to be a party to the contract. In ths type of pocy nsurance, the mortgagee s
smpy an appontee of the nsurance fund, such oss-payabe cause does not make the mortgagee a party to
the contract.
The nsured prvate respondent dd not cede to the mortgagee a hs rghts or nterests n the nsurance,
the pocy statng that: "ln the event of the debtors death before his indebtedness with the Creditor ID8PI
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 submtted the nsurance cam aganst pettoner, the atter dened payment thereof,
nterposng the defense of conceament commtted by the nsured. Thereafter, DBP coected the debt from
the mortgagor and took the necessary acton of forecosure on the resdenta ot of prvate respondent
And snce a pocy of nsurance upon fe or heath may pass by transfer, w or successon to any person,
whether he has an nsurabe nterest or not, and such person may recover t whatever the nsured mght
have recovered, 14 the wdow of the decedent Dr. Leutero may fe the sut aganst the nsurer, Grepafe.
As to the queston of whether there was conceament, CA hed as affrmed by the SC that contrary to
Grepafes aegatons, there was no suffcent proof that the nsured had suffered from hypertenson. Asde
from the statement of the nsureds wdow who was not even sure f the medcnes taken by Dr. Leutero
were for hypertenson, the appeant had not proven nor produced any wtness who coud attest to Dr.
Leuteros medca hstory.
The frauduent ntent on the part of the nsured must be estabshed to entte the nsurer to rescnd the
contract. Msrepresentaton as a defense of the nsurer to avod abty s an affrmatve defense and the
duty to estabsh such defense by satsfactory and convncng evdence rests upon the nsurer. In the case at
bar, the pettoner faed to ceary and satsfactory estabsh ts defense, and s therefore abe to pay the
proceeds of the nsurance
Section 9. If an nsurer assents to the transfer of an nsurance from a mortgagor to a
mortgagee, and, at the tme of hs assent, mposes further obgatons on the assgnee, makng a new
contract wth hm, the acts of the mortgagor cannot affect the rghts of sad assgnee.
What does this provision say7
Under ths secton, where an nsurer assents to the transfer of an nsurance from a Mortgagor (Mor) to a
Mortgage (Mee), and at the tme of hs assent the nsurer mposes further obgaton on the Mee, a new and
dstnct consderaton passed from the Mee to the nsurer, and a new contract s created between them. The
acts of the Mor cannot anymore affect the rghts of the Mee.
What is the significance of this provision7
Remember we sad n Sec. 8 that a acts of the mortgagor affects the mortgagee? We, ths provson
provdes the excepton to the rue.
TlTLE lll - lNSURABLE lNTEREST
Section 10. Every person has an nsurabe nterest n the fe and heath:
(a) Of hmsef, of hs spouse and of hs chdren;
(b) Of any person on whom he depends whoy n part for educaton or support, or n whom he
has a pecunary nterest;
(c) Of any person under a ega obgaton to hm for the payment of money, or respectng
property or servces, Of whch death or ness mght deay or prevent the performance; and
(d) Of any person upon whose fe any estate or nterest vested n hm depends.
Why is this section important7
Other than t dscusses the concept of keyman insurance, Atty. Oumsons asked ths n a past md-term
exam, askng the students to Ouote the provson.
What is insurable interest7
Insurabe nterest s one the most basc of a requrements n nsurance. In genera, a person s deemed
to have nsurabe nterest n the subect matter nsured where he ha a reaton or connecton wth or concern
n t that he w derve pecunary beneft or advantage from ts preservaton and w suffer pecunary oss or
damage from ts destructon, termnaton or nury by the happenng of the event nsured aganst.
Why must there be an insurable interest7
It s essenta for vadty and enforceabty of the contract or pocy. A pocy ssued to a person wthout
nterest n the subect matter s a mere wager pocy or contract.
When is there insurable interest in life insurance7
In fe nsurance, Insurabe nterest exsts where there s reasonabe ground founded on the reatons of
the partes whether pecunary, contractua or by bood or affnty, and to expect some beneft or advantage
from the contnuance of the fe of the nsured.
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 hs fe s VALID, because the benefcary need not have an nsurabe
nterest n the fe of the nsured. It must be the one nsurng who has an nsurabe nterest n the fe of the
person he s nsurng, and of course, t goes wthout sayng that one has an nsurabe nterest n hs own fe
and heath.
ON the other hand, the nsurance taken by A on the fe of Y s VOID because "ove and affecton for the
nsured" n the part of the person nsurng s NOT suffcent ground to quafy as nsurabe nterest.
Cases:
(16) Col. C. Castro v. lnsurance Commissioner
GR. 55836, Feb. 16, 1981
Facts:
Castro apped for nsurance on the fe of hs drver. On the bass of such appcaton, Insuar Lfe ssued
pocy No. 934943 effectve Iuy 18, 1979.
The pocy apped for and ssued was on a 20-yr endowment pan for the sum of P25T wth doube
ndemnty n case of accdenta death.
Castro pad the frst quartery premum of P309.95. About 3 months ater, on Oct. 16, 1959, the nsured
drver was aegedy shot to death by unknown persons. (hmmm. sounds fshy.)
Castro then fed a cam for the tota benefts of 50T under the pocy.
Insuar fe dened the cam on the ground that the pocy was VOID. Insuar nstead refunded to Castro
the premums he had pad.
lssue: WON Castro has an nsurabe nterest n hs drver.
Held: NO.
The requrement of nsurabe nterest to support a contract of nsurance s based upon consderaton of
pubc pocy whch renders wager poces INVALID. To sustan a contract of ths character t must appear
that there s a rea concern n the fe of the party whose death woud be the cause of substanta oss to
those who are named as a benefcary.
Mere reatonshp of unce and nephew, employer and employee s NOT suffcent to provde an
nsurabe nterest on the fe of the nsured. It must be shown that the destructon of the fe of the nsured
woud cause pecunary oss to the companant. Ths, Castro faed to prove.
(17) Lincoln National Life v. San luan
CA GR 34588-88, Nov. 27, 1971
Facts:
An empoyer nsured the fe of the empoyee wth two nsurance companes.
The nsurance totaed 200T and the ony benefcares were the empoyer and hs wfe.
A severed head was ater found, purportedy that of the nsured empoyee.
The nsurance companes refused to pay on the ground that the empoyer had no nsurabe nterest n
the fe of the empoyee.
lssue: WON the empoyer can recover the proceeds of a fe nsurance pocy of hs empoyee.
Held. NOPE.
The nsured was a tenant n a coconut and owned by the empoyer and hs earnng were barey that of a
farm aborer. It was estabshed that the nsured coud not have afforded the nsurance poces drawn on hs
fe. Many more poces were found to have been ssued wth the empoyee/tenant as nsured and the
empoyer and hs wfe as benefcares.
The poces were aso found to have been acqured n quck successon. It was found that the varous
posta money orders ssued n payment of the premums were made by the empoyer. It appears that, based
on the crcumstances and evdence, the nsurance was reay taken out by the empoyer.
(18) Gercio v. Sun Life
48 PHlL 53
Facts:
Sunfe ssued a fe nsurance pocy to Gerco, the former agreeng to nsure the fe of Gerco for 2T to
be pad to hm on Feb. 1, 1930 or f he shoud de before sad date, then to hs wfe Andrea, shoud she
survve hm; otherwse to the executor, admnstrator of Gerco.
The pocy dd not ncude any provson reservng to Gerco the rght to change the benefcary.
The wfe was convcted of adutery and a decree of dvorce was ssued.
Gerco notfed Sunfe that he had revoked hs donaton n favor of Andrea and that he had desgnated
hs present wfe Adea as hs benefcary.
Sunfe refused to change the benefcary.
lssue: WON Gerco may change the benefcary n the pocy.
Held. NO.
If the pocy contans no provson authorzng a change of benefcary wthout the benefcarys
consent, the nsured cannot make such change. It s hed that a fe nsurance pocy of a husband made
payabe to hs wfe as a benefcary s the separate property of the benefcary and beyond the contro of the
husband. (NOTE: ths case s based on the od rue under the Insurance Act)
Court aso hed that the desgnaton of a benefcary that s orgnay vad does NOT render t nvad
dut to a subsequent cessaton of the nterests between the benefcary and nsured.
(19) El Oriente v. Posadas
56 PHlL 147 (1931)
Facts:
E Orente n order to protect tsef aganst the oss that t mght suffer by reason of the death of ts
manager, A. Vehagen, who had had more than thrty-fve (35) years of experence n the manufacture of
cgars n the Phppnes, procured from the Manufacturers Lfe Insurance Co., of Toronto, Canada, thru ts
oca agent E. E. Eser, an nsurance pocy on the fe of the sad A. Vehagen for the sum of $50,000,
Unted States currency desgnatng tsef as the benefcary.
E Orente pad for the premums due thereon and charged as expenses of ts busness a the sad
premums and deducted the same from ts gross ncomes as reported n ts annua ncome tax returns,
whch deductons were aowed upon a showng that such premums were egtmate expenses of ts
busness.
Upon the death of A. Vehagen n 1929, the E Orente receved a the proceeds of the sad fe nsurance
pocy, together wth the nterests and the dvdends accrung thereon, aggregatng P104,957.88
CIR assessed E Orente for defcency taxes because E Orente dd not ncude as ncome the proceeds
receved from the nsurance.
lssue: WON the proceeds of nsurance taken by a corporaton on the fe of an mportant offca to ndemnfy
t aganst oss n case of hs death, are taxabe as ncome under the Phppne Income Tax Law
Held: NOT TAXABLE.
In Chapter I of the Tax Code, s to be found secton 4 whch provdes 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 . . ." Secton 10, as amended, n Chapter II On Corporatons, provdes 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 . . ." Secton 11 n the same chapter, provdes the exemptons under the aw, but nether here nor n
any other secton s reference made to the provsons of secton 4 n Chapter I.
Under the vew we take of the case, t s suffcent for our purposes to drect attenton to the anomaous
and vague condton of the aw. It s certan that the proceeds of fe nsurance poces pad to ndvdua
benefcares upon the death of the nsured are exempt. It s not so certan that the proceeds of fe nsurance
poces pad to corporate benefcares upon the death of the nsured are kewse exempt. But at east, t
may be sad that the aw s ndefnte n phraseoogy and does not permt us unequvocay to hod that the
proceeds of fe nsurance poces receved by corporatons consttute ncome whch s taxabe
It w be recaed that E Orente, took out the nsurance on the fe of ts manager, who had had more
than thrty-fve years' experence n the manufacture of cgars n the Phppnes, to protect tsef aganst the
oss t mght suffer by reason of the death of ts manager. We do not beeve that ths fact sgnfes that when
the pantff receved P104,957.88 from the nsurance on the fe of ts manager, t thereby reazed a net
proft n ths amount. It s true that the Income Tax Law, n exemptng ndvdua benefcares, speaks of the
proceeds of fe nsurance poces as ncome, but ths s a very sght ndcaton of egsatve ntenton. In
reaty, what the pantff receved was n the nature of an ndemnty for the oss whch t actuay suffered
because of the death of ts manager.
(20) Philamcare v. CA (repeat - Case # 09)
379 SCRA 356
Facts:
examination.
grounds mentoned;
Section 11. The nsured sha have the rght to change the benefcary he desgnated n the
pocy, uness he has expressy waved hs rght n the sad pocy.
What is a beneficiary7
A benefcary s a person whether natura or urdca for whose beneft the pocy s ssued and s the
recpent of the proceeds n the nsurance.
Who can be a beneficiary7
Any person n genera can be a benefcary.
Are there any exceptions7
Yes. The ony persons dsquafed from beng a benefcary are those not quafed to receve donatons
under Art. 739. They cannot be named benefcares of a fe nsurance pocy by the person who cannot
make any donaton to hm.
ln case of adultery, concubinage does the disqualification extend to the illegitimate children7
NO. The dsquafcaton does not extend to the chdren, and as such, they may be made benefcares.
What is the old rule regarding revocability of designation of beneficiary as enunciated in the
case of Gercio v. Sunlife7
The OLD rue s: When the nsured dd NOT expressy reserve hs rght to revoke the desgnaton of hs
benefcary, such desgnaton s rrevocabe and he cannot change hs benefcary wthout the consent of the
atter.
What is the current rule7
The rue now s: The nsured has the power to revoke the desgnaton of the benefcary even wthout the
consent of the atter, whether or not such power s reserved n the pocy. Such rght must be exercsed
specfcay n the manner set forth n the pocy or contract. It s of course, extngushed at hs death and
CANNOT be exercsed by hs persona representatves or assgnees.
Under the current rule, when does the insured lose the right to change the beneficiary7
When the rght to change the benefcary s expressy waved n the pocy, the nsured has no power to
make such change wthout the consent of the benefcary.
What if the beneficiary dies before the insured and the insured did not change the designation,
who gets the proceeds7
There s a dvergence of opnon, but the genera trend s to gve t to the estate of the beneficiary.
What are the other provisions of law that Atty. Ouimson required us to read7
Art. 2012, CC. Any person who s forbdden from recevng any donaton under Art. 739 cannot be
named a benefcary of a fe nsurance pocy by the person who cannot make any donaton to hm,
accordng to sad artce.
Art. 739. The foowng donatons sha be vod:
(1) Those made between persons who were guty of adutery or concubnage at the tme of the donaton;
(2) Those made between persons found guty of the same crmna offense, n consderaton thereof;
(3) Those made to a pubc offcer, or hs wfe, descendants and ascendants by reason of hs offce.*
*Atty. Ouimson said that the designation of the public officer MU5T be by reason of his office and NOT all
public officers are disqualified from being beneficiaries of a life insurance policy, as long as the designation
was not made in consideration of an act done by the public officer by reason of his office in favor of the
insured.
Art. 43, FC. The termnaton of subsequent marrage produces the foowng effects:
xxx.
(4) The nnocent spouse may revoke the desgnaton of the other spouse who acted n bad fath as a
benefcary n any nsurance pocy even f such desgnaton be stpuated as rrevocabe.
Art. 64, FC. After the fnaty of the decree of ega separaton, the nnocent spouse may revoke the
desgnaton of the offendng spouse as benefcary n any nsurance pocy. The revocaton of or change n
the desgnaton of the nsurance benefcary sha take effect upon wrtten notfcaton to the nsured.
Art. 50, FC. The effects provded for by paragraph (4) of Art. 43 xxx sha aso appy n the proper cases
to marrages whch are decared vod ab nto or annued by fna udgment under Art. 40 & 45.
Problems.
Pao and lane are husband and wife. lef and lojo are also husband and wife (yihee.). lef and lane engaged
in adulterous relations. lef secured a life insurance policy and named lane as beneficiary. When lef dies,
who will get the insurance proceeds?
Ioo. Iane cannot be named as a benefcary n a fe nsurance pocy because she s forbdden by aw to
receve a donaton from Ief snce they were both guty of adutery.
Pao and lane are husband and wife. lef and lojo are also husband and wife. lane engaged in adulterous
relaions with Van. lef secured a life insurance and named lane as beneficiary. When lef dies, who will get
the insurance proceeds?
Iane. The aw prohbts the stuaton wheren a person who s forbdden from recevng a donaton under
Art. 739 s named a benefcary of a fe nsurance pocy by the person who cannot make any donaton to
hm, accordng to sad artce. In other words, notwthstandng the fact that Iane s guty of adutery, Iane
can st be a benefcary of Ief snce the aw provdes that Iane cannot be a benefcary of a fe nsurance
pocy f the person who names her as benefcary s forbdden to gve her a donaton under Art. 739. Art. 739
s therefore not appcabe n the stuaton at bar.
Pao and lane are husband and wife. lef and lojo are also husband and wife. lef has a concubine named Maui
Taylor. lef thereafter secured a life insurance policy and named lane as beneficiary. When lef dies, who will
get the insurance proceeds?
Iane. The aw ony prohbts the stuaton wheren a person who s forbdden from recevng a donaton
under Art. 739 s named a benefcary of a fe nsurance pocy by the person who cannot make any donaton
to hm, accordng to sad artce. Notwthstandng that Ief s guty of concubnage, Iane can st be a
benefcary. Snce Iane s not the concubne, Art. 739 w not appy and Ief s not forbdden from gvng a
donaton to Iane.
Pao and lane are husband and wife. lef and lojo are also husband and wife. lane engages in adulterous
relations with Van. lef has a concubine named Maui Taylor. lef thereafter secures a life insurance policy and
names lane as a beneficiary. Whenlef dies, who will get the insurance proceeds?
Iane. The aw ony prohbts the stuaton wheren a person who s forbdden from recevng a donaton
under Art. 739 s named a benefcary of a fe nsurance pocy by the person who cannot make any donaton
to hm, accordng to sad artce. Notwthstandng that both partes are guty of adutery and concubnage
respectvey, they are not forbdden because Ief s not the one engaged n an aduterous reatonshp wth
Iane, and she s not the concubne of Ief. Art. 739 does not appy.
Pao and lane are husband and wife. lef and lojo are also husband and wife. lef and Pao become lovers. lef
thereafter secures a life insurance policy and names Pao as his beneficiary. When lef dies who will get the
insurance proceeds?
Pao. Snce there s no aw prohbtng Ief from donatng to Pao, because both of them are nether guty
of adutery nor concubnage, then the ony souton to ths probem s to consder the desgnaton of the
benefcary as a contract whch s vad and bndng between the nsurer and the nsured.
Disclaimer: Any resemblance to real and living persons are purely coincidental. Hahahaha.. right.
Cases.
(21) lnsular Life v. Ebrado (repeated case - case #2)
80 SCRA 181
Facts:
Buenaventura Ebrado was ssued by Insuar Lfe Assurance Co. a whoe fe pan for P5,882.00 wth a rder
for Accdenta Death Benefts for the same amount.
Ebrado desgnated Carpona Ebrado as the revocabe benefcary n hs pocy, referrng to her as hs wfe.
Ebrado ded when he was accdentay ht by a fang branch of tree.
Insurer by vrtue of the contract was abe for 11,745.73, and Carpona fed her cam, athough she
admtted that she and the nsured were merey vng as husband and wfe wthout the beneft of
marrage.
Pascuaa Ebrado aso fed her cam as the wdow of the deceased nsured.
Insuar fe fed an nterpeader case and the ower court found n favor of Pascuaa.
lssue: Between Carpona and Pascuaa, who s entted to the proceeds?
Held: Pascuala.
It s qute unfortunate that the Insurance Act or our own Insurance Code does not contan a specfc
provson grossy resoutory of the prme queston at hand. Rather, the genera rues of cv aw shoud be
apped to resove ths vod n the nsurance aw. 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 otherwse specfcay provded for n the nsurance aw, the contract of fe nsurance s
governed by the genera rues of cv aw reguatng 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, donatons between persons who were guty of adutery or concubnage at the
tme of the donaton sha be vod.
In essence, a fe nsurance pocy s no dfferent from cv donatons nsofar as the benefcary s
concerned. Both are founded on the same consderaton of beraty. A benefcary s ke a donee because
from the premums of the pocy whch the nsured pays, the benefcary w receve the proceeds or profts
of sad nsurance. As a consequence, the proscrpton n Art. 739 shoud equay operate n fe nsurance
contracts.
Therefore, snce common-aw spouses are barred from recevng donatons, they are kewse barred from
recevng proceeds of a fe nsurance contract.
(22) Souther Luzon Employee's Association v. Golpeo
96 PHlL 83
Facts:
SLEA s composed of aborers and empoyees of the LTBC and BTC (now BLTB Co.), and one of ts
purposes s mutua ad of ts members and ther dependents n case of death.
Roman Concepcon was a member unt hs death n 1950.
In 1949, SLEA adopted a resouton provdng 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 5LEA regarding claims for condolence contributions.
Roman sted as hs benefcares Aquna Maoes and ther 4 chdren. After hs death, SLEA was abe to
coect vountary contrbuton from ts members amountng to P2,205.
Three sets of camants to the amount presented themseves to the assocaton namey:
Iuanta Gopeo, ega wfe, and her chdren
Aquna Maoes, the common aw wfe, and her chdren
Ese Hcban, another common aw wfe of Roman, and her chd.
SLEA then fed an acton for nterpeader aganst the 3 confctng camants.
Tra court rendered a decson decarng Maoes and her chdren the soe benefcares of the amount
ctng De Va v. De Va.
Ony Gopeo appeaed. She argues that:
The nsurance code does not appy snce the assocaton s not an nsurance company but a
mutua beneft assocaton.
The stpuaton between SLEA and Roman was vod for beng contrary to aw, pubc moras and
pubc pocy, pursuant to Art. 739 of the CC ( donatons between persons guty of concubnage
at the tme of donaton are vod)
lssue: WON Gopeo, the ega wfe s entted to the amount.
Held: NO.
Frst of a, the ower court dd not consder the assocaton as a reguar nsurance company, but merey
rued that the death beneft n queston s anaogous to nsurance. Besdes, even the Admnstratve Code
descrbes a mutua beneft company as one whch provdes any method of fe nsurance among ts members
out of dues or assessments coected from ts membershp.
Secondy, wthout consderng the ntmaton n the bref for Maoes that Gopeo, by her sence and
actons had acquesced n the ct reatons between her husband and Maoes, Gopeos argument woud
certany NOT appy to the chdren of Maoes kewse named benefcares by the deceased. As a matter of
fact, the NCC recognzes certan successona rghts of egtmate chdren.
(23) Nario v. Philamlife lnsurance Company
20 SCRA 434
Facts:
Mrs. Naro apped for and was ssued a fe Insurance pocy (no. 503617) by PHILAMLIFE under a 20-yr
endowment pant, wth a face vaue of 5T. Her husband Defn and ther unemancpated son Ernesto
were her revocabe benefcares.
Mrs. Naro then apped for a oan on the above pocy wth PHILAMLIFE w/c she s entted to as pocy
hoder, after the pocy has been n force for 3 years. The purpose of such oan was for the schoo
expenses of Ernesto.
The appcaton bore the wrtten sgnature and consent of Defn n 2 capactes
As one of the rrevocabe benefcares of the pocy
As father-guardan of Ernesto and aso the ega admnstrator of the mnors propertes pursuant
to Art. 320 of the CC.
PHILAMLIFE dened the oan appcaton contendng that wrtten consent of the mnor son must not ony
be gven by hs father as ega guardan but t must aso be authorzed by the court n a competent
guardanshp proceedng.
Mrs. Naro then sgnfed her decson to surrender her pocy and demand ts cash vaue whch then
amounted to P 520.
PHILAMLIFE aso dened the surrender of the pocy on the same ground as that gven n dsapprovng the
oan appcaton.
Mrs. Naro sued PHILAMLIFE prayng that the atter grant ther oan appcaton and/or accept the
surrender of sad pocy n exchange for ts cash vaue.
PHILAMLIFE contends that the oan appcaton and the surrender of the pocy nvoved acts of dsposton
and aenaton of the property rghts of the mnor, sad acts are not wthn the power of admnstrator
granted under Art. 320 n reaton to art. 326 CC, hence court authorty s requred.
lssue: WON PHILAMLIFE was ustfed n refusng to grant the oan appcaton and the surrender of the
pocy.
Held: YES.
SC agreed wth the tra court that the vested nterest or rght of the benefcares n the pocy shoud be
measured on ts fu face vaue and not on ts cash surrender vaue, for n case of death of the nsured, sad
benefcares are pad on the bass of ts face vaue and n case the nsured shoud dscontnue payng
premums, the benefcares may contnue payng t and are entted to automatc extended term or pad-up
nsurance optons and that sad vested rght under the pocy cannot be dvsbe at any gven tme.
SC aso agreed wth TC that the sad acts (oan app and surrender) consttute acts of dsposton or
aenaton of property rghts and not merey management or admnstraton because they nvove the
ncurrng or termnaton of contractua obgatons.
Under the aws (CC and rues of Court) The father s consttuted as the mnors ega admnstrator of the
propty, and when the propty of the chd s worth more than P2T (as n the case at bar, the mnors propty
was worth 2,500 hs share as benefcary), the father a must fe a petton for guardanshp and post a
guardanshp bond. In the case at bar, the father dd not fe any petton for guardanshp nor post a
guardanshp bond, and as such cannot possby exercse the powers vested on hm as ega admnstrator of
the mnors property. The consent gve for and n behaf of the son wthout pror court authorzaton to the
oan appcaton and the surrender was insufficient and ineffective and PHILAMLIFE was ustfed n
dsapprovng the sad appcatons.
Assumng that the propty of the ward was ess than 2T, the effect woud be the same, snce the parents
woud ony be exempted from fng a bond and udca authorzaton, but ther acts as ega admnstrators
are ony mted to acts of management or admnstraton and not to acts of encumbrance or dsposton.
(24) Villanueva v. Oro
81 PHlL 464
Facts:
West Coast Lfe Insurance Company ssued two poces of nsurance on the fe of Esperanza Vanueva,
one for 2T, maturng Apr 1, 1943; and other for 3T maturng Mar. 31, 1943.
In both poces, West agreed to pay 2T ether to Esperanza f st vng on Apr 1, 1943; or to benefcary
Bartoome Vanueva, or the father of the nsured mmedatey upon recept of the proof of death of
Esperanza.
The pocy aso gave her the rght to change the benefcary.
In 1940, Bartoome ded, and he was substtuted as benefcary under the poces by Marano,
Esparanzas brother.
Esperanza ded n 1944 wthout havng coected the nsurance proceeds. Adverse cams for the
proceeds were presented by the estate of Esperanza on one hand and by Marano on the other.
CFI hed that the estate of Esperanza was entted to the proceeds to the excuson of the benefcary.
lssue: WON the benefcary s entted to the proceeds.
Held: NO.
Under the poces, the nsurer obgated tsef to pay the nsurance proceeds to: (1) the nsured f the
atter ved on the dates of maturty; or (2) the benefcary f the nsured ded durng the contnuance of the
poces. The frst contngency excudes the second, and vce versa. In other words, as the nsured
Esperanza was vng on Apr 1 and March 31, 1943, the proceeds are payabe excusvey to her or to her
estate uness she had before her death otherwse assgned the matured poces.
The benefcary coud be entted to sad proceeds ony n defaut of the frst contngency. To sustan the
benefcarys cam woud be to atogether emnate from the poces the condton that the nsurer "agrees
to pay to the nsured f vng."
Ths concuson taes wth Amercan Authortes who say that: The nterest of the nsured n the
proceeds of the nsurance depends upon hs survva of the expraton of the endowment perod. Upon the
nsureds death, wthn the perod, the benefcary w take, as aganst the persona representatves the
endowment perod, the benefts are payabe to hm or to hs assgnee, notwthstandng a benefcary s
desgnated n the pocy. (AmIur and Couch Cycopeda of Insurance Law)
(25) Philamlife v. Pineda
175 SCRA 416
Facts:
On Ian. 15 1963, Dmayuga processed an ordnary fe nsurance pocy from Phamfe and desgnated
hs wfe and chdren as rrevocabe benefcares.
On Feb. 22, 1980, Dmayuga fed a petton n court to amend the desgnaton of the benefcares n hs
pocy from rrevocabe to revocabe.
Lower Court granted the petton.
lssue: WON the court erred n grantng Dmayugas petton.
Held: YES.
Under the Insurance Act, the benefcary desgnated n a fe nsurance contract cannot be changed
wthout the consent of the benefcary because he has a vested nterest n the pocy. The pocy contract
states that the desgnaton of the benefcares s rrevocabe. Therefore, based on the sad provson of the
contract, not to menton the aw then appcabe, t s ony wth the consent of a the benefcares that any
change or amendment n the pocy may be egay and vady effected. The contract between the partes s
the aw bndng on them. (This case rule is no longer controlling under the lnsurance Code.)
(26) SSS v. Davao
17 SCRA 863
Facts:
Davac was an SSS member, and desgnated Candeara Davac, hs aeged wfe, as hs benefcary.
When he ded, both hs frst wfe, Lourdes and hs second wfe, Candeara fed cams for the death
benefts.
Due to the confctng cams, the SSS fed a petton prayng that both of them be requred to nterpead
and tgate the confctng cams.
The death benefts were awarded to Candeara Davac.
lssue: Who s entted to the SSS benefts?
Held: Candelaria.
Under the SSS Act, the benefcary as recorded by the empoyees empoyer s the one entted to the
death benefts, hence they shoud go to Candeara. Lourdes contends that the desgnaton made n the
person of Candeara who s party n a bgamous marrage s nu and vod for beng aganst Art. 739 of the
CC. SC hed that the dsquafcaton mentoned n Art. 739 s NOT appcabe to Candeara, because she was
not guty of concubnage , there beng NO proof that she had actua knowedge of the prevous marrage of
her husband.
(27) ln Re: Mario Chanliongco
79 SCRA 364
Facts:
Atty. Changongco, an atty of the SC and a GSIS member, ded ab ntestate.
He faed or overooked to state n hs appcaton for membershp wth the GSIS the benefcary or
benefcares of hs retrement benefts shoud he de before the retrement.
lssue: Who w beneft from the proceeds?
Held:
The retrement benefts sha accrue to hs estate and be dstrbuted among hs ega hers n accordance
wth the aw on ntestate successon, as n the case of a fe nsurance pocy f NO benefcary s named n the
nsurance pocy.
(28) Vda. De Consuegra v. GSlS
37 SCRA 315
Facts:
Iose Consuegra was empoyed as a shop foreman of the Offce of the Dstrct Engneer n Surgao De
Norte.
When he was st ave, he contracted two marrages:
Frst - Rosaro Daz; 2 chdren = Iose Consuegra Ir. and Pedro but both predeceased hm
2
nd
- Basa Berdn; 7 chdren. (this was contracted in CF while the first marriage subsisted)
Beng a GSIS member when he ded, the proceeds of hs fe nsurance were pad by the GSIS to Berdn
and her chdren who were the benefcares named n the pocy.
Snce he was n the govt servce for 22.5028 years, he was entted to retrement nsurance benefts, for
whch no benefcary was desgnated.
Both fames fed ther cams wth the GSIS, whch rued that the ega hers were Daz who s entted to
one-haf or 8/16 of the retrement benefts and Berdn and her chdren were entted to the remanng
haf, each to receve an equa share of 1/16.
Berdn went to CFI on appea. CFI affrmed GSIS decson.
lssue: To whom shoud the retrement nsurance benefts be pad?
Held: Both families are entitled to half of the retirement benefits.
The benefcary named n the fe nsurance does NOT automatcay become the benefcary n the
retrement nsurance. When Consuegra, durng the eary part of 1943, or before 1943, desgnated hs
benefcares n hs fe nsurance, he coud NOT have ntended those benefcares of hs fe nsurance as aso
the benefcares of hs retrement nsurance because the provsons on retrement nsurance under the GSIS
came about ony when CA 186 was amended by RA 660 on Iune 18, 1951.
Sec. 11(b) ceary ndcates that there s need for the empoyee to fe an appcaton for retrement
nsurance benefts when he becomes a GSIS member and to state hs benefcary. The fe nsurance and the
retrement nsurance are two separate and dstnct systems of benefts pad out from 2 separate and dstnct
funds.
In case of faure to name a benefcary n an nsurance pocy, the proceeds w accrue to the estate of
the nsured. And when there exsts two marrages, each famy w be entted to one-haf of the estate.
(29) Gercio v. Sun Life (repeat, case #J8)
48 PHlL 53
Facts:
Sunfe ssued a fe nsurance pocy to Gerco, the former agreeng to nsure the fe of Gerco for 2T to
be pad to hm on Feb. 1, 1930 or f he shoud de before sad date, then to hs wfe Andrea, shoud she
survve hm; otherwse to the executor, admnstrator of Gerco.
The pocy dd not ncude any provson reservng to Gerco the rght to change the benefcary.
The wfe was convcted of adutery and a decree of dvorce was ssued.
Gerco notfed Sunfe that he had revoked hs donaton n favor of Andrea and that he had desgnated
hs present wfe Adea as hs benefcary.
Sunfe refused to change the benefcary.
lssue: WON Gerco may change the benefcary n the pocy.
Held. NO.
If the pocy contans no provson authorzng a change of benefcary wthout the benefcarys
consent, the nsured cannot make such change. It s hed that a fe nsurance pocy of a husband made
payabe to hs wfe as a benefcary s the separate property of the benefcary and beyond the contro of the
husband. (NOTE: ths case s based on the od rue under the Insurance Act)
Court aso hed that the desgnaton of a benefcary that s orgnay vad does NOT render t nvad
dut to a subsequent cessaton of the nterests between the benefcary and nsured.
Section 12. The nterest of a benefcary n a fe nsurance pocy sha be forfeted when the
benefcary s the prncpa, accompce or accessory n wfuy brngng about the death of the
nsured; n whch event, the nearest reatve of the nsured sha receve the proceeds of sad
nsurance f not otherwse quafed.
Who are the "nearest relatives" mentioned here7
Those reated to the decedent n the order mentoned under the rues of ntestate successon such as:
(the order of the foowng reatves are as foows)
1. The egtmate chdren;
2. The father and mother, f vng;
3. The grandfather and grandmother; or ascendants nearest n degree, f vng;
4. The egtmate chdren;
5. The survvng spouse; and
6. The coatera reatves, to wt:
a. Brothers and ssters of the fu bood;
b. Brothers and ssters of the haf-bood; and
c. Nephews and neces
7. In defaut of the above, the STATE sha be entted to receve the nsurance proceeds.
Problem:
Clark is insured. His nearest relatives are:
J) Anakin, the legitimate child
2) lor-el and lyla, the legitimate father and mother
3) Lolo and Lola, grandfather and grandmother (or ascendants in the nearest degree)
4) 8astardo, the illegitimate child
5) Lois Lane, the surviving spouse
6) Collateral relatives to wit:
a) luya, 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 s entted to the proceeds.
5uppose 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. ln case all three are convicted
who gets the proceeds?
Snce Anakn, the egtmate chd and Los, the survvng spouse are no onger entted to the proceeds,
then foowng the rues on ntestate successon, the proceeds must be dvded between the egtmate
parents (Ior-e and Kya) who get of the proceeds and the Iegtmate chd (Bastardo) who gets the other
haf.
5ame facts above, but it was only Lois Lane who was instituted as beneficiary. ls Anakin still entitled to the
insurance proceeds?
At frst gance the answer mght be YES, because accordng to Secton 12, t s ony the nterest of the
benefcary whch s forfeted, and snce Anakn was not nsttuted as benefcares, then hs nterest s st
ntact. HOWEVER, there s a provso n Sec. 12, whch states: " the nearest relative of the insured shall
received the proceeds of said insurance if not otherwise qualified". Meanng, n order to fnd out f Anakn s
quafed, reference must be made to aws of successon.
Accordng to Art. 1024 of the CC, the provsons reatng to ncapacty by w are equay appcabe to
ntestate successon; and accordng to Art. 1032 (2), any person who has been convcted of an attempt
aganst the fe of the testator s ncapabe of succeedng by reason of unworthiness. Hence, the correct
answer to ths probem s NO. Anakn s not entted to the proceeds and subsequenty the nsurance
proceeds w be dvded as provded for n the frst answer.
ln case Anakin and Lois are not convicted, but both are instituted as beneficiaries of Clark, can they still
collect the proceeds?
There s no aw or ursprudence that treats of ths stuaton. However, Atty. Oumson sad n cass that
there must be a conviction before Sec. 12 can operate to dsquafy or forfet the nterests of Anakn and
Los. Sec. 12 speaks of "prncpas, accompce or accessory", and there must therefore be a convcton of
the benefcares as ether of the three to the crme aganst the nsured.
5uppose Anakin and Lois are not convicted and they are not instituted as beneficiaries of Clark, can they now
collect the proceeds?
In ths case, Sec. 12 s no onger the reevant provson, but Art. 1032 (2) of the CC. However, t s
submtted (by IohnBee Soson) that there must be a fna convcton n order for Art. 1032 to appy, .e., to bar
Anakn and Los from coectng on the ground of unworthness. Furthermore, Art. 1034 says: In order to
udge the capacty of the her, devsee or egatee, hs quafcatons at the tme of the death of the decedent
sha be the crteron. In cases fang under Nos. 2, 3 & 5 of Art. 1032, t sha be necessary to wat unt fna
udgment s rendered.
Elle Driver, 8eatrix liddo & O-Ren lshi are all creditors of 8ill. All three are instituted as beneficiaries of 8ill.
Elle fails to qualify since she is 8ills concubine. 8eatrix on the other hand, eager to claim the insurance
proceeds, used the 5 point exploding heart technique" she learned from Pai Mei, killing 8ill. O-Ren now
claims the proceeds of the insurance. However, her claim is opposed by 88, 8ills legitimate daughter who
contends that according to 5ec. J2, it is the nearest relative who should get the proceeds, meaning her.
8etween 88 and O-Ren, who is entitled to get the proceeds?
O-Ren Ish gets the proceeds because t was stpuated n the contract of nsurance (l think shell use it to
surgically graft her scalp back since it was sliced by 8eatrix using a Hatori Hanzo 5word). Remember that
the nsurance contract s the aw between the partes and hence t must be foowed by the nsurance
company. Sec. 12 ONLY appes f there s NO stpuaton n the contract of nsurance as to who are the other
benefcares of the proceeds.(Cue lill 8ill soundtrack.)
Section 13. Every nterest n property, whether rea or persona, or any reaton thereto, or
abty n respect thereof, of such nature that a contempated per mght drecty damnfy the
nsured, s an nsurabe nterest.
What is the importance of this provision7
It defnes nsurabe nterest n PROPERTY.
Cases:
(30) Harvardian Colleges v. Country Bankers lnsurance Corp.
1 CARA 2
Facts:
Harvardan s a famy corporaton, the stockhoders of whch are Idefonso Yap, Vrgna Kng Yap and
ther chdren.
Pror to Aug. 9, 1979, an agent of Country Bankers proposed to Harvardan to nsure ts schoo budng.
Athough at frst reuctant, Harvardan agreed.
Country Banks sent an nspector to nspect the schoo budng and agreed to nsure the same for
P500,000 for whch Harvardan pad an annua premum of P2,500.
On Aug. 9, 1979, Country Bankers ssued to Harvardan a fre nsurance pocy. On March 12, 1980, (39
days before l was born. hehehehe )durng the effectvty of sad nsurance pocy, the nsured property
was totay burned renderng t a tota oss.
A cam was made by pantff upon defendant but defendant dened t contendng that pantff had no
nsurabe nterest over the budng constructed on the pece of and n the name of the ate Idefonso Yap
as owner.
It was contended that both the ot and the budng were owned by Idefonso Yap and NOT by the
Harvardan Coeges.
lssue: WON Harvardan coeges has a rght to the proceeds.
Held: Harvardian has a right to the proceeds.
Regardess of the nature of the tte of the nsured or even f he dd not have tte to the property nsured,
the contract of fre nsurance shoud st be uphed f hs nterest n or hs reaton to the property s such that
he w be benefted n ts contnued exstence or suffer a drect pecunary oss from ts destructon or nury.
The test n determnng nsurabe nterest n property s whether one w derve pecunary beneft or
advantage from ts preservaton, or w suffer pecunary oss or damage from ts destructon, termnaton or
nury by the happenng of the event nsured aganst.
Here Harvardan was not ony n possesson of the budng but was n fact usng the same for severa
years wth the knowedge and consent of Idefonso Yap. It s reasonaby far to assume that had the budng
not been burned, Harvardan woud have been aowed the contnued use of the same as the ste of ts
operaton as an educatona nsttuton. Harvardan therefore woud have been drecty benefted by the
preservaton of the property, and certany suffered a pecunary oss by ts beng burned.
Section 14. An nsurabe neters n property may consst n:
(a) An exstng nterest;
(b) An nchoate nterest founded on an exstng nterest; or
(c) An expectancy, couped wth an exstng nterest n that out of whch the expectancy arses.
What is existing interest7
Exstng nterest n property s the ega or equtabe tte on the property.
What is an inchoate interest7
It s an nterest whch has not yet rpened, such as the nterest of a stockhoder n the property of the
corporaton whch he owns stocks.
ln what kind of expectancy may insurable interest consist7
The expectancy MUST be couped wth an exstng nterest n that, out of whch such expectancy arses.
Exampes woud be: a farmer nsurng future crops that he w grow on hs and, or a workman nsurng the
budng whch he was contracted to repar.
Cases:
(31) Suter v. Union Surety
51 OG 1905
Facts:
Suter, the managng partner of Morcon Co., nsured two uke boxes wth Unon Surety for P4,000. (btw,
siya din yung sa Tax 2 diba? Yung pinakasalan yung partner niyang si 5pirig?)
Subsequenty, the two uke boxes were destroyed by fre.
Suter now cams from Unon Surety, the atter denyng the cams on the grounds that:
The propertes were aegedy overvaued, t havng been proven that the uke boxes cost
ony P774.00
Suter had no nsurabe nterest snce the propertes nsured beong to Morcon Co.
(J) Whether or not the juke boxes were overvalued.
No. Whe acquston cost s ony P774.00, ths does not ncude taxes, freght nsurance, shppng cost,
and other mprovements made thereon. The vaue of the property s determne at the tme t was nsured
and not the tme t was acqured.
(2) WON 5uter had insurable interest.
YES, Suter had nsurabe nterest. The test for nsurabe nterest n property s whether or not the nsured
w beneft n the propertys reservaton or contnued exstence, or suffer a drect pecunary oss n ts
destructon. Suter, beng the managng partner w ceary beneft n the uke boxes preservaton and woud
aso be affected by ts destructon.
(32) Traders lnsurance and Surety Co. v. Golangco
95 PHlL 826
Facts:
A decson was rendred n Cv Case No. 6306 grantng Goangco the rght to coect rentas from a
budng n Sta. Cruz, Mana.
Goangco then sought fre nsurance from Traders. Before the pocy was ssued, Goangco made a fu
and cear exposa of hs nterests n the premses, .e. that he was not the owner.
The fre pocy that defendant ssued covered ony a of Goangcos nterest n the premses and hs rght
to coect the rentas.
The budng burned down n a fre and Goangco sought to coect from Traders. Traders dened any
abty on the ground that snce Goangco was not the owner of the premses then he had no nsurabe
nterest n the same and consequenty, he coud not coect the nsurance proceeds.
lssue: WON pantff can cam the nsurance proceeds.
Held. YES.
Both at the tme of the ssuance of the pocy and at the tme of the fre, pantff Goangco was n
ega possesson of the premses, coectng rentas from ts occupant. It seems pan that f the premses
were destroyed as they were, by fre, Goangco woud be, as he was, drecty damnfed thereby; and hence
he had an nsurabe nterest theren.
(33) Zenith lnsurance Corporation v. The lnsurance Commission
87 OG 6249
Facts:
Zenth entered nto an nsurance contract, denomnated as Equpment Foater Pocy coverng a Kato
Bachoe ncudng ts accessores and appurtenances thereof, from oss of damage. Companant pad the
stpuated premums therefore.
Wthn the perod of effectvty of the pocy, the two peces of hydrauc whee gear pumps, whch are
consdered appurtenances and/or parts attached to and/or nstaed n the Kato BAchoe were ost, stoen
and/or egay detached by unknown theves or maefactors
Despte repeated assurances by Zenths soctng agent, t refused and faed to sette and pay
companants nsurance cam.
Companant seeks not ony the payment of sad nsurance cam of 70T pus ega nterest, attys fees,
and tgaton expenses, but aso the revocaton or canceaton of the cense of Zenth to do nsurance
busness.
Zenth on the other hand contends that:
Companant s not the rea party n nterest snce the pocy carres wth t a desgnated oss
payee, the BA Fnance Corp
The pocy nsures aganst oss or damage caused by fre and ghtnng, etc, whe theft or robbery
s NOT nsured aganst n the pocy, t not havng been expressy mentoned
Loss nevertheess s excuded under the excepton of "nfdety excuson" by the operator who
eft t unguarded, unattended and deserted whe entrusted to hm, and for faure to gve tmey
notce of oss
Companant and/or BA Fnance s guty of conceament and msrepresentaton at the tme they
secured the pocy, because at the tme t became operatve, the companant was NOT yet the
owner of the property nsured, the property st hot havng been devered to hm, and BA fnance
had no nsurabe nterest yet, henceforth, the contract of nsurance was VOID AB INITIO for ack
of nsurabe nterest at the tme the nsurance took effect.
(J) WON the loss through theft or robbery claimed is within the coverage of the policy.
The Insurance Commssoner, as reterated by the SC, found for the companant n ths wse: Whe the
pocy enumerated the rsks covered, t does NOT, however, n ts express terms, mt compensabty to that
stated n the enumeraton. The enumerated rsks excuded dd not ncude theft or robbery commtted or
perpetrated by an undentfed cuprt, hence the companants cam for damages s compensabe.
The foregong pocy s supported by the ong tme honored doctrne of "contra proferentem: whch
provdes that: "any ambguty n the pocy sha be resoved n favor of the nsured and aganst the nsurer".
Ths s true because nsurance contracts are essentay contracts of adheson and appcants for nsurance
have no choce but to accept the terms and condtons n the pocy even f they are not n fu accord
therewth.
(2) WON the complainant was with insurable interest therein when the said policy contract was procured.
The companant has nsurabe nterest n the nsured property at the tme of the procurement of the
nsurance pocy. As the CC provdes, "the contract of sae s perfected at the moment there s a meetng of
mnds upon the thng whch s the obect of the contract and upon the prce," and Sec. 15 of the IC aows the
nsurance of a mere contngent or expectant nterest n anythng f the same s founded on an actua rght to
the thng, or upon any vad contract.
As ths s the case, mere possesson of an equtabe tte, ke that pertanng to the buyer, gves rse to
nsurabe nterest n the property n whch such tte nheres. Furthermore, consderng that Zenths agent
had been fuy apprsed of the crcumstances pror to the actua ssuance of the pocy and the endorsement,
t cannot now aege that companant has no nsurabe nterest on the property nsured. Zenth s now
precuded by the equtabe prncpe of estoppe from mpugnng and dshonorng the very nsurance pocy
contract t ssued and the endorsement and ncrease n the coverage made through ts duy authorzed
agent.
(34) Filipino Merchants v. CA
179 SCRA 638
Facts:
The Chao Tek Seng a consgnee of the shpment of fshmea oaded on board the vesse SS Bouganve
and unoaded at the Port of Mana on or about December 11, 1976 and seeks to recover from Fpno the
amount of P51,568.62 representng damages to sad shpment whch has been nsured by Fpno.
Fpno brought a thrd party compant aganst Compagne Martme Des Chargeurs Reuns and/or E.
Razon, Inc. seekng udgment aganst the thrd party defendants n case udgment s rendered aganst t.
It appears from the evdence presented that Chao nsured sad shpment wth Fpno for the sum of
P267,653.59 for the goods descrbed as 600 metrc tons of fshmea n gunny bags of 90 kos each from
Bangkok, Thaand to Mana aganst a rsks under warehouse to warehouse terms.
Actuay, what was mported was 59.940 metrc tons not 600 tons at $395.42 a ton.
The fshmea n 666 gunny bags were unoaded from the shp on December 11, 1976 at Mana unto the
arrastre contractor E. Razon, Inc. and Fpnos surveyor ascertaned and certfed that n such dscharge
105 bags were n bad order condton as onty surveyed by the shp's agent and the arrastre contractor.
Based on sad computaton the Chao made a forma cam aganst the Fpno for P51,568.62. A forma
cam statement was aso presented by the pantff aganst the vesse, but the Fpno refused to pay the
cam.
lssues & 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 dd not uphod ths contenton. An "a rsks pocy" shoud be read teray as meanng a rsks
whatsoever and coverng a osses by an accdenta cause of any knd. The terms "accdent" and
"accdenta", as used n nsurance contracts, have not acqured any technca meanng. They are construed
by the courts n ther ordnary and common acceptance. Thus, the terms have been taken to mean that
whch happens by chance or fortutousy, wthout ntenton and desgn, and whch s unexpected, unusua
and unforeseen. An accdent s an event that takes pace wthout one's foresght or expectaton; an event
that proceeds from an unknown cause, or s an unusua effect of a known cause and, therefore, not expected.
Coverage under an "a rsks" provson of a marne nsurance pocy creates a speca type of nsurance
whch extends coverage to rsks not usuay contempated and avods puttng upon the nsured the burden of
estabshng that the oss was due to the per fang wthn the pocy's coverage; the nsurer can avod
coverage upon demonstratng that a specfc provson expressy excudes the oss from coverage. A marne
nsurance pocy provdng that the nsurance was to be "aganst a rsks" must be construed as creatng a
speca nsurance and extendng to other rsks than are usuay contempated, and covers a osses except
such as arse from the fraud of the nsured. The burden of the nsured, therefore, s to prove merey that the
goods he transported have been ost, destroyed or deterorated. Thereafter, the burden s shfted to the
nsurer to prove that the oss was due to excepted pers. To mpose on the nsured the burden of provng the
precse cause of the oss or damage woud be nconsstent wth the broad protectve purpose of "a rsks"
nsurance.
In the present case, there beng no showng that the oss was caused by any of the excepted pers, the
nsurer s abe under the pocy
Filipino contends that Chao does not have insurable interest, being only a consignee of the goods.
Anent the ssue of nsurabe nterest, SC uphed the rung of the CA that Chao, as consgnee of the goods
n transt under an nvoce contanng the terms under "C & F Mana," has nsurabe nterest n sad goods.
Secton 13 of the Insurance Code defnes nsurabe nterest n property as every nterest n property,
whether rea or persona, or any reaton thereto, or abty n respect thereof, of such nature that a
contempated per mght drecty damnfy the nsured. In prncpe, anyone has an nsurabe nterest n
property who derves a beneft from ts exstence or woud suffer oss from ts destructon whether he has or
has not any tte n, or en upon or possesson of the property. Insurabe nterest n property may consst n
(a) an exstng nterest; (b) an nchoate nterest founded on an exstng nterest; or (c) an expectancy,
couped wth an exstng nterest n that out of whch the expectancy arses.
Chao, as vendee/consgnee of the goods n transt has such exstng nterest theren as may be the
subect of a vad contract of nsurance. Hs nterest over the goods s based on the perfected contract of
sae. The perfected contract of sae between hm and the shpper of the goods operates to vest n hm an
equtabe tte even before devery or before he performed the condtons of the sae. The contract of
shpment, whether under F.O.B., C.I.F., or C. & F. as n ths case, s mmatera n the determnaton of
whether the vendee has an nsurabe nterest or not n the goods n transt. The perfected contract of sae
even wthout devery vests n the vendee an equtabe tte, an exstng nterest over the goods suffcent to
be the subect of nsurance
Section 15. A carrer or depostory of any knd has an nsurabe nterest n a thng hed by hm
as such, to the extent of hs abty but not to exceed the vaue thereof.
What is the reason for this provision7
The oss of the thng may make the carrer or depostary abe to the owner of the goods, to the extent of
the vaue of the goods, and the aw therefore aows such a carrer or depostary to nsure hs possbe abty
therefor.
Problem.
M/V Mary lane, a common carrier, insured Peter Parkers goods, valued at JM with A.MAY lnsurance Company
for 2M. The vessel was hit by lightning, caught fire, and sank. Mary lane is now claiming 2M from A.MAY
because the policy stated that the loss due to lightning is compensable. A.MAY denies liability on the ground
that: (J) Mary lane is not the owner of the goods and therefore has no insurable interest: and (2) Mary lane
cannot claim more than the value of the goods lost. Decide.
Accordng to Sec. 15, a carrer has nsurabe nterest n a thng hed by hm as such. Hence, Mary Iane
has nsurabe nterest over the goods of Peter Parker. However, the same provson aso states that such
nsurabe nterest s ony up to the extent of hs abty and not to exceed the vaue of the thng. Snce the
vaue of the goods s ony 1M, then Mary Iane can ony coect 1M.
Case:
(35) Lopez v. Del Rosario
44 PHlL 98
Facts:
Benta De Rosaro s the owner of a bonded warehouse n Mana where copra and other merchandse are
deposted.
Among those who had copra deposted n the warehouse was Froan Lopez, the owner of 14 warehouse
recepts wth a decared vaue of P107,990.40 n hs name.
De Rosaro secured nsurance on the warehouse and ts contents wth 5 dfferent nsurance companes n
the amount of P404,800.
A poces were n the name of De Rosaro, except for one (wth Nat Insurance Co.) for 40T, n favor of
Compana Copra de Tayabas.
The warehouse and ts contents were destroyed by fre. When Bayne, a fre oss aduster, faed to effect
a settement between the Insurance companes and De Rosaro, the atter authorzed Atty. Fsher to
negotate wth the Companes.
An agreement was reached to submt the matter to arbtraton. The cams by dfferent peope who had
stored copra n the warehouse were setted wth the excepton of Froan Lopez.
A case was fed n CFI by Lopez. The court awarded hm the sum of P88,492.21 wth ega nterest.
lssue: WON De Rosaro acted as the agent of Lopez n takng out the nsurance on the contents of the
warehouse or whether she acted as the rensurer of the copra.
Held: She acted as the agent of Lopez.
The agency can be deduced from the warehouse recepts, the nsurance poces and the crcumstances
surroundng the transacton. Under any aspect, De Rosaro s abe. The aw s that a pocy effected by a
baee and coverng by ts terms n hs own property and property hed n trust, nures, n the event of oss,
equay and proportonatey to the beneft of a owners of the property nsured. Even f one secured
nsurance coverng hs own goods and goods stored wth hm, and even f the owner of the stored goods dd
not request or know the nsurance, and dd not ratfy t before the payment of the oss, t has been hed by a
reputabe court that the warehouseman s abe to the owner of such stored goods for hs share.
In a case of contrbutng poces, adustments of oss made by an expert or by a board of arbtrators may
be submtted to the court NOT as evdence of the facts stated theren, or as obgatory, but for the purpose of
assstng the court n cacuatng the amount of abty.
Section 16. A mere contngent or expectant nterest n anythng, not founded on an actua
rght to the thng, nor upon any vad contract for t, s not nsurabe.
What does this section mean7
Mere hope or expectaton of beneft whch may be frustrated by the happenng of some event uncouped
wth any present ega rght w not support a contract of nsurance.
Examples:
A son cannot nsure the property of hs father whch he expects to nhert from the atter, or a husband
nsurng the parapherna property of hs wfe; the reason beng, ther nterest s merey an expectancy of
nhertng, and the rghts to successon are transmtted ony from the moment of the death of the decedent.
Section 17. The measure of an nsurabe nterest n the property s the extent to whch the
nsured mght be damnfed by oss or nury thereof.
Problems.
A insured his property valued at PJ00,000 for PJ20,000. A suffered a total loss. How much is he entitled to
recover?
A s entted to recover ony the vaue of hs oss whch s 100T and not 120T because t s aganst pubc
pocy to proft from a oss.
What if the one who caused the damage, 8 paid A P80,000? What is the liability of the lnsurance Company?
The nsurance cam s reduced n the same amount of 80T. Anythng that reduces or dmnshes the oss,
reduces and dmnshed the amount whch the nsurer s bound to pay. Hence the nsurer s abe for 20T.
Under a building contract, A constructed a house in Ayala Alabang for 4M for Z who made an advance
payment of JM, the balance to be paid upon deliver of the house on Aug. J3, J993. A finished the house on
luly J3, J993 so he insured the house against fire for 4M. 8efore delivery of the house in August, the house
burned down. What is the extent of the insurable interest of A?
It s st 4M, notwthstandng the fact that he has receved from Z 1M as advance payment. The reason
why he s entted to the whoe 4M s, he has to repace the house destroyed wth another house worth 4M as
per the contract, not one vaued at ony 3M. In other words, 4M was the extent to whch A was damnfed by
the oss of the house.
Cases:
(36) San Miguel Brewery v. Law Union Rock lnsurance Company (repeat - case #12)
40 PHlL 674
Facts:
mortgagee.
Hardng.
appea.
Held: NOPE.
done.
(37) Ang Ka Yu v. Phoenix Assurance
1 CARA 704
Facts:
Ang Ka Yu had a pece of property n hs possesson. He nsured t wth Phoenx.
The property was ost, so Ang Ka Yu sought to cam the proceeds.
Phoenx dened abty on the ground that Ang was not the owner but a mere possessor and as such,
had no nsurabe nterest over the property.
lssue: WON a mere possessor has nsurabe nterest over the property.
Held: Yes.
A person havng a mere rght or possesson of property may nsure t to ts fu vaue and n hs own
name, even when he s not responsbe for ts safekeepng. The reason s that even f a person s NOT
nterested n the safety and preservaton of matera n hs possesson because they beong to 3
rd
partes,
sad person st has nsurabe nterest, because he stands ether to beneft from ther contnued exstence or
to be preudced by ther destructon.
(38) Cha v. Cha
277 SCRA 690 (1997)
Facts:
Spouses No Cha and Stea Uy-Cha, as essees, entered nto a ease contract wth CKS Deveopment
Corporaton (CKS), as essor.
One of the stpuatons of the one (1) year ease contract states: "J8. . . . The LE55EE 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 LE55OR. lf
the LE55EE obtain(s) the insurance thereof without the consent of the LE55OR then the policy is deemed
assigned and transferred to the LE55OR for its own benefit: . . ."
Notwthstandng the above stpuaton, the Cha spouses nsured aganst oss by fre ther merchandse
nsde the eased premses for Fve Hundred Thousand (P500,000.00) wth the Unted Insurance wthout
the wrtten consent CKS.
On the day that the ease contract was to expre, fre broke out nsde the eased premses. When CKS
earned of the nsurance earer procured by the Cha spouses (wthout ts consent), t wrote the Unted a
demand etter askng that the proceeds of the nsurance contract (between the Cha spouses and Unted)
be pad drecty to CKS, based on ts ease contract wth the Cha spouses.
Unted refused to pay CKS, aegng that the atter had no nsurabe nterest. Hence, the atter fed a
compant aganst the Cha spouses and Unted.
lssue: WON CKS can cam the proceeds of the fre nsurance.
Held: NO. CKS has no insurable interest.
Sec. 18 of the Insurance Code provdes:
"5ec. J8. 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-fe nsurance pocy such as the fre nsurance pocy taken by pettoner-spouses over ther
merchandse s prmary a contract of ndemnty. Insurabe nterest n the property nsured must exst at the
tme the nsurance takes effect and at the tme the oss occurs. The bass of such requrement of nsurabe
nterest n property nsured s based on sound pubc pocy: to prevent a person from takng out an
nsurance pocy on property upon whch he has no nsurabe nterest and coectng the proceeds of sad
pocy n case of oss of the property.
In the present case, t cannot be dened that CKS has no nsurabe nterest n the goods and merchandse
nsde the eased premses under the provsons of Secton 17 of the Insurance Code whch provde:
"5ection J7. 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 speca aw - be vady a benefcary of the fre
nsurance pocy taken by the pettoner-spouses over ther merchandse. Ths nsurabe nterest over sad
merchandse remans wth the nsured, the Cha spouses. The automatc assgnment of the pocy to CKS
under the provson of the ease contract prevousy quoted s vod for beng contrary to aw and/or pubc
pocy. The proceeds of the fre nsurance pocy thus rghtfuy beong to the spouses No Cha and Stea Uy-
Cha (heren co-pettoners). The nsurer (Unted) cannot be compeed to pay the proceeds of the fre
nsurance pocy to a person (CKS) who has no nsurabe nterest n the property nsured.
Section 18. No contract or pocy of nsurance on property sha be enforceabe except for the
beneft of some person havng an nsurabe nterest n the property nsured.
Simplified, the provision states that7
NO nsurabe nterest = NO contract of Insurance.
Cases:
(39) Sharuff and Co. v. Baloise Fire lnsurance Co.
64 SCRA 258
Facts:
Sharuff and Eskenaz were dong busness under the frm name Sharuff and Co.
They nsured ther merchandse wth Baose. Later on, Sharuff and Eskenaz entered nto a contract of
partnershp and thereby changed the frm name to Sharuff and Eskenaz.
The merchandse nsured was subsequenty destroyed by fre. Sharuff and Eskenaz fed ther cam
aganst the nsurance company.
Baose refused to pay on the ground that the pocy was ssued n the name of Sharuff and Co. and not
Sharuff and Eskenaz.
lssue: WON the partnershp can cam the proceeds of the pocy.
Held: YUP.
The subsequent partnershp dd not ater the composton of the frm. The peope nvoved are actuay
the same. Furthermore, such change of frm name was not made to defraud the nsurance company or some
other person.
(40) Garcia v. HongKong Fire and Marine lnsurance Co.
45 PHlL 122
Facts:
Garca had hs merchandse nsured by Hongkong Fre and Marne Insurance Co.
The nsurance company however made a mstake and ssued a pocy coverng the budng where the
merchandse was stored. (The budng was not owned by Garca)
The pocy was wrtten n Engsh, of whch Garca was gnorant, so he coud not have notced the error of
the nsurance company.
Sad pocy was ater on assgned by Garca to PNB to secure a oan. PNB acknowedged recept of sad
pocy, referrng to t as a pocy coverng the merchandse.
The nsurance company made the necessary endorsements to PNB.
The budng whch housed the merchandse was ater razed by fre. The nsurance company refused to
pay due to the fact that the pocy ndcates nsurance on the budng and not on the merchandse.
lssue: WON Garca can coect.
Held: YES.
The defense of the nsurer s purey technca. The mstake was obvousy on the part of the nsurer when
t ssued a wrong pocy. It cannot deny such aegaton due to the fact that t even confrmed wth PNB the
nature of sad pocy when t was endorsed. Garca coud not have notced the mstake due to hs gnorance
of the Engsh anguage.
Section 19. An nterest n property nsured must exst when the nsurance takes effect, and
when the oss occurs, but need not exst n the meantme; and nterest n the fe or heath of a
person nsured must exst when the nsurance takes effect, but need not exst thereafter or when the
oss occurs.
When must insurable interest exist7
In case of life insurance at the tme the nsurance takes effect.
In case of property insurance, at the tme the nsurance takes effect AND at the tme of the oss, but t
need not exst n the meantme.
Problem.
8eatrix insured her house for JT. At that time, she was the owner of the house. During the effectivity of the
policy, she sold the house to 8ill for 2T, but did not transfer the policy. 8ecause of the effects of 5ec. 20, the
insurance was suspended. A week later, 8eatrix realized how much she missed the house and bought it from
8ill for 3T. The next day, the house burned down. ls the lnsurer liable notwithstanding the transfer of
interest from 8eatrix to 8ill during the effectivity of the policy?
Yes. Beatrx had nsurabe nterest on the house as she was the owner at the tme the nsurance took
effect. She aso had nsurabe nterest on the house at the tme of the oss snce she had aready reacqured
t from B. The aw says Beatrx need not have nsurabe nterest n the meantme, or durng the ntervenng
perod between the tme of effectvty of the nsurance, and the tme of the oss. Therefore, notwthstandng
the ownershp of B durng the ntervenng perod, as Beatrx had nsurabe nterest at the two ponts n tme
requred by aw, then the nsurer s abe.
Cases:
(41) Tai Tong Chua Che & Co. v. lnsurance Commission
158 SCRA 366
Facts:
Paomo obtaned a oan from Tatong for 100T. To secure ths, he mortgaged a parce of and wth a
budng. Tatong nsured the mortgaged property wth Traveers Mut-Indemnty Corp for 100T.
The nsured property was razed by fre. Tatong camed the proceeds from the nsurance company.
Traveers refused to pay, camng that Tatong had no more nsurabe nterest n the property snce
Paomo had aegedy pad the mortgaged debt aready.
lssue: WON Tatong can coect the proceeds.
Held: Yes.
The aegaton of the nsurance company that the debt had aready been pad was NOT proved. Tatong
on the other hand presented evdence, namey the contract of mortgage whch does not appear to have been
canceed or reeased.
Section 20. Except n the cases specfed n the next four sectons, and n the cases of fe,
accdent and heath nsurance, a change of nterest n any part of a thng nsured, unaccompaned by
a correspondng change of nterest n the nsurance, suspends the nsurance to an equvaent extent,
unt the nterests n the thng and the nterest n the nsurance are vested n the same person.
What is the general rule embodied in this section7
The Genera Rue s that the mere transfer of the thng nsured does not transfer the pocy but suspends
t unt the same person becomes the owner of both the pocy and the thng nsured. The term "change of
interest" n ths secton means absoute transfer of the property nsured such as the conveyance of the
property nsured by means of an absoute deed of sae.
What are the exceptions to the general rule7
The exceptons, where a change of nterest does NOT suspend the nsurance are:
1. Lfe, heath and accdent nsurance (Sec. 20)
2. Change of nterest n the thng nsured occurs after the nury whch resuts n a oss (Sec. 21)
3. Change of nterest n one or more of severa thngs separatey nsured by one pocy (Sec. 22)
4. Change of nterest by w or successon on the death of the nsured (Sec. 23)
5. Transfer of nterest by one of severa partners, ont owners or owners n common who are onty
nsured, to the other (Sec. 24)
What is the reason for this provision suspending the insurance in case of change of interest7
The obect of the provson s to provde aganst changes whch mght suppy a motve to destroy the
property, or mght essen the nterest of the nsurer n protectng and guardng t.
Case:
(42) Bachrach v. British American lnsurance Co.
17 PHlL 555
Facts:
Bachrach nsured propertes of ts genera furnture shop wth Brtsh. The propertes were subsequenty
destroyed by fre.
Bachrach cams from the nsurance company. The cam was dened on the ff grounds:
The pocy was aegedy forfeted because the nsured stored varnshes and pants wthn the
premses;
Insured stored gasone n the budng; and
Bachrach executed a chatte mortgage on the propertes nsured wthout the consent of the
nsured.
lssue: WON Bachrach can cam the proceeds of the pocy.
Held: Yes.
The pocy was NOT forfeted due to the strong pants and varnshes. There was no express provson
pertanng to t and these pants and varnshes are ncdenta to the busness of the nsured to keep the
furnture n a saeabe condton. The gasone stored wthn the premses was n the reservor of the car and
thus does not voate any provson n the pocy. There s no express prohbton aganst the executon of a
chatte mortgage on the property nsured.
40 PHlL 674
Facts:
mortgagee.
Hardng.
appea.
Held: NOPE.
done.
Section 21. A change of nterest n a thng nsured, after the occurrence of an nury whch
resuts n a oss, does not affect the rght of the nsured to ndemnty for the oss.
Problem:
A insured his house for J0T. On Aug. J0, 2004, the house was partially damaged by fire. On Aug. J5, 2004,
he sold the same house so partially damaged to C. Can A collect on the insurance after selling the house?
Yes. The change of nterest was made after the occurrence of the nury whch resuted n a parta oss.
Upon the occurrence of the rsk nsured aganst, the abty of the nsurer became fxed and from that day
onward, he became duty bound to ndemnfy A for hs oss.
Section 22. A change n nterest n one or more of severa dstnct thngs, separatey nsured by
one pocy, does not avod the nsurance as to the others.

Problem.
A is the owner of a Feroza and a Civic. He insures the Feroza for 200T and the Civic for J50T under a single
policy for which he paid a total premium of 20T. lf he sells the Feroza without the insurers consent, is the
insurer liable in case the Civic is lost?
Yes. Snce the vehces are separatey nsured. Under Sec. 22, the sae of one dstnct thng does NOT
avod the nsurance as to the others.
A is the owner of a Feroza and a Civic. He insured the Feroza and the Civic for 350T under a single policy for
which he paid a premium of 20T. ln case he sells the Feroza without the insurers consent, is the insurer
liable in case the Civic is lost?
NO. Snce the two cars are not separatey vaued n the pocy and the premum was meant to cover both
vehces. In ths case, the sae of one thng affects the nsurance of the others.
Section 23. A change of nterest, by w or successon on the death of the nsured, does not
avod the nsurance; and hs nterest n the nsurance passes to the person takng hs nterest n the
thng nsured.
Problem.
A insures his nipa hut, his only property. He has no compulsory heirs. He institutes 8 as his universal heir.
Thereafter, A dies and 8 inherits the hut. lf the hut burns down can 8 collect?
Yes. Sec. 23 says so.
Section 24. A transfer of nterest by one of severa partners, ont owners, or owners n
common, who are onty nsured, to the others, does not avod the nsurance, even though t has
been agreed that the nsurance sha cease upon the aenaton of the thng nsured.
What does this section provide7
It provdes that a transfer of nterest n the nsured property by a partner, ont owner, or owner n
common to the others who are onty nsured, w NOT avod the nsurance. The rue s the same even f
there s a stpuaton that the nsurance w cease upon the aenaton of th thng nsured.
What is the reason for the rule7
The underyng prncpe s that each partner, or owner or owner n common s nterested n the whoe
property and hazard s NOT ncreased because the purchasng partner has acqured a greater nterest n the
property by a transfer of hs co-partners chare. In other words, the transfer does not affect the rsk because
NO NEW PARTY s brought nto the contractua reatonshp wth the nsurer.
ls there an exception to the rule7
Yes. If the pocy contans the stpuaton 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."
What is the effect if the sale was made to a stranger7
A the more, the contract w be avoded because the rsk s aready affected snce a new party s
brought nto the contract of nsurance. However, such sae to a stranger ends the contract of nsurance ony
as to the interest of the transferor and does NOT affect the nsurance of the other partners, ont owners
or owners n common.
Problems.
A fire insurance policy was issued by 5piderman lnsurance Co. to Peter, Ml, and Harry, who are partners.
Harry sold his interest to Doc Ock. ln case of fire is the insurer liable to Doc Ock?
NO, snce Doc Ock s a stranger.(Furthermore arch-enemy siya ni spiderman.hehehe) However, the
nsurer s abe to Peter and MI whose nsurance was not affected by the sae of Harry.
lf using the same facts, Harry sells to Peter. ls the insurer liable to Peter?
Yes. Peter s a partner.
What must the insurer do to avoid the policy?
Spderman Insurance Co. must stpuate n the pocy that "any sae of the property or any nterest
theren avods the pocy." Ths s the ony way the nsurer cannot be hed abe.
Section 25. Every stpuaton n a pocy of nsurance for the payment of oss whether the
person nsured has or the payment of oss whether the person nsured has or has not any nterest n
the property nsured, or that the pocy sha be receved as proof of such nterest, and every pocy
executed by way of gamng or wagerng, s vod.
This section avoids two types of stipulations in an insurance policy. What are they7
1. Stpuaton for the payment of oss WON the person nsured has any nterest n the subect matter of
the nsurance (excepton: fe nsurance)
2. Stpuaton that the pocy w be receved as proof of nsurabe nterest
What is the reason for voiding such stipulations7
As to the 1
st
stpuaton, we must remember that nsurabe nterest s a requste of a vad contract of
nsurance. Lack of ths requste avods the contract.
As to the 2
nd
stpuaton, the aw permts the nsurer to show ack of nsurabe nterest on the part of the
nsured, even after the ssuance of a pocy of nsurance to avod abty. (Sec. 83)
TlTLE lV - CONCEALMENT
Section 26. A negect to communcate that whch a party knows and ought to communcate s
caed a conceament.
What are the four primary concerns of parties to an insurance contract7
In makng a contract so hghy aeatory such as that of nsurance, the partes have four prmary concerns
to wt:
1. The correct estmaton of the rsk whch enabes the nsurer to decde whether he s wng to assume
t, and f so, at what rate or premum;
2. The precse demtaton of the rsk whch determnes the extent of the contngent duty to pay
undertaken by the nsurer;
3. Such contro of the rsk after t s assumed as w enabe the nsurer to guard aganst the ncrease of
the rsk because of change n condtons; and
4. Determnng whether a oss occurred, and f so, the amount of such oss.
What is concealment7
Conceament s a negect to communcate that whch a party knows and ought to communcate.
What are the requisites of concealment7
There can be no conceament uness:
1) A party knows the fact whch he negects to communcate or dscose to the other;
2) Such party conceang duty bound to dscose such fact to the other
3) Such party conceang makes no warranty of the fact conceaed; and
4) The other party has no means of ascertanng the fact conceaed
Section 27. A conceament whether ntentona or unntentona enttes the nured party to
rescnd a contract of nsurance.
What is the effect of concealment7
As a rue, faure on the part of the nsured to dscose condtons affectng the rsk of whch he s aware,
makes the contract vodabe at the nsureds opton. The reason s that nsurance poces are tradtonay
contracts uberrime fidae, that s, contracts of the outmost good fath. Ths doctrne s essenta on account of
the fact that the fu crcumstances of the subect-matter of nsurance are, as a rue, known to the nsured
ony, and the nsurer, n decdng whether or not to accept a rsk, must rey prmary upon the nformaton
supped to hm by the appeant.
ln order to rescind a contract on the ground of concealment, must the insurer prove fraud7
NO. Under Sec. 27, the nsurer need not prove fraud n order to rescnd a contract on the ground of
conceament. The duty of communcaton s ndependent of the ntenton and s voated by the fact of
conceament, even when there s no ntenton to deceve. Sec. 27 provdes that the effect of conceament s
the same regardess of whether the conceament s ntentona or unntentona.
Why does the law make no distinction between international and unintentional concealment7
Because you have to prove fraud. And f you have to prove fraud, you have to prove ntenton to
deceve. And t s so hard to prove ntenton to deceve because we are not mnd-readers.
What is the reason behind Sec. 277
The reason behnd the Sec. s that n cases of conceament, the nsurer s msed or deceved nto
acceptng the rsk , or acceptng t at the rate of premum agreed upon. The nsurer, reyng upon the beef
that the nsured w dscose every matera fact wthn hs actua or presumed knowedge, s msed nto a
beef that the crcumstance wthhed does NOT exst, and he s thereby nduced to estmate the rsk upon a
fase bass.
What is the criterion then if we were to apply Sec. 277
We must ask ourseves the queston: Was the nsurer msed or decevng nto enterng a contract
obgaton or n fxng the premum of nsurance by the wthhodng of matera nformaton or facts wthn the
nsureds knowedge or presumed knowedge? The appcaton of Sec 27, necessary depends on the answer
to ths queston.
Problems.
ln his application for life insurance, A did not reveal the fact that he was suffering from a certain ailment. ls
there concealment if the ailment was not material to the contract?
Whether or not A was aware of the ament, there s no conceament f the ament s not matera to the
contract.
5ame facts as above but the ailment is material to the contract. ls there concealment?
YES. There s conceament. However, we can dstngush. If A, was aware of the ament, but honesty
beeved that t was not matera, the conceament s not frauduent or ntentona. But f A was aware of the
materaty of the ament, there s frauduent conceament. Nevertheess, the effect s the same. It enttes
the nsurer to rescnd the contract.
Cases:
(44) Argente v. West Coast Life lnsurance Co.
51 PHlL 725
Facts:
A ont fe nsurance pocy was ssued to Bernardo Argente and hs wfe Vcenta upon payment of
premum, by West Coast.
On Nov. 18, 1925, durng the effectvty of the pocy, Vcenta ded of cerebra apopexy. Thereafter,
Bernardo camed payment but was refused.
It s admtted that n the Medca Examners report, Vcenta, n response to the queston asked by the
medca examner, her repes were as foows:
"How frequenty do you use beer, wne, sprts and other ntoxcants?" she answered "beer ony
n sma quanttes".
"What physcan have you consuted or been treated by wthn the ast 5 years and for what
ness or ament?" she answered "none"
It s however, not dsputed that n 1924, Vcenta was taken to a hospta for what was frst dagnosed as
acohosm and ater changed to manc-depressve psychoss and then agan changed to pscyhonueross.
lssue: WON on the bas of the msrepresentatons of Vcenta, Bernardo s barred from recovery.
Held: YES.
The court found that the representatons made by Vcenta n hs appcaton for fe nsurance were fase
wth respect to her state of heath and that she knew and was aware that the representatons so made by her
were fase. In an acton on a fe nsurance pocy where the evdence concusvey shows that the answers to
questons concernng dseases were untrue, the truth or fasty of the answer becomes the determnng
factor.
If the pocy was procured by frauduent msrepresentatons, the contract of nsurance apparenty set
forth theren was never egay exstent. It can be fary assumed that had the true facts been dscosed by
the nsured, the nsurance woud never have been granted.
(45) Yu Pang Cheng v. CA
105 PHlL 1930
Facts:
Yu Pang Eng obtaned a fe nsurance pocy namng hs brother Yu Pang Cheng as benefcary.
Eng subsequenty ded of meduary carcnoma, Grade 4, advanced and esser curvature.
Cheng cams the proceeds of the pocy.
Insurance co. refused payment on the ground that the pocy was vod due to the conceament.
lssue: WON the pocy s vod.
Held: YES.
In the appcaton for the pocy, Eng was asked whether he had been or had consuted a doctor due to
symptoms or nesses enumerated n the questonnare. He answered " No", when n fact he was
hosptazed seven months pror to hs appcaton for the sad pocy.
(46) Saturnino v. Philamlife
7 SCRA 316
Facts:
2 months pror to the nsurance of the pocy, Saturnno was operated on for cancer, nvovng compete
remova of the rght breast, ncudng the pectora musces and the gands, found n the rght armpt.
Notwthstandng the fact of her operaton, Saturnno dd not make a dscosure thereof n her appcaton
for nsurance.
She stated theren that she dd not have, nor had she ever had, among others sted n the appcaton,
cancer or other tumors; that she had not consuted any physcan, undergone any operaton or suffered
any nury wthn the precedng 5 years.
She aso stated that she had never been treated for, nor dd she ever have any ness or dsease pecuar
to her sex, partcuary of the breast, ovares, uterus and menstrua dsorders.
The appcaton aso rected that the decaratons of Saturnno consttuted a further bass for the ssuance
of the pocy.
lssue: WON the nsured made such fase representaton of matera facts as to avod the pocy.
Held: YES.
There can be no dspute that the nformaton gven by her n the appcaton for nsurance was fase,
namey, that she never had cancer or tumors or consuted any physcan or undergone any operaton wthn
the precedng perod of 5 years.
The queston to determne s: Are the facts then fasey represented matera? The Insurance Law
provdes that "materaty s to be determned not by the event, but soey by the probabe and reasonabe
nfuence of the facts upon the party to whom the communcaton s due, n formng hs estmate of the
proposed contract, or makng hs nqures.
The contenton of appeants s that the facts subect of the representaton were not matera n vew of
the non-medca nature of the nsurance apped for, whch does away wth the usua requrement of medca
examnaton before the pocy s ssued. The contenton s wthout mert. If anythng, the waver of medca
examnaton renders even more matera the nformaton requred of the appcant concernng prevous
condton of heath and dseases suffered, for such nformaton necessary consttutes an mportant factor
whch the nsurer takes nto consderaton n decdng whether to ssue the pocy or not.
Appeants aso contend that there was no frauduent conceament of the truth nasmuch as the nsured
hersef dd not know, snce her doctor never tod her, that the dsease for whch she had been operated on
was cancer. In the frst pace, conceament of the fact of the operaton tsef was frauduent, as there coud
not have been any mstake about t, no matter what the ament.
Secondy, n order to avod a pocy, t s not necessary to show actua fraud on the part of the nsured. In
ths ursdcton, conceament, whether ntentona or unntentona entted the nsurer to rescnd the contract
of nsurance, conceament beng defned as "negligence to communicate that which a party knows and ought
to communicate." The bass of the rue vtatng the contract n cases of conceament s that t mseads or
deceves the nsurer nto acceptng the rsk, or acceptng t at a rate of premum agreed upon. The nsurer,
reyng upon the beef that the nsured w dscose every matera fact wthn hs actua or presumed
knowedge, s msed nto a beef that the crcumstances wthhed does not exst, and he s thereby nduced
to estmate the rsk upon a fase bass that t does not exst.
(47) Grepalife v. CA (repeat - case #15)
Facts:
On Mar 4, 1957, Ngo Hng fed an appcaton wth Grepafe for a 20-yr endowment pocy for P50T on
the fe of hs 1-yr od daughter Heen Go.
Upon payment of the nsurance premum, a bndng depost recept was ssued to HIng by the branch
manager of the nsurer n Cebu.
On May 28, 1957, Heen ded of nfuenza wth compcaton of broncho pneumona.
Hng fed a cam wth Grepafe, but the atter dened abty on the ground of conceament.
lssue: WON Grepafe s abe to HIng.
Held: NO. There was concealment.
The SC was of the frm beef that Ngo Hng had deberatey conceaed the state of heath and physca
condton of hs daughter Heen. When he supped the requred essenta data for the nsurance form, he
was fuy aware that Heen was a mongood.
Such a congenta defect coud not be ensconced or dsgused. Nonetheess, Ngo Hng, n apparent gad
fath, wthhed such fact whch s matera to the rsk to be assumed by the nsurance company. Had he
dvuged sad sgnfcant fact n the nsurance form, Grepafe woud have verfed the same and woud have
had no obvous choce but to dsapprove the appcaton outrght. Conceament enttes the nsurer to resove
the contract of nsurance.
(48) Henson v. Philamlife
56 OG 7328
Facts:
Ceestno Henson was nsured by Phamfe n 1954 upon hs appcaton or a 20-yr endowment fe
pocy.
In 1955, the pocy apsed due to non-payment of the premums.
Upon payment of the premums due, the pocy was renstated, but n the appcaton for renstatement,
Henson dd not dscose the fact that he had been prevousy dagnosed for pyeonephrts, enarged ver
and herna. He aso dd not dscose that he had been examned by a physcan.
In 1956, Henson ded, and hs benefcares cam was reected by Phamfe on the ground of
conceament.
The company then fed for rescsson. Benefcares contend that the ntent to concea must be proven
to warrant rescsson.
lssue: WON there s need to prove ntent to concea to warrant rescsson.
Held: NO.
Sec. 26 provdes that "a concealment whether intentional or unintentional entitles the injured party to
rescind the contract of insurance". And asde from ths, ntent, beng a state of the mnd s hard to prove.
Accordng 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 nsured need not have ded of the very dseases he had faed to revea to the nsurance
company. It s suffcent that hs non-reveaton had msed the nsurer n formng ts estmate of the
dsadvantages of the proposed pocy renstatement or n makng ts nqures, n order to entte the atter to
rescnd the contract.
(49) Soliman v. US Life
104 PHlL 1046
Facts:
US Lfe ssued a 20yr endowment fe pocy on the ont ves of Patrco Soman and hs wfe Rosaro,
each of them beng the benefcary of the other.
In March 1949, the spouses were nformed that the premum for Ian 1949 was st unpad
notwthstandng that the 31-day grace perod had aready expred, and they were furnshed at the same
tme ong-form heath certfcates for the renstatement of the poces.
In Apr 1949, they submtted the heath certfcates and pad the premum due up to sad month.
In Ian. 1950, Rosaro ded of acute dataton of the heart, and thereafter Patrco fed a cam for the
proceeds of the nsurance.
US Lfe dened the cam and t fed a case for rescsson on the ground that the heath certfcates faed
to dscose that Rosaro had been sufferng from broncha asthma for three years pror to the submsson.
Patrco cams that the answers to the questons n the heath certfcates were made by US Lfes agent.
lssue: WON the pocy can be rescnded.
Held: YES.
The spouses n aowng the agent to answer some of the banks n the certfcates and afterwards
stampng ther sgnature thereon are presumed to have at east acquesced n and approved a that had bee
stated theren n ther behaf.
(50) Bautista v. Capital lnsurance
1 CA Rep. 228
Facts:
In 1952, a contract of nsurance was entered by the partes, upon PIar Bautstas house.
The pocy descrbed the budng as "occupied as dwelling only".
There was a stpuaton to the effect that any msrepresentaton of matera fact or msdescrpton of the
property sha render the nsurer not abe for ts oss.
Before the pocy was ssued however, Manue Leyson, Bautstas essee, subeased the ground foor to
ONg, who used t as a factory for the manufacture of shoes. A month ater, rubber hees, soes and
canvass were stored theren.
Subsequenty, the house was destroyed by fre. Bautsta fed her cams wth Capta Insurance, but the
atter dened her cam on the ground of breach of warranty.
Bautsta sad that the statement "occuped as dweng ony" was not hers, but of the nsurance agent,
and that the pocy was n Engsh (whch she dd not understand) and was never read to her.
lssue: WON Capta may rescnd the contract.
Held: lt can.
Bautsta was bound to know the contents of the pocy n acceptng t. In the absence of fraud, she s
presumed to know the contents of the contract and to have assented to them. Faure to read the pocy s
neggence, and the nsured s regarded as havng assumed the rsk of the fasty or msstatements of ts
contents.
(51) Gen. lnsurance & Surety Corp v. NG Hua
106 PHlL 1117
Facts:
In 1952, Genera ssued a fre pocy to Ng Hua to cover the contents of the Centra Pomade Factory
owned by hm.
There was a provson n the pocy that shoud there be any nsurance aready effected or to be
subsequenty procured, the nsured sha gve notce to the nsurer.
Ng Hua decared that there was non. The very next day, the budng and the goods stored theren
burned.
Subsequenty, the cam of Ng Hua for the proceeds was dened by Genera snce t dscovered that Ng
Hua had obtaned an nsurance from Genera Indemnty for the same goods and for the same perod of
tme.
lssue: WON Genera Insurance can refuse to pay the proceeds.
Held: Yes.
Voaton of the statement whch s to be consdered a warranty enttes the nsurer to rescnd the
contract of nsurance. Such msrepresentaton s fata.
(52) Vda. De Canilang v. CA
223 SCRA 443 (1993)
Facts:
Canang consuted Dr. Caudo and was dagnosed as sufferng from "snus tachycarda." Mr. Canang
consuted the same doctor agan on 3 August 1982 and ths tme was found to have "acute bronchts."
On the next day, 4 August 1982, Canang apped for a "non-medca" nsurance pocy wth Grepafe
namng hs wfe, as hs benefcary. Canang was ssued ordnary fe nsurance wth the face vaue of
P19,700.
On 5 August 1983, Canang ded of "congestve heart faure," "anema," and "chronc anema." The wfe
as benefcary, fed a cam wth Grepafe whch the nsurer dened on the ground that the nsured had
conceaed matera nformaton from t.
Vda Canang fed a compant wth the Insurance Commssoner aganst Grepafe contendng that as far
as she knows her husband was not sufferng from any dsorder and that he ded of kdney dsorder.
Grepafe was ordered to pay the wdow by the Insurance Commssoner hodng that there was no
ntentona conceament on the Part of Canang and that Grepafe had waved ts rght to nqure nto the
heath condton of the appcant by the ssuance of the pocy despte the ack of answers to "some of the
pertnent questons" n the nsurance appcaton. CA reversed.
lssue: WON Grepafe s abe.
Held:
SC took note of the fact that Canang faed to dscose that hat he had twce consuted Dr. Wfredo B.
Caudo who had found hm to be sufferng from "snus tachycarda" and "acute bronchts. Under the
reevant provsons of the Insurance Code, the nformaton conceaed must be nformaton whch the
conceang party knew and "ought to lhave| communcateld|," that s to say, nformaton whch was "matera
to the contract.
The nformaton whch Canang faed to dscose was matera to the abty of Grepafe to estmate the
probabe rsk he presented as a subect of fe nsurance. Had Canang dscosed hs vsts to hs doctor, the
dagnoss made and the medcnes prescrbed by such doctor, n the nsurance appcaton, t may be
reasonaby assumed that Grepafe woud have made further nqures and woud have probaby refused to
ssue a non-medca nsurance pocy or, at the very east, requred a hgher premum for the same coverage.
The materaty of the nformaton wthhed by Canang from Grepafe dd not depend upon the state of
mnd of Iame Canang. A man's state of mnd or subectve beef s not capabe of proof n our udca
process, except through proof of externa acts or faure to act from whch nferences as to hs subectve
beef may be reasonaby drawn. Nether does materaty depend upon the actua or physca events whch
ensue. Materaty reates rather to the "probabe and reasonabe nfuence of the facts" upon the party to
whom the communcaton shoud have been made, n assessng the rsk nvoved n makng or omttng to
make further nqures and n acceptng the appcaton for nsurance; that "probabe and reasonabe
nfuence of the facts" conceaed must, of course, be determned obectvey, by the udge utmatey.
SC found t dffcut to take serousy the argument that Grepafe had waved nqury nto the
conceament by ssung the nsurance pocy notwthstandng Canang's faure to set out answers to some of
the questons n the nsurance appcaton. Such faure precsey consttuted conceament on the part of
Canang. Pettoner's argument, f accepted, woud obvousy erase Secton 27 from the Insurance Code of
1978.
(53) Sun Life v. CA
245 SCRA 268 (1995)
Facts:
On Apr 15, 1986, Bacan procured a fe nsurance contract for hmsef from Sun Lfe. He was ssued a
fe nsurance pocy wth doube ndemnty n case of accdenta death. The desgnated benefcary was
hs mother, Bernarda.
On Iune 26, 1987, the nsured ded n a pane crash. Bernarda Bacan fed a cam wth Sun Lfe, seekng
the benefts of the nsurance. Sun Lfe conducted an nvestgaton and ts fndngs prompted t to reect
the cam.
Sun Lfe dscovered that 2 weeks pror to hs appcaton, Bacan was examned and confned at the Lung
Center of the Phppnes, where he was dagnosed for rena faure. Durng hs confnement, the deceased
was subected to urnayss, utra-sonography and hematoogy tests. He dd not revea such fact n hs
appcaton.
In ts etter, Sun Lfe nformed Berarda, that the nsured dd not dscosed matera facts reevant to the
ssuance of the pocy, thus renderng the contract of nsurance vodabe. A check representng the tota
premums pad n the amount of P10,172.00 was attached to sad etter.
Bernarda and her husband, fed an acton for specfc performance aganst Sun Lfe. RTC rued for
Bernarda hodng that the facts conceaed by the nsured were made n good fath and under the beef
that they need not be dscosed. Moreover, t hed that the heath hstory of the nsured was mmatera
snce the nsurance pocy was "non-medca." CA affrmed.
lssue: WON the benefcary can cam despte the conceament.
Held: NOPE.
Secton 26 of the Insurance Code s expct n requrng a party to a contract of nsurance to
communcate to the other, n good fath, a facts wthn hs knowedge whch are matera to the contract and
as to whch he makes no warranty, and whch the other has no means of ascertanng.
Materaty s to be determned not by the event, but soey by the probabe and reasonabe nfuence of
the facts upon the party to whom communcaton s due, n formng hs estmate of the dsadvantages of the
proposed contract or n makng hs nqures (The Insurance Code, Sec 31)
The terms of the contract are cear. The nsured s specfcay requred to dscose to the nsurer matters
reatng to hs heath. The nformaton whch the nsured faed to dscose were matera and reevant to the
approva and the ssuance of the nsurance pocy. The matters conceaed woud have defntey affected
pettoner's acton on hs appcaton, ether by approvng t wth the correspondng adustment for a hgher
premum or reectng the same. Moreover, a dscosure may have warranted a medca examnaton of the
nsured by pettoner n order for t to reasonaby assess the rsk nvoved n acceptng the appcaton.
Thus, "good fath" s no defense n conceament. The nsured's faure to dscose the fact that he was
hosptazed for two weeks pror to fng hs appcaton for nsurance, rases grave doubts about hs
bonafdes. It appears that such conceament was deberate on hs part.
Section 28. Each party to a contract of nsurance must communcate to the other, n good
fath, a facts wthn hs knowedge whch are matera to the contract and as to whch he makes no
warranty, and whch the other has not the means of ascertanng.
According to Sec. 28, what are the matters that must be communicated by the party to the
other7
Ths secton makes t the duty of each party to a contract of nsurance to communcate n good fath a
facts that are matera to the contract wthn hs knowedge when:
1. the party wth the duty to communcate makes no warranty; and
2. the other party has no means of ascertanng the facts
Any exceptions to the duty to communicate7
Those fang under Sec. 30.
What is the test to determine whether or not one must communicate the facts to the other
party7
The test s: If the appcant s aware of the exstence of some crcumstance whch he knows woud
nfuence the nsurer n actng upon hs appcaton, GOOD FAITH requres hm to dscose that crcumstance,
though unasked.
Problem.
lf A consulted Dr. 8 for treatment of syphilis and gonorrhea when must A disclose the fact?
He must dscose such fact even f not nqured nto, f such fact s matera to the rsk assumed by the
nsurer.
ln the problem above, how will A know if the fact is material or not7
The fact must be reated to the nsurance apped for. In the above exampe, such fact s matera n
cases of fe or heath nsurance and may even be matera up to a certan extent for accdent nsurance. It s
far-fetched to requre dscosng such nformaton f he s appyng for fre or marne nsurance.
What if the insurer with reasonable diligence could have known or discovered such facts for
himself, can the lnsured be excused for his concealment and deny the remedy of rescission to
the insurer7
NO. The effect of the matera conceament cannot be avoded by the aegaton that the nsurer coud
have known and dscovered a fact whch the nsured had conceaed. An aegaton ke ths mpes that there
s an obgaton on the part of the nsurance company to verfy a the statements made by the nsured n hs
appcaton. No such obgaton exsts on the part of the nsurer. The nsurer has the rght to rey upon the
statements of the nsured for he knows the facts and the nsurer does not.
What is deemed material7
See sec. 31.
Atty Ouimson asked us to look at Sec. 107. What does this provision say7
Sec. 107 provdes that "n marne nsurance each party s bound to communcate, n addton to what s
requred by secton twenty-eght, a the nformaton whch he possesses, matera to the rsk, except such as
s mentoned n Secton thrty, and to state the exact and whoe truth n reaton to a matters that he
represents, or upon nqury dscoses or assumes to dscose.
Cases:
(54) Fieldman's lnsuranc v. Songco
25 SCRA 70
Facts:
In 1960, Sambat, an agent of Fedmans Insurance, nduced Songco, a man of scant educaton to enter
nto a common carrer nsurance contract wth Fedman.
Durng the nducement, a son of Songco butted n and sad that they coud not accept the type of
nsurance offered because thers was an owner-type eepney and not a common carrer.
Sambat answered that t dd not matter because the nsurance company was not owned by the
government and therefore had nothng to do wth rues and reguatons of the atter (Fedman).
The nsurance was executed and approved for a year from Sept. 1960-1961. It was renewed n 1961 for
another year.
In Oct. 1961, the eepney coded wth a car n Buacan and as a resut, Sonco ded. The remanng
members of the famy camed the proceeds of the nsurance wth the company but t refused to pay on the
ground that the vehce was not a common carrer.
lssue: WON the Songcos can cam the nsurance proceeds despte the fact that the vehce concerned was
an owner and not a common carrer.
Held: Yes.
The company s estopped from assertng that the vehce was not covered. After t had ed Federco
Songco to beeve that he coud quafy under the common carrer abty nsurance pocy, and to enter nto
a contract of nsurance payng the premums due, t coud not thereafter be permtted to change ts stand to
the detrment of the hers of the nsured. It knew a aong that Frederco owned a prvate vehce. Its agent
Sambat twce exerted the utmost pressure on the nsured, a man of scant educaton, and the company dd
not obect to ths.
Section 29. An ntentona and frauduent omsson, on the part of one nsured, to communcate
nformaton of matters provng or tendng to prove the fasty of a warranty, enttes the nsurer to
rescnd.
What type of concealment is referred to here7
The type of conceament referred to here reates to the falsity of a warranty". Unke the ordnary
conceament provded for n Sec. 27, the non-dscosure under ths secton must be intentional and
fraudulent n order that the contract may be rescnded.
What is an example of this kind of concealment7
In every contract of marne nsurance, there s an mped warranty of seaworthness of the vesse. The
ntentona and frauduent omsson on the part of the nsured to communcate the fact that hs shp s n
dstress or n speca per enttes the nsurer to rescnd because the conceament refers to matters provng
or tendng to prove the fasty of the warranty that the shp s seaworthy.
Section 30. Nether party to a contract of nsurance s bound to communcate nformaton of the
matters foowng, except n answer to the nqures of the other:
(a) Those whch the other knows;
(b) Those whch, n the exercse of ordnary care, the other ought to know, and of whch the
former has no reason to suppose hm gnorant;
(c) Those of whch the other waves communcaton;
(d) Those whch prove or tend to prove the exstence of a rsk excuded by a warranty, and whch
are not otherwse matera; and
(e) Those whch reate to a rsk excepted from the pocy and whch are not otherwse matera.
What is the general rule7
Communcate the necessary matera facts.
What is the exception7
Those provded for under Secton 30.
When will the insured be required to communicate information covered by Sec. 30(exception to
the exception)7
If the nsurer asks about them, the nsured becomes duty bound to communcate such nformaton.
Cases:
(55) lnsular Life v. Feliciano
73 PHlL 201
Facts:
Evarsto Fecano fed an appcaton wth Insuar Lfe upon the soctaton of one of ts agents.
It appears that durng that tme, Evarsto was aready sufferng from tubercuoss. Such fact appeared
durng the medca exam, but the examner and the companys agent gnored t.
After that, Evarsto was made to sgn an appcaton form and thereafter the bank spaces were fed by
the medca examner and the agent makng t appear that Evarsto was a ft subect of nsurance.
(Evarsto coud not read and understand Engsh)
When Evarsto ded, Insuar fe refused to pay the proceeds because of conceament.
lssue: WON Insuar Lfe was bound by ther agents acts.
Held: Yes.
The nsurance busness has grown so vast and ucratve wthn the past century. Nowadays, even peope
of modest means enter nto nsurance contracts. Agents who soct contracts are pad arge commssons on
the poces secured by them. They act as genera representatves of nsurance companes.
IN the case at bar, the true state of heath of the nsured was conceaed by the agents of the nsurer.
The nsurers medca examner approved the appcaton knowng fuy we that the appcant was sck. The
stuaton s one n whch of two nnocent partes must bear a oss for hs reance upon a thrd person. In ths
case, t s the one who drafted and accepted the pocy and consummated the contract. It seems reasonabe
that as between the two of them, the one who empoyed and gave character to the thrd person as ts agent
shoud be the one to bear the oss. Hence, Insuar s abe to the benefcares.
(56) lnsular life v. Feliciano
74 PHlL 4681
Facts:
Insuar fe fed a moton for reconsderaton of the decson n the precedng case.
Held: NO (what the f.?)
There was couson between Evarsto and the agent and the medca examner n makng t appear that
Evarsto was a ft subect for nsurance. When Evarsto authorzed them to wrte the answers for hm, he
made them hs own agents for that purpose and he was responsbe for ther acts n that connecton.
If they fasfed the answers for hm, he coud not evade abty for the fasfcaton. He was not
supposed to sgn the appcaton n bank. He knew that hs answers woud be the bass for the pocy, and
was requred wth hs sgnature to vouch for ther truth. The udgment rendered therefore n the precedng
case s thus reversed, and Insuar Lfe s absoved from abty. (bakit kaya nagreverse?... the plot thickens.
Hmm..)
(57) Aranilla v. lnsular Llfe
69 OG No. 4 637
Facts:
In 1959, Iose Arana apped for fe nsurance wth Insuar. In hs appcaton, these 2 questons
appeared:
WON he has suffered from any dsease of the kdney and urnary tract, to whch he answered NO.
WON he has been confned n a hospta for consutaton and treatment, to whch he answered
that n 1947, he was confned due to nfuenza.
The truth however, was that a few months pror to hs appcaton, he was confned and treated for
nephrts, a dsease of the kdney and urnary tract, and he was accordngy nformed of the cause.
When Arana ded of crrhoss of the ver, Insuar refused to pay the proceeds due to conceament.
lssue: WON the contract can be rescnded.
Held: Yes.
If an answer gven by the nsured to a specfc queston asked by the nsurer n an appcaton for fe
nsurance turns out to be fase, t s a conceament of a matera fact whch enttes the nsurer to rescnd,
even f the nsured ded of an ament whch has NO connecton wth the specfc questons fasey answered
by hm. Ths s because materaty s to be determned NOT by the event but ONLY by the probabe and
reasonabe nfuence of the facts upon the party to whom the communcaton s due, n formng hs estmate
of the dsadvantages of the proposed contract or n makng hs nqures.
Section 31. Materaty s to be determned not by the event, but soey by the probabe and
reasonabe nfuence of the facts upon the party to whom the communcaton s due, n formng hs
estmate of the dsadvantages of the proposed contract, or n makng hs nqures.
What is the test of materiality7
The test s smpy: IF the knowedge of a fact woud cause the nsurer to reect the rsk , or to accept t
ony at a hgher premum rate, that fact s matera, though t may not even remotey contrbute to the
contngency upon whch the nsurer woud become abe, or n any wse affect the rsk.
What is the principal question that must be asked7
The prncpa queston n determnng whether the conceament s matera s: 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 insureds actual or presumed knowledge? If so, then the contract s
avoded, even f the cause of the oss whch subsequenty occurred be unconnected wth the fact conceaed.
Cases:
(58) Saturnino v. Philamlife (repeat - case #46)
7 SCRA 316
Facts:
for nsurance.
of the pocy.
Held: YES.
(59) Henson v. Philamlife (repeat - case #48)
56 OG 7328
Facts:
Ceestno Henson was nsured by Phamfe n 1954 upon hs appcaton or a 20-yr endowment fe
pocy.
In 1955, the pocy apsed due to non-payment of the premums.
Upon payment of the premums due, the pocy was renstated, but n the appcaton for renstatement,
Henson dd not dscose the fact that he had been prevousy dagnosed for pyeonephrts, enarged ver
and herna. He aso dd not dscose that he had been examned by a physcan.
In 1956, Henson ded, and hs benefcares cam was reected by Phamfe on the ground of
conceament.
The company then fed for rescsson. Benefcares contend that the ntent to concea must be proven
to warrant rescsson.
lssue: WON there s need to prove ntent to concea to warrant rescsson.
Held: NO.
Sec. 26 provdes that "a concealment whether intentional or unintentional entitles the injured party to
rescind the contract of insurance". And asde from ths, ntent, beng a state of the mnd s hard to prove.
Accordng 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 nsured need not have ded of the very dseases he had faed to revea to the nsurance
company. It s suffcent that hs non-reveaton had msed the nsurer n formng ts estmate of the
dsadvantages of the proposed pocy renstatement or n makng ts nqures, n order to entte the atter to
rescnd the contract.
(60) Sun Life v. CA (repeat - Case # 53)
245 SCRA 268 (1995)
Facts:
On Apr 15, 1986, Bacan procured a fe nsurance contract for hmsef from Sun Lfe. He was ssued a
fe nsurance pocy wth doube ndemnty n case of accdenta death. The desgnated benefcary was
hs mother, Bernarda.
On Iune 26, 1987, the nsured ded n a pane crash. Bernarda Bacan fed a cam wth Sun Lfe, seekng
the benefts of the nsurance. Sun Lfe conducted an nvestgaton and ts fndngs prompted t to reect
the cam.
Sun Lfe dscovered that 2 weeks pror to hs appcaton, Bacan was examned and confned at the Lung
Center of the Phppnes, where he was dagnosed for rena faure. Durng hs confnement, the deceased
was subected to urnayss, utra-sonography and hematoogy tests. He dd not revea such fact n hs
appcaton.
In ts etter, Sun Lfe nformed Berarda, that the nsured dd not dscosed matera facts reevant to the
ssuance of the pocy, thus renderng the contract of nsurance vodabe. A check representng the tota
premums pad n the amount of P10,172.00 was attached to sad etter.
Bernarda and her husband, fed an acton for specfc performance aganst Sun Lfe. RTC rued for
Bernarda hodng that the facts conceaed by the nsured were made n good fath and under the beef
that they need not be dscosed. Moreover, t hed that the heath hstory of the nsured was mmatera
snce the nsurance pocy was "non-medca." CA affrmed.
lssue: WON the benefcary can cam despte the conceament.
Held: NOPE.
Secton 26 of the Insurance Code s expct n requrng a party to a contract of nsurance to
communcate to the other, n good fath, a facts wthn hs knowedge whch are matera to the contract and
as to whch he makes no warranty, and whch the other has no means of ascertanng.
Materaty s to be determned not by the event, but soey by the probabe and reasonabe nfuence of
the facts upon the party to whom communcaton s due, n formng hs estmate of the dsadvantages of the
proposed contract or n makng hs nqures (The Insurance Code, Sec 31)
The terms of the contract are cear. The nsured s specfcay requred to dscose to the nsurer matters
reatng to hs heath. The nformaton whch the nsured faed to dscose were matera and reevant to the
approva and the ssuance of the nsurance pocy. The matters conceaed woud have defntey affected
pettoner's acton on hs appcaton, ether by approvng t wth the correspondng adustment for a hgher
premum or reectng the same. Moreover, a dscosure may have warranted a medca examnaton of the
nsured by pettoner n order for t to reasonaby assess the rsk nvoved n acceptng the appcaton.
Thus, "good fath" s no defense n conceament. The nsured's faure to dscose the fact that he was
hosptazed for two weeks pror to fng hs appcaton for nsurance, rases grave doubts about hs
bonafdes. It appears that such conceament was deberate on hs part.
Section 32. Each party to a contract of nsurance s bound to know a the genera causes whch
are open to hs nqury, equay wth that of the other, and whch may affect the potca or matera
pers contempated; and a genera usages of trade.
Under this section, what is each party to a contract of insurance bound to know7
There are two matters that each party to a contract of nsurance s bound to know, namey:
1. Genera causes
2. Genera usages of trade.
A party however, s not bound to know a the casses of genera causes but ony such general causes:
a) Whch are open to hs nqury, equay wth that of the other;
b) Whch may affect ether the potca or matera pers contempated.
What is the import of the aforementioned rules7
The nsured need not communcate pubc events such as that the naton s at war, or what the aw s, or
potca condtons n other countres, the sources of ths nformaton beng equay open to the nsurer who s
aso presumed to know such events. Lkewse, the nsurer s charged wth the knowedge or genera trade
usages and rues of navgaton, knds of seasons and a the rsks connected wth navgaton.
Section 33. The rght to nformaton of matera facts may be waved, ether by the terms of the
nsurance or by negect to make nqury as to such facts, where they are dstncty mped n other
facts of whch nformaton s communcated.
May the right to information be waived7
Yes. The rght to nformaton of matera facts may be waved ether:
1) Expressy, by the terms of the nsurance; or
2) Impedy, by negect to make nqury as to the facts aready communcated.
If the appcant has answered the questoned asked n the appcaton, he s ustfed n assumng that no
further nformaton s desred.
What is an example of the operation of this provision7
The nsurer asks the nsured f he was ever confned n a hospta for more than a month and the nsured
says "YES". If the nsurer does not nqure for the cause of the ong confnement, then he s deemed to have
waved the nformaton.
Cases:
(61) Ng Gan Zee v. Asian Crusader Llfe
122 SCRA 61
Facts:
In 1962, Kwon Nam apped for a 20yr endowment nsurance on hs fe wth hs wfe, Ng Gan Zee as the
benefcary.
He stated n hs appcaton that he was operated on for tumor of the stomach assocated wth ucer.
In 1963, Kwong ded of cancer of the ver wth metastass. Asan refused to pay on the ground of ase
nformaton.
It was found that pror to hs appcaton, Kwong was dagnosed to have peptc ucers, and that durng the
operaton what was removed from Kwongs body was actuay a porton of the stomach and not tumor.
lssue: WON the contract may be rescnded on the ground of the mperfecton n the appcaton form.
Held: NO.
Kwong dd not have suffcent knowedge as to dstngush between a tumor and a peptc ucer. Hs
statement therefore was made n good fath. Asan shoud have made an nqury as to the ness and
operaton of Kwong when t appeared on the face of the appcaton that a queston appeared to be
mperfecty answered. Asans faure to nqure consttuted a waver of the mperfecton n the answer.
Section 34. Informaton of the nature or amount of the nterest of one nsured need not be
communcated uness n answer to an nqury, except as prescrbed by secton ffty-one.
What does this provision provide7
Under Sec. 51(e), t s requred that a pocy of an nsurance must specfy the nterest of the nsured n
the property nsured, f he s not the absolute owner thereof. So a mortgagee must dscose hs partcuar
nterest even f no nqury s made by the nsurer n reaton thereto. Such requrement s made so that the
nsurer may determne the extent of the nsureds nsurabe nterest.
Ths secton therefore says, that there s NO NEED to dscose the nterest n the property nsured f the
nterest s absolute. The excepton of course s the nsurer asks.
Problem:
A fire insurance policy was issued in which lmeda (insured) was described as the owner of the insured
residential property. 8ut actually, lmelda was only given the privilege of occupying the house rent-free for
life. lmelda represented herself as owner. ls the policy valid?
NO. She s guty of msrepresentaton. She shoud have dscosed the nature of her nterest n the
property n as much as she was not the absoute owner thereof.
Section 35. Nether party to a contract of nsurance s bound to communcate, even upon
nqury, nformaton of hs own udgment upon the matters n queston.
To what is the duty to disclose confined7
The duty to dscose s confned to facts. There s no duty to dscose mere opnon, specuaton,
ntenton or expectaton. Ths s true even f the nsured s asked.
Example7
Beatrx Kddo was asked by the nsurer: How long do you think you will live? If Beatrx uses the 5-pont
expodng heart technque on the nsurer, she w be convcted of murder.. (not the pont of the artce)
HOWEVER, f she sad, "As long as the moon rises over the grave of Pai Mei" and she des the next day, her
error n answerng that queston whch caed for an expresson of an opnon does not consttute fraud n aw.
Atty. Ouimsons asked us to look at Sec. 108. What does it say7
Secton 108 provdes that "In marne nsurance, nformaton of the beef or expectaton of a thrd
person, n reference to a matera fact, s matera."
TlTLE V - REPRESENTATlON
Section 36. A representaton may be ora or wrtten.
What is a representation7
A representaton s a factua statement made by the nsured at the tme of, or pror to, the ssuance of
the pocy to gve, nformaton to the nsurer and otherwse nduce hm to enter nto the nsurance contract.
What is the difference between a representation and concealment7
A concealment s a negatve act, meanng t s the faure to do somethng whch s requred whe
representation s postve act as the nsured vounteers such facts. Concealment usuay occurs pror to
makng of the nsurance contract, whe a representation may be made at the tme of the ssuance of the
contract.
What is a misrepresentation7
A Msrepresentaton s a statement:
1. As a fact of somethng whch s untrue
2. Whch the nsured stated wth knowedge that t s untrue and wth an ntent to deceve or whch
he states as true wthout knowng t to be true and whch has the tendency to msead; and
3. Where such fact n ether case s matera to the rsk.
What is the effect of a misrepresentation7
A msrepresentaton by the nsured renders the nsurance contract vodabe at the opton of the nsurer,
athough the pocy s not thereby rendered vod ab nto.
ls misrepresentation synonymous with concealment7
NO. De Leon book says msrepresentaton s an actve form of conceament.
What is the duty of the person applying for insurance7
It s duty to gve the nsurer a such nformaton concernng the rsk as w be of use to the atter n
estmatng ts character and n determnng whether or not to assume t. Ths nformaton may be gven
oray or wrtten n papers not connected wth the contract such as n the appcaton or examners report.
Sometmes, t may appear on the pocy tsef.
Why is such information important7
The nformaton forms the bass of the contract as made. It descrbes, marks out and defnes the rsk
assumed. Hence the untruthfuness of any representaton w necessary avod the contract.
Can you give an example of misrepresentations such that the insurer avoids any liability to the
insured7
If the nsurer was made to beeve that he was nsurng a brck house when n truth and n fact, the house
was made of npa, or when the nsurer nsured a man of thrty and t turns out that the man who des was a
130.
Section 37. A representaton may be made at the tme of, or before, ssuance of the pocy.
Atty. Ouimson wants us to look at Sec. 41. What does it say7
Secton 41 provdes that "A representaton may be atered or wthdrawn before the nsurance s
effected, but not afterwards."
Section 38. The anguage of a representaton s to be nterpreted by the same rues as the
anguage of contracts n genera.
How are misrepresentations construed7
They are construed beray n favor of the nsured.
Must the representations be literally true7
No. It s suffcent that they be substantay true.
How can a representation be substantially true and not literally true7
De Leon ctes two exampes:
If one s asked f he drnks, the queston w be construed as referrng to habtua use. So f you drnk
ony when there s an occason, they you can say NO.
If you are asked f you had any nesses, oca dsease or nury n any organ, you can st say NO even f
three weeks before you were sufferng from LBM because you ate one kang of avocados.
Section 39. A representaton as to the future s to be deemed a promse, uness t appears that
t was merey a statement of beef or expectaton.
What are the different kinds of representations7
They may ether be:
1. Ora or wrtten;
2. Made at the tme of the ssuance of the pocy or before;
3. Affrmatve or promssory
What is an affirmative representation7
It s any aegaton as to the exstence or non-exstence of a fact when the contract begns. An exampe
woud be when the nsured states that the house subect of the nsurance s used ony for resdenta
purposes.
What is a promissory representation7
A promssory representaton s any promse to be fufed after the contract has come nto exstence or
any statement concernng what s to happen durng the exstence of the nsurance.
What is the nature of a promissory representation7
Frst, t used to ndcate a paro or ora promse made n connecton wth the nsurance, but NOT
ncorporated n the pocy. The non-performance of such a promse CANNOT be shown by the nsurer n
defense to an acton on the pocy, but proof that the promse was made wth frauduent ntent and w serve
to defeat the nsurance.
Second, t s an undertakng by the nsured, nserted n the pocy, but NOT specfcay made a warranty,
s caed a promssory representaton. It s however n such a case merey an executory term of the contract,
and not propery a representaton. A promssory representaton, s therefore, substantay a condton or a
warranty.
Can you give examples of promissory representations7
1. An appcant for fre nsurance on a budng oray promsed that the budng w be occuped.
2. An appcant for fre nsurance on a budng oray promsed to nsta two fre extngushers wthn the
bdg.
3. A TV hostess sayng "W be back.. promse.. saranghameda po."
Does a false representation based on an opinion or expectation avoid the policy7
IT DEPENDS. A representaton of an expectaton, ntenton, beef opnon or udgment of the nsured,
athough fase, w NOT avod the pocy of nsurance f there s NO actua fraud n nducng the acceptance of
the rsk or ts acceptance at a ower rate of premum and ths s kewse the rue athough the statement s
matera to the rsk. In such a case, the nsurer s not ustfed n reyng upon such statement but s obgated
to make further nqury.
What must the insurer then to do to avoid liability7
The nsurer must prove both the materaty of the nsureds opnon and the atters ntent to deceve. If
the representaton s one of fact, a the nsurer needs to prove s ts fasty and materaty. The ntent to
deceve s aready presumed.
When is a representation deemed a mere expression of opinion7
An ora representaton as to a future event, or condton over whch the nsured has no contro, wth
reference to property or fe nsured w be deemed a mere expresson of opnon, whch w avod a contract
ONLY when made n bad fath.
Problems.
Mary applied for insurance. When asked if she was HlV-positive, she said that her body was wholly free from
the HlV virus. lf it turns out that Mary is wrong, is the insurer free from liability because of the
misrepresentation?
No. The nsurer knows that the nsureds opnon may be mstaken after a, no one can be certan about
anythng. The nsurer shoud have subected Mary to a battery of tests before enterng nto a contract.
lohn applied for a motor vehicle insurance. When asked if he knew how to drive, he said lm a very good
driver." lt turned out, he doesnt know how to drive and after a few minutes he crashed into the car of
Arvin. ls the insurer liable despite lohns misrepresentation?
NO. Aan s guty of frauduent msrepresentaton of a matera fact. He shoud have dscosed that he
doesnt know how to drve.
Section 40. A representaton cannot quafy an express provson n a contract of nsurance, but
t may quafy an mped warranty.
Why is it that a representation cannot qualify an express provision in a contract of insurance7
A representaton cannot quafy an express provson or an express warranty n a contract of nsurance
because a representaton s not a part of the contract but ony a coatera nducement to t.
Can you give two examples7
1) If the pocy expressy provdes that the house nsured s used as a warehouse, any
representaton made by the nsured pror to the ssuance of the pocy to the effect that the
house was used ony as a resdence s NOT a defense n the acton for the recovery of the
amount of the nsurance.
2) The representaton of the nsured to the effect that the ast tme the vesse was drydocked was
sx months ago woud NOT quafy the mped warranty that the vesse s seaworthy.
Section 41. A representaton may be atered or wthdrawn before the nsurance s effected, but
not afterwards.
What is the reason for this provision7
As representatons nduce the nsurer n assumng the rsk nsured aganst and n ssung the nsurance
pocy, t s but ogca that representatons may not be atered or wthdrawn after the nsurance s affected.
Section 42. A representaton must be presumed to refer to the date on whch the contract goes
nto effect.
To what time does representation refer7
Representatons refer ony to the tme of makng the contract. We earer sad that promssory
statements of condtons that exst subsequent to the competon of the contract are condtons or warrantes
and not representatons (See annotatons under Sec. 39). But now, we refer ONLY to condtons represented
as ALREADY EXISTING. These condtons must exst durng the makng of the contract.
When is there false representation7
There s NO fase representaton f the representaton was true at the tme the contract takes effect,
athough t became fase at the tme t was made.
There s fase representaton f athough the representaton was true at the tme t was made, t
subsequenty became fase at the tme the contract took effect.
Problems:
A represented that his yacht was in Taiwan when in fact it was in Hl. 8ut at the taking effect of the contract,
the yacht had already reached the port in Taiwan. Was there false representation?
NO. Athough the representaton was fase at the tme t was made, t was aready true at the tme when
the contract took effect.
A represented that his yacht was in Taiwan and in fact it was in Taiwan. 8ut at the taking effect of the
contract the yacht had already sailed to Hl and then it was shipwrecked. ls lnsurer liable?
NO. Here there s fase representaton. Ths tme, the representaton athough true when made,
subsequenty became fase at the tme the contract took effect.
At the time he applied for a life insurance policy on Aug J0, 2004, A had never suffered from any of the
diseases enumerated in the policy by the insurer. ON Aug. J7, 2004, A became afflicted with an enumerated
disease in the policy. Fortunately, he completely recovered. When the policy was delivered and the first
premium paid on Aug. 30, 2004, A did not disclose his having been sick. ls there false representation?
YES.
When 8 applied for a life insurance policy on Nov. 5, 2004, she was asked to state her age. 5he said that she
was 24. However, when the policy was delivered to her on Dec. 5, 2004, she had already turned 25. When
time to collect the proceeds of the insurance, the insurer denied liability on the ground of false
representation, because at the time the policy took effect, 8 was no longer 24 yrs old as she alleged. ls the
insurer correct?
The nsurer s stupd. The truth of the statement made by the nsured at the date of the appcaton of
her age s surey to be tested as of the date of the appcaton. It woud e absurd to say that ths
representaton was fatay fase because at the tme of the acceptance of the appcaton and the competon
of the contract t was no onger true.
Section 43. When a person nsured has no persona knowedge of a fact, he may nevertheess
repeat nformaton whch he has upon the subect, and whch he beeves to be true, wth the
expanaton that he does so on the nformaton of others; or he may submt the nformaton, n ts
whoe extent, to the nsurer; and n nether case s he responsbe for ts truth, uness t proceeds
from an agent of the nsured, whose duty t s to gve the nformaton.
What is the effect where information is obtained from third persons7
Under Sec. 43, the nsured s gven dscreton to communcate to the nsurer what he knows of a matter
of whch he has no persona knowedge. If the representaton turns out to be fase, he s NOT responsbe
therefor, provded he gves the expanaton that he represents so on the nformaton of others.
Example7
If the nsured has no persona knowedge of the causes of the death of hs parents because they ded
when the nured was st an nfant, he may report nformaton obtaned from frends and reatves f he kes.
In whch case, he s not responsbe for the truth of the nformaton.
What is the effect where information is obtained from the agent of the insured7
If the nformaton proceeds from an agent of the nsured, whose duty t s n the ordnary course of
busness to communcate such nformaton to hs prncpa, and t s possbe for the agent under such
crcumstances n the exercse of due dgence to have made such communcaton before the makng of the
contract, the nsured w be abe for the truth.
Problem.
A is the captain of Titanic. lames is the shipowner. On 5ept. J9, 2004, lames apples for an insurance upon
Titanic Lost or Not Lost" with lack and Rose lnsurance Co. However as of 5ept. J6, 2004, A already knew
that the ship was lost at sea but did not tell lames. Can lames still recover on the policy?
NO. a captan of the shp s bound to communcates ts oss to the owner, and f the atter effects an
nsurance on the shp "ost or not ost" n gnorance of the antecedent oss due to the fraud or neggence of
the captan, the nsured cannot recover on the pocy.
Case:
(62) Harding v. Commercial Union Assurance Company
38 PHlL 464
Facts:
Henry Hardng bought a car for 2T n 1915. He then gave the car to hs wfe Mrs. Hardng.
Whe Mrs. Hardng was havng the car repared at the Luneta Garage (Luneta was an agent of Smth Be
and Co., whch n turn s Commerca Unons agent), the atter nduced Mrs. Hardng to nsure the care
wth Commerca.
Mrs. Hardng agreed, and Smth Be sent an agent to Luneta Garage, who together wth the manager of
LUneta, apprased the car and decared that ts present vaue was P3T. Ths amt was wrtten n the
proposa form whch Mrs. Hardng sgned.
Subsequenty, the car was damaged by fre. Commerca refused to pay because the cars present vaue
was ony 2.8T and not 3T.
lssue: WON Commerca s abe.
Held: Commercial is liable.
Where t appears that the proposa form, whe sgned by the nsured was made out by the person
authorzed to soct the nsurance (Luneta and Smth Be) the facts stated n the proposa, even f ncorrect,
w not be regarded as warranted by the nsured, n the absence of wfu msstatement. Under such
crcumstances, the proposa s to be regarded as the act of the nsurer.
Section 44. A representaton s to be deemed fase when the facts fa to correspond wth ts
assertons or stpuatons.
What is the importance of Sec. 447
Ths defnes msrepresentaton.
Must representation be literally true7
No. See Secton 38. Representatons are not requred to be teray true unke warrantes whch must be
teray true. It s suffcent that representatons are substantay true.
ls the same true in cases of marine insurance7
NO. In marne nsurance, the substanta truth of a representaton s NOT suffcent. Accdg. to Sec. 107,
the nsured s requred to state the exact and whoe truth n reaton to a matters that he represents, or
upon nqury, dscoses or assumes to dscose.
When will a representation relied upon avoid a policy7
In order that a representaton sha avod a pocy, t must be reed upon and be fase n a substanta
and matera respect.
Section 45. If a representaton s fase n a matera pont, whether affrmatve or promssory,
the nured party s entted to rescnd the contract from the tme when the representaton becomes
fase. The rght to rescnd granted by ths Code to the nsurer s waved by the acceptance of
premum payments despte knowedge of the ground for rescsson. (As amended by Batasang
Pambansa Bg. 874)
What does this section provide7
It provdes that the fasty of a representaton enttes the nured party to rescnd the contract from the
tme when the representaton becomes fase. And ordnary, under ths secton, frauduent ntent s
IMMATERIAL. In other words, the nured party can rescnd the contract of nsurance where there s a
msrepresentaton even wthout fraud. And not that the fase representaton MUST be matera.
(63) Saturnino v. Philamlife (repeat - case # 46)
7 SCRA 316
Facts:
for nsurance.
of the pocy.
Held: YES.
(64) Musngi v. West Coast Life Assurance Co.
61 PHlL 864
Facts:
Arseno Garca was nsured by West Coast twce n 1931. In both poces, he was asked to answer the
queston: "what physician or practitioners have you consulted or been treated by, and for what illness or
ailment?
In both poces, he answered n the negatve. It turned out that from 1929 to 1939, he went to see
severa physcans for a number of aments. So when he ded n 1942, the company refused to pay the
lssue: WON the answer gven by Arseno n the poces ustfes the companys refusa to pay?
Held: YES.
Areseno knoew that he was sufferng from a number of aments, yet, he conceaed ths. Such
conceament and hs fase statements consttuted fraud, because the nsurance company by reasons of such
statement accepted the rsk whch t woud otherwse have reected.
(65) lnsular Life v. Feliciano (repeat - case # 56)
73 PHlL 201
Facts:
Evarsto Fecano fed an appcaton wth Insuar Lfe upon the soctaton of one of ts agents.
It appears that durng that tme, Evarsto was aready sufferng from tubercuoss. Such fact appeared
durng the medca exam, but the examner and the companys agent gnored t.
After that, Evarsto was made to sgn an appcaton form and thereafter the bank spaces were fed by
the medca examner and the agent makng t appear that Evarsto was a ft subect of nsurance.
(Evarsto coud not read and understand Engsh)
When Evarsto ded, Insuar fe refused to pay the proceeds because of conceament.
Held: Yes.
The nsurance busness has grown so vast and ucratve wthn the past century. Nowadays, even peope
of modest means enter nto nsurance contracts. Agents who soct contracts are pad arge commssons on
the poces secured by them. They act as genera representatves of nsurance companes.
IN the case at bar, the true state of heath of the nsured was conceaed by the agents of the nsurer.
The nsurers medca examner approved the appcaton knowng fuy we that the appcant was sck. The
stuaton s one n whch of two nnocent partes must bear a oss for hs reance upon a thrd person. In ths
case, t s the one who drafted and accepted the pocy and consummated the contract. It seems reasonabe
that as between the two of them, the one who empoyed and gave character to the thrd person as ts agent
shoud be the one to bear the oss. Hence, Insuar s abe to the benefcares.
(65) lnsular life v. Feliciano (repeat - case # 57)
74 PHlL 4681
Facts:
Insuar fe fed a moton for reconsderaton of the decson n the precedng case.
Held: NO (what the f.?)
There was couson between Evarsto and the agent and the medca examner n makng t appear that
Evarsto was a ft subect for nsurance. When Evarsto authorzed them to wrte the answers for hm, he
made them hs own agents for that purpose and he was responsbe for ther acts n that connecton.
If they fasfed the answers for hm, he coud not evade abty for the fasfcaton. He was not
supposed to sgn the appcaton n bank. He knew that hs answers woud be the bass for the pocy, and
was requred wth hs sgnature to vouch for ther truth. The udgment rendered therefore n the precedng
case s thus reversed, and Insuar Lfe s absoved from abty. (bakit kaya nagreverse?... the plot thickens.
Hmm..)
(66) Edillon v. Manila Bankers Life lnsurance Corp.
117 SCRA 187
Facts:
In Apr. 1969, Carmen Lapuz apped for nsurance wth Mana Bankers. In the appcaton she stated the
date of her brth as Iuy 11, 1904 (around 64 yrs od). The pocy was thereafter ssued.
Subsequenty, n May 1969, Carmen ded of a car accdent. Her sster, as benefcary camed the
Mana Bankers refused to pay because the certfcate of nsurance contaned a provson excudng ts
abty to pay cams to persons under 16 or over 60.
lssue: WON the pocy s vod consderng that the nsured was over 60 when she apped.
Held: NO.
The age of Carmen was not conceaed to the nsurance company. Her appcaton form ndcated her true
age. Despte such nformaton, Mana Bankers accepted the premum and ssued the pocy. It had a the
tme to process the appcaton and notce the appcants age. If t faed to act, t was because Mana
Bankers was wng to wave such dsquafcatons or t smpy overooked such fact. It s therefore estopped
from dscamng any abty.
(67) Gonzalez Lao v. Yek Tong Lin Fire & Marine lnsurance
55 PHlL 386
Facts:
Gonzaes was ssued 2 fre nsurance poces by Yek for 100T coverng hs eaf tobacco prducts.
They were stored n Gonzaes budng on Soer St., whch on Ian. 11, 1928, burned down.
Art. 3 of the Insurance poces provded 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."
Notwthstandng sad provson, Gonzaes entered nto other nsurance contracts. When he sought to
cam from Yek after the fre, the atter dened any abty on the ground of voaton of Art. 3 of the sad
poces.
Gonzaes however proved that the nsurer knew of the other nsurance poces obtaned by hm ong
efore the fre, and the nsurer dd NOT rescnd the nsurance poces n queston but demanded and
coected from the nsured the premums.
lssue: WON Yek s st entted to annu the contract.
Held: NOPE.
The acton by the nsurance company of takng the premums of the nsured notwthstandng knowedge
of voatons of the provsons of the poces amounted to waver of the rght to annu the contract of
nsurance.
(68) Tan Chay Heng v. West Coast Life
51 Phil 80
Facts:
In 1926, Tan Chay Heng sued West Coast on the pocy aegedy ssued to hs "unce", Tan Caeng who
ded n 1925. He was the soe benefcary thereof.
West Coast refused on the ground that the pocy was obtaned by Tan Caeng wth the hep of agents Go
Chuan, Francsco Sanchez and Dr. Locsn of West Coast.
West Coast sad that t was made to appear that Tan Caeng was snge, a merchant, heath and not a
drug user, when n fact he was marred, a aborer, sufferng form tubercuoss and addcted to drugs.
West Coast now denes abty based on these msrepresentatons.
Tan Chay contends that West Coast may not rescnd the contract because an acton for performance has
aready been fed.
Tra court found for Tan Chay hodng that an nsurer cannot avod a pocy whch has been procured by
fraud uness he brngs an acton to rescnd t before he s sued thereon.
lssue: WON West Coasts acton for rescsson s therefore barred by the coecton sut fed by Tan Chay.
Held: NO.
Precsey, the defense of West Cast was that through fraud n ts executon, the pocy s vod ab nto,
and therefore, no vad contract was ever made. Its acton then cannot be fore rescsson because an acton
to rescnd s founded upon and presupposes the exstence of the contract. Hence, West Coasts defense s
not barred by Sec. 47.
In the nstant case, t w be noted that even n ts prayer, the defendant does not seek to have the
aeged nsurance contract rescnded. It denes that t ever made any contract of nsurance on the fe of Tan
Caeng, or that any such a contract ever exsted, and that s the queston whch t seeks to have tgated by
ts speca defense. In the very nature of thngs, f the defendant never made or entered nto the contract n
queston, there s no contract to rescnd, and, hence, secton 47 upon whch the ower court based ts
decson n sustanng the demurrer does not appy.
As stated, an acton to rescnd a contract s founded upon and presupposes the exstence of the contract
whch s sought to be rescnded. If a of the matera matters set forth and aeged n the defendant's speca
pea are true, there was no vad contract of nsurance, for the smpe reason that the mnds of the partes
never met and never agreed upon the terms and condtons of the contract. We are ceary of the opnon
that, f such matters are known to exst by a preponderance of the evdence, they woud consttute a vad
defense to pantff's cause of acton. Upon the queston as to whether or not they are or are not true, we do
not at ths tme have or express any opnon, but we are cear that secton 47 does not appy to the
aegatons made n the answer, and that the tra court erred n sustanng the demurrer.
(69) Oua Chee Gan v. Law Union & Rock lnsurance
98 PHlL 85
Facts:
Before the ast war, Oua Chee Gan owned 4 warehouses or bodegas (desgnated as Bodegas nos. 1 to 4)
n Tabaco, Abay, used for the storage of stocks of copra and of hemp, baed and oose, n whch he deat
extensvey.
They had been, wth ther contents, nsured wth Law Unon snce 1937, and the oss made payabe to the
Phppne Natona Bank as mortgagee of the hemp and copra, to the extent of ts nterest.
Fre broke out n, 1940, and asted amost one week, gutted and competey destroyed Bodegas Nos. 1, 3
and 4, wth the merchandse stored theren.
Oua nformed the nsurer by teegram on the same date; and on the next day, the nsurer sent fre
adusters to estmate the oss. The oss was estmated at 370T. Law Unon refused to pay contendng
that Oua purposey set fre to hs bodegas and voaton of warrantes and condtons as agreed.
Law Unon then fed a crmna case for arson, but the same was dsmssed by the tra court. Oua Chee
thereafter nsttuted ths cv case for the coecton of the proceeds of nsurance.
As defense, Law Unon Rock contends that Oua Chee voated the provsons agreed upon n a rder n the
nsurance pocy where:
a fre hydrants shoud be paced every 150 feet of the externa wa measurement, snce there
are ony 2 and another 2 n a further area owned by the muncpaty.
Oua Chee faed to mantan the agreed water pressure and the 100 feet of fre hose
He dd mantan 20 fre brgade men wthn the premses
Insurer aso averred that Oua Chee voated the provson of the Hemp Warranty whch prohbts the
storage of os when he stored gasone n bodega 2.
lssue: WON the company can rescnd the contract on the bass of such aeged voaton.
Held: NO.
Law Unon s barred by waver (or rather estoppe) to cam voaton of the so- caed fre hydrants
warranty, for the reason that knowng fuy a that the number of hydrants demanded theren never exsted
from the very begnnng, the Law Unon nevertheess ssued the poces n queston subect to such warranty,
and receved the correspondng premums. It woud be perousy cose to connvng at fraud upon the nsured
to aow Law Unon to cam now as vod ab nto the poces that t had ssued to the pantff wthout
warnng of ther fata defect, of whch t was nformed, and after t had msed the defendant nto beevng
that the poces were effectve.
The nsurance company was aware, even before the poces were ssued, that n the premses nsured
there were ony two fre hydrants nstaed by Oua Chee Gan and two others nearby, owned by the
muncpaty of Tabaco, contrary to the requrements of the warranty n queston. Such fact appears from
postve testmony for the nsured that appeant's agents nspected the premses; and the smpe denas of
appeant's representatve (Iamczon) can not overcome that proof. That such nspecton was made s
moreover rendered probabe by ts beng a prerequste for the fxng of the dscount on the premum to
whch the nsured was entted, snce the dscount depended on the number of hydrants, and the fre fghtng
equpment avaabe
The aeged voaton of the warranty of 100 feet of fre hose for every two hydrants, must be equay
reected, snce the appeant's argument thereon s based on the assumpton that the nsured was bound to
mantan no ess than eeven hydrants (one per 150 feet of wa), whch requrement appeant s estopped
from enforcng.
The supposed breach of the water pressure condton s made to rest on the testmony of wtness Serra,
that the water suppy coud f a 5-gaon can n 3 seconds; appeant thereupon nferrng that the maxmum
quantty obtanabe from the hydrants was 100 gaons a mnute, when the warranty caed for 200 gaons a
mnute. The transcrpt shows, however, that Serra repeatedy refused and professed nabty to estmate the
rate of dscharge of the water, and ony gave the "5-gaon per 3-second" rate because the nsstence of
appeant's counse forced the wtness to hazard a guess. Obvousy, the testmony s worthess and
nsuffcent to estabsh the voaton camed, specay snce the burden of ts proof ay on appeant.
As to mantenance of a traned fre brgade of 20 men, the record s preponderant that the same was
organzed, and dred, from tme to gve, atho not mantaned as a permanenty separate unt, whch the
warranty dd not requre. Anyway, t woud be unreasonabe to expect the nsured to mantan for hs
compound aone a fre fghtng force that many muncpates n the Isands do not even possess. There s no
mert n appeant's cam that subordnate membershp of the busness manager (Co Cuan) n the fre
brgade, whe ts drecton was entrusted to a mnor empoyee, renders the testmony mprobabe. A
busness manager s not necessary adept at fre fghtng, the quates requred beng dfferent for both
actvtes.
It s we to note that gasone s not specfcay mentoned among the prohbted artces sted n the so-
caed "hemp warranty." The cause reed upon by the nsurer speaks of "os (anma and/or vegetabe and/or
mnera and/or ther qud products havng a fash pont beow 300 Fahrenhet", and s decdedy ambguous
and uncertan; for n ordnary parance, "Os" mean "ubrcants" and not gasone or kerosene. And how many
nsured, t may we be wondered, are n a poston to understand or determne "fash pont beow 003
Fahrenhet. Here, agan, by reason of the excusve contro of the nsurance company over the terms and
phraseoogy of the contract, the ambguty must be hed strcty aganst the nsurer and beray n favor of
the nsured, specay to avod a forfeture
(70) Colado v. lnsular Life
51 OG (No 12) 6269
Facts:
Vvenco Coado apped for an nsurance contract wth Insuar fe n 1948. Hs appcaton was approved
and he began started makng premum payments. However, he defauted and the nsurance was
canceed.
He then apped for the renstatement of hs nsurance pocy n Nov. of 1951 and tendered the amount of
premum for the years 1950-1951.
He stated that he was as of Nov. 1951 of good heath, and that he had no nures, aments or nesses
and had not been sck for any case snce 1948 (hs medca check up when he apped for nsurance) and
that he had not consuted any physcan or practtoner for any case snce the date of such atest medca
exam.
However, when Vvenco apped for the renstatement, he was aready sck of a fata dsease known as
carcnoma of the ver and that 4 days pror to hs appcaton for nsurance, he consuted a doctor
regardng hs condton.
The renstatement was approved. Vvenco agan faed to pay the premums for the ast quarter of Nov.
1951 and as such, Insuar fe sent hm a notce canceng the pocy.
Vvenco then ded. The benefcares nsttuted the present acton to recover from Insuar fe the death
benefts of a fe nsurance pocy vaued at 2T. Insuar refused to pay camng conceament on the part
of Vvenco.
Coado contends that Insuar fe had waved the rght to rescne the pocy n vew of ts repeated
acceptance of the overdue premums for the second and thrd years.
Muncpa court of Mana found for Coado and Insuar fed an appea wth CFI of Mana. CFI rendered
udgment n favor of Insuar and dsmssed Coados compant.
lssue: WON Insuar fe was estopped and coud no onger cance the contract due to the fact that t
accepted the tender of overdue payments from Vvenco.
Held: NO.
It s enormousy cear that when the deceased apped for a renstatement of hs pocy n Nov. 1951, he
had aready been affcted wth the fata ament for a perod of about four months. Furthermore, n
submttng together wth hs appcaton for renstatement, a heath statement to the effect that he was n
good heath, Vvenco conceaed the matera fact that he had consuted a doctor and was then found to be
affcted wth the maady.
The acceptance of Insuar fe of the overdue premums dd not necessary deprve t of the rght to
cance the pocy n case of defaut ncurred by the Insured n the payment of future premums. The case
woud be dfferent had the nsured ded at any tme after the payment of overdue premums but prevous to
the renstatement of the pocy, for the, Insuar, by ts acceptance of ts overdue premums s deemed to have
waved ts rght to rescnd the pocy.
The evdence at hand shows that nsofar as the payment of the ast quartery premum for 1951 was
concerned, Insuar had avaed of the rght to rescnd the pocy by notfyng the Insured that the pocy had
apsed.
(lm sorry kung magulo yung digest.. sobrang pangit yung copya nung case.. nde ko mabasa.. mas malala pa
sa reviewer na Xerox)
Section 46. The materaty of a representaton s determned by the same rues as the
materaty of a conceament.
What is the test of materiality7
The materaty of the representaton s to be determned NOT by the event, but soey by the probabe
and reasonabe nfuence of the facts upon the party to whom the representaton s made, n formng hs
estmates of the dsadvantages of the proposed contract or n makng hs nqures.
Who determines materiality7
It s a udca queston. It s NOT eft to the nsurance company to say after the oss has occurred that t
woud or woud not have ssued the pocy had an answer been truy gven. The matter msrepresented must
be of that character whch the court can say woud reasonaby affect the nsurers udgment.
What are the differences and similarities between a concealment and misrepresentation7
(already discussed in prior sections, but for the convenience of all. presented in a logical format.)
CONCEALMENT MlSREPRESENTATlON
Insured wthhods nformaton of matera facts
from the nsurer
Insured makes erroneous statements of facts wth
the ntent of nducng the nsurer to enter nto the
nsurance contract.
Materaty s determned by the same rues apped n cases of msrepresentaton.
Conceament on the part of the nsured has the same effect as a msrepresentaton and gves the
nsurer the rght to rescnd the contract.
Whether intentional or not intentional, the nured party s entted to rescnd the contract of
nsurance on ground of conceament or fase representaton.
Rues on conceament and representaton appy kewse to the nsurer snce the contracts of
nsurance s sad to be one of utmost good fath on part of both partes to the agreement.
Section 47. The provsons of ths chapter appy as we to a modfcaton of a contract of
nsurance as to ts orgna formaton.
What does this section mean7
Ths secton means that the provsons of Sec. 26 to 35 governng conceament and Sec. 36-48 governng
representaton appy NOT ONLY to the orgna formaton of the contract but aso to a modfcaton of the
same durng the tme t s n force.
Section 48. Whenever a rght to rescnd a contract of nsurance s gven to the nsurer by any
provson of ths chapter, such rght must be exercsed prevous to the commencement of an acton
on the contract.
After a pocy of fe nsurance made payabe on the death of the nsured sha have been n force
durng the fetme of the nsured for a perod of two years from the date of ts ssue or of ts ast
renstatement, the nsurer cannot prove that the pocy s vod ab nto or s rescndabe by reason of
the frauduent conceament or msrepresentaton of the nsured or hs agent.
When must the insurer exercise his right to rescind7
In a non-life insurance pocy, the nsurer may rescnd a contract of nsurance prior to the
commencement of an action on the contract.
In a life insurance pocy, the nsurer may rescnd the contract of nsurance 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 policy7
1) There must be a bass for the rescsson (breach of warranty, conceament, msrepresentaton, etc.)
2) The rescsson must be couped wth a check for the amount of premums aready pad. (wthout ths,
the rescsson s not effectve)
3) The rescsson must be exercsed wthn the two years that the nsurance s n force durng the
fetme of the nsured.
(l just tried to put together all of what Atty. Ouimson said in class)
What is an "lncontestability Clause"7
lncontestabty causes are those causes n fe nsurance poces stpuatng that the pocy sha be
ncontestabe after a stated perod. Sec. 48 par. 2 now requres that the ncontestabty of a fe nsurance
pocy starts after the apse of the 2 years that the nsurance was n force durng the fe tme of the nsured.
What is the reason for this incontestability7
As to the lnsurer
The nsurer s gven a reasonabe opportunty to nvestgate the statements whch the appcant makes n
procurng hs pocy and that after the defnte perod, the nsurer shoud not be permtted to queston the
vadty of the pocy, ether by affrmatve acton, or by defense to a sut brought on the fe pocy by the
benefcary.
As to the insured.
Such causes gve assurance to the pocy hoder that hs benefcares woud receve payment wthout
queston as to the vadty of the pocy or the exstence of the coverage once the perod of contestabty
passes. It s desgned to protect the pocyhoder or benefcary from a awsut contestng the vadty of the
pocy after a consderabe tme has passed and evdence of the facts surroundng the purchase may be
unavaabe.
What are the requisites for lNCONTESTABlLlTY7
1) The pocy s a fe nsurance pocy
2) It s payabe on the death of the nsured; and
3) It has been in force durng the lifetime of the nsured for at east 2 years from ts date of ssue or of
ts ast renstatement.
May the period of 2 years be shortened by agreement between the insurer and the insured7
It may be shortened but t cannot be extended by stpuaton.
What does the phase "during the lifetime" of the insured mean7
Smpy means that the pocy s no onger consdered n force after the nsured has ded.
What is the effect when the life insurance policy becomes incontestable7
The nsurer may NOT refuse to pay the same by camng that:
1) The pocy s vod ab nto; or
2) It s rescssbe by reason of the frauduent msrepresentatons of the nsured or hs agent, no
matter how patent or we-founded; or
3) It s rescssbe by reason of the frauduent msrepresentatons of the nsured agent.
What are the defenses that the insurer may raise to avoid liability even after the lapse of the 2
years7
1) That the person takng the nsurance acked nsurabe nterest as requred by aw;
2) Cause of death of the nsured s an expected rsk;
3) That the premums have not been pad lSecs. 77, 277(b), 228(b), 230(b)|;
4) That the condtons of the pocy reatng to mtary or nava servce have been voated lSec. 227(b),
228(b)|;
5) That the fraud s of a partcuary vcous type, as where the pocy was taken out n furtherance of a
scheme to murder the nsured, or where the nsured substtutes another person for the medca
examnaton, or where the benefcary feonousy ks the nsured.
6) That the benefcary faed to furnsh proof of death or to compy wth any condton mposed by the
pocy after the oss has happened (Sec. 242)
7) That the acton was not brought wthn the tme specfed.
What does Sec. 227(b), Sec. 228 (b) and Sec. 230 (b) provide7
Section 227. In the case of ndvdua fe or endowment nsurance, the pocy sha contan n
substance the foowng condtons:
xxx
(b) A provson that the pocy sha be ncontestabe after t sha have been n force durng the fetme
of the nsured for a perod of two years from ts date of ssue as shown n the pocy, or date of approva of
ast renstatement, except for non-payment of premum and except for voaton of the condtons of the
pocy reatng to mtary or nava servce n tme of war;
Section 228. No pocy of group fe nsurance sha be ssued and devered n the Phppnes uness t
contans n substance the foowng provsons, or provsons whch n the opnon of the Commssoner are
more favorabe to the persons nsured, or at east as favorabe to the persons nsured and more favorabe to
the pocy-hoders:
xxx
(b) A provson that the vadty of the pocy sha not be contested, except for non-payment of premums
after t has been n force for two years from ts date of ssue; and that no statement made by any nsured
under the pocy reatng to hs nsurabty sha be used n contestng the vadty of the nsurance wth
respect to whch such statement was made after such nsurance has been n force pror to the contest for a
perod of two years durng such person's fetme nor uness contaned n wrtten nstrument sgned by hm;
Section 230. ln the case of ndustra fe nsurance, the pocy sha contan n substance the foowng
provsons:
xxx
(b) A provson that the pocy sha be ncontestabe after t has been n force durng the fetme of the
nsured for a specfed perod, not more than two years from ts date of ssue, except for non-payment of
premums and except for voaton of the condtons of the pocy reatng to nava or mtary servce, or
servces auxary thereto, and except as to provsons reatng to benefts n the event of dsabty as defned
n the pocy, and those grantng addtona nsurance specfcay aganst death by accdent or by accdenta
means, or to addtona nsurance aganst oss of, or oss of use of, specfc members of the body;
Problems.
A procured insurance on his life through fraudulent concealment or misrepresentation. What is the effect if A
dies within two year from the issuance of the policy, and the insurer learned of the concealment or
misrepresentation?
Hs benefcary cannot recover on the pocy because the aw says that the pocy must have been n
force durng the fetme of the nsured for a perod of two years. The death of the nsured makes the pocy
no onger "n force" and the nsurer can st rescnd the contract.
What if the two years had already lapsed?
Then the nsurer cannot exercse hs rght of rescsson anymore. Whether A s dead or ave s
mmatera, what s mportant s the fact that two years have aready apsed and has cured the fraud
commtted by A.
8 procured a life insurance in lan Z000. He attested that he was in good health which was true. 8efore 2000
ended, 8 defaulted in the payment of the premium and thereafter the insurance company cancelled his
policy. ln Mar Z00J, 8 applied for the reinstatement of his life insurance policy tendering the overdue
amounts. As required, 8 submitted that a certificate stating that he is still in good health. The truth however
was that in Feb. Z00J, 8 was diagnosed with cancer and only had 2 years to live. The insurance was
reinstated on April Z00J. 8 died on Feb. Z003 and C, his beneficiary filed a claim against the insurance
company. The latter refused claiming that 8 concealed the fact that he was afflicted with cancer. C
contends that the 2 years counting from lan Z000 had already lapsed and therefore the insurance company
cannot contest the concealment made by 8. ls C correct?
No. Sec. 48 provdes that the two years are counted from the tme the date of ts ssue or of ts ast
renstatement. Snce the renstatement was made n Apr. 2001, the countng of the two-year perod shoud
start from there. The conceament that B made when he apped for the renstatement s not ncontestabe.
The nsurer s once agan gven two years from the date of renstatement to nvestgate the veracty of the
facts represented by the nsured n the appcaton for renstatement. (Soman v. US Lfe) Countng from Apr.
2001, t s approxmatey 1 year and 10 mos up unt the death of B, and the nsurer can rase the defense of
conceament.
5ame facts. 8ut instead, 8 died on December 2003. ls the answer still the same?
Ths tme, C can now coect from the nsurance company. Snce the date of renstatement was Apr
2001, and B ded n December 2003, the two year perod has apsed and the pocy has become
ncontestabe.
Cases:
(71) Philamcare v. CA (repeat - case #9)
379 SCRA 356 (2002)
Facts:
examination.
grounds mentoned;
(72) Soliman v. US Life
104 PHlL 1046
Facts:
US Lfe ssued a 20 yr endowment fe pocy on the ont ves of Patrco Soman and hs wfe Rosaro,
each of them beng the benefcary of the other.
In Mar. 1949, the spouses were nformed that the premum for Ian 1949 was st unpad notwthstandng
that the 31-day grace perod has aready expred, and they were furnshed at the same tme ong-form
heath certfcates for the renstatement of the poces.
In Apr 1949, they submtted the certfcates and pad the premums.
In Ian. 1950, Rosaro ded of acute daton of the heart, and thereafter, Patrco fed a cam for the
US fe dened the cam and fed for the rescsson of the contract on the ground that the certfcates
faed to dscose that Rosaro had been sufferng from broncha asthma for 3 years pror to ther
submsson.
lssue: WON the contract can st be rescnded.
Held: Yes.
The nsurer s once agan gven two years from the date of renstatement to nvestgate nto the veracty
of the facts represented by the nsured n the appcaton for renstatement. When US fe sought to rescnd
the contract on the ground of conceament/msrepresentaton, two years had not yet eapsed. Hence, the
contract can st be rescnded.
(73) Tan v. CA
174 SCRA 403
Facts:
Tan Lee Song was ssued a pocy by Phamfe on Nov. 6, 1973.
On Apr 26, 1975, Tan ded of hepatoma. Hs benefcares then fed a cam wth Phamfe for the
Phamfe wrote the benefcares n Sep. 1975 denyng ther cam and rescndng the contract on the
ground of msrepresentaton. The benefcares contend that Phamfe can no onger rescnd the
contract on the ground of msrepresentaton as rescsson must aegedy be done "durng the fetme of
the nsured" wthn two years and pror to the commencement of the acton foowng the wordng of Sec.
48, par. 2.
lssue: WON Phamfe can rescnd the contract.
Held: YES.
The phrase "durng the fetme" found n Sec. 48 smpy means that the pocy s no onger n force after
the nsured has ded. The key phrase n the second paragraph s "for a perod of two years".
What is a simpler illustration of the ruling in Tan v. CA7
The perod to consder n a fe nsurance pocy s "two years" from the date of ssue or of the ast
renstatement. So f for exampe the pocy was ssued/renstated on Ian 1, 2000, the nsurer can st
exercse hs rght to rescnd up to Ian. 1, 2003 or two years from the date of ssue/renstatement,
REGARDLESS of whether the nsured ded before or after Ian. 1, 2003.
(74) Tan Chay Heng v. West Coast Life (repeat - case #68)
51 PHlL 80
Facts:
In 1926, Tan Chay Heng sued West Coast on the pocy aegedy ssued to hs "unce", Tan Caeng who
ded n 1925. He was the soe benefcary thereof.
West Coast refused on the ground that the pocy was obtaned by Tan Caeng wth the hep of agents Go
Chuan, Francsco Sanchez and Dr. Locsn of West Coast.
West Coast sad that t was made to appear that Tan Caeng was snge, a merchant, heath and not a
drug user, when n fact he was marred, a aborer, sufferng form tubercuoss and addcted to drugs.
West Coast now denes abty based on these msrepresentatons.
Tan Chay contends that West Coast may not rescnd the contract because an acton for performance has
aready been fed.
Tra court found for Tan Chay hodng that an nsurer cannot avod a pocy whch has been procured by
fraud uness he brngs an acton to rescnd t before he s sued thereon.
lssue: WON West Coasts acton for rescsson s therefore barred by the coecton sut fed by Tan Chay.
Held: NO.
Precsey, the defense of West Cast was that through fraud n ts executon, the pocy s vod ab nto,
and therefore, no vad contract was ever made. Its acton then cannot be fore rescsson because an acton
to rescnd s founded upon and presupposes the exstence of the contract. Hence, West Coasts defense s
not barred by Sec. 47.
In the nstant case, t w be noted that even n ts prayer, the defendant does not seek to have the
aeged nsurance contract rescnded. It denes that t ever made any contract of nsurance on the fe of Tan
Caeng, or that any such a contract ever exsted, and that s the queston whch t seeks to have tgated by
ts speca defense. In the very nature of thngs, f the defendant never made or entered nto the contract n
queston, there s no contract to rescnd, and, hence, secton 47 upon whch the ower court based ts
decson n sustanng the demurrer does not appy.
As stated, an acton to rescnd a contract s founded upon and presupposes the exstence of the contract
whch s sought to be rescnded. If a of the matera matters set forth and aeged n the defendant's speca
pea are true, there was no vad contract of nsurance, for the smpe reason that the mnds of the partes
never met and never agreed upon the terms and condtons of the contract. We are ceary of the opnon
that, f such matters are known to exst by a preponderance of the evdence, they woud consttute a vad
defense to pantff's cause of acton. Upon the queston as to whether or not they are or are not true, we do
not at ths tme have or express any opnon, but we are cear that secton 47 does not appy to the
aegatons made n the answer, and that the tra court erred n sustanng the demurrer.
TlTLE Vl - THE POLlCY
Section 49. The wrtten nstrument n whch a contract of nsurance s set forth, s caed a
pocy of nsurance.
Section 50. The pocy sha be n prnted form whch may contan bank spaces; and any word,
phrase, cause, mark, sgn, symbo, sgnature, number, or word necessary to compete the contract of
nsurance sha be wrtten on the bank spaces provded theren.
Any rder, cause, warranty or endorsement purportng to be part of the contract of nsurance and
whch s pasted or attached to sad pocy s not bndng on the nsured, uness the descrptve tte or
name of the rder, cause, warranty or endorsement s aso mentoned and wrtten on the bank
spaces provded n the pocy.
Uness apped for by the nsured or owner, any rder, cause, warranty or endorsement ssued
after the orgna pocy sha be countersgned by the nsured or owner, whch countersgnature sha
be taken as hs agreement to the contents of such rder, cause, warranty or endorsement.
Group nsurance and group annuty poces, however, may be typewrtten and need not be n
prnted form.
What is a policy of insurance7
Sec. 49 defnes a pocy of nsurance as a wrtten nstrument n whch the contract of nsurance s set
forth.
Who signs the policy of insurance:
Generay, ony the nsurer or hs duy authorzed agent sgns the pocy. It need not be snged by the
nsured EXCEPT where the express warrantes are contaned n a separate nstrument formng part of the
pocy, n whch case, Sec. 70 requres that the nstrument be so sgned.
Why are the terms of the policy important7
They are mportant because they measure the abty of the nsurer on one hand, and the other hand,
strct compance wth the terms are requred for the recovery on the part of the nsured.
ls the policy and the Contract one and the same thing7
NOPE. A contract s a meetng of the mnds of the nsured and the nsurer. (Remember CLV?) The pocy
ONLY the forma wrtten nstrument evdencng the contract.
What is usually the best evidence that a contract has been entered into between the insurer and
the insured7
Devery of the pocy by the nsurer to the nsured.
What are the effects of the delivery of the policy7
If the devery s conditional, non-fufment of the condton bars the contract from takng effect.
If the dever s unconditional, the nsurance becomes effectve at the tme of devery.
What is a rider7
It s a prnted or typed stpuaton contaned on a sp of paper attached to the pocy and formng an
ntegra part of the pocy. Rders are usuay attached to the pocy because they consttute addtona
stpuatons between the partes.
What happens if there is an inconsistency between the policy and the rider7
RIDER prevas, as beng a more deberate expresson of the agreement of the contractng partes.
What are the requirements in order that a rider be binding upon the insured7
1) Descrptve tte or name of the rder whch s pasted or attached to a pocy MUST be mentoned and
wrtten on the bank spaces provded for n the pocy; and
2) Uness apped for by the nsured or owner, sad nsured or owner MUST countersgn the rder.
Do the preceding requirements apply only to riders7
NO. they appy aso to warrantes, causes and endorsements.
What are warranties7
Warrantes are nserted or attached to a pocy to emnate specfc potenta ncreases of hazard durng
the pocy term owng to actons of the nsured, or condtons of property.
What are clauses7
Causes are agreements between the nsurer and the nsured on certan matters reatng to the abty of
the nsurer n case of oss.
What are examples of clauses:
1) Cause - where the nsurer s abe for ony of the oss or damage to the nsured
2) Loss Payabe cause - where the oss f any s payabe to the party or partes named, as ther
nterests may appear.
3) Change of Ownershp cause where the nsurance w nsure to the beneft of whomsoever, durng
the contnuance of the rsk, may become the owner of the nterest nsured.
What is an endorsement7
An endorsement s any provson added to an nsurance contract aterng ts scope or appcaton.
Exampes woud be those addtons to the contract changng the amount, the rate or the term of the same.
What does Sec. 226 say7
Section 226. No pocy, certfcate or contract of nsurance sha be ssued or devered wthn the
Phppnes uness n the form prevousy approved by the Commssoner, and no appcaton form sha be
used wth, and no rder, cause, warranty or endorsement sha be attached to, prnted or stamped upon such
pocy, certfcate or contract uness the form of such appcaton, rder, cause, warranty or endorsement has
been approved by the Commssoner.
Cases:
(75) Sindayen v. lnsular Life
62 PHlL 9
Facts:
Arturo Sndayen was a notype operator n the Bureau of Prntng. He and hs wfe Fortunat went to
Camng to spend Chrstmas wth hs aunt Fecdad Estrada.
On Dec. 26, 1932, whe st n Camng, he made a wrtten appcaton to Insuar Lfe, through ts agent,
Crstoba Hendoza, for a pocy of nsurance on hs fe n the sum of 1,000.
He pad the agent P15 as part of the frst premum. It was agreed that the pocy, when and f ssued,
shoud be devered to Fecdad wth whom Sndayen eft the sum P25.06 to compete the payment of the
frst annua premum of P40.06.
On Ian 1, 1933, Sndayen was examned by Insuars doctor who made a favorabe report to Insuar.
The next day, Sndayen returned to Mana and resumed hs work. On Ian. 11, 1933, Insuar accepted the
rsk and ssued a pocy, and maed the same to ts agent for devery to the nsured.
On Ian. 12, 1933, Sndayen companed of a severe headache. ON Ian. 15, 1933, he caed a physcan
who found that Sndayen was sufferng from acute nephrts and urema. Hs ness dd not yed to
treatment and on Ian. 19, 1933, he ded.
The pocy whch the company ssued and maed n mana on Ian. 11 1933 was receved by ts agent n
Camn on Ian. 16, 1933. On Ian 18, 1933, the agent, n accordance wth hs agreement wth the nsured
devered the pocy to Fecded upon her payment of the baance of the 1
st
years premum.
The agent asked Fecdad f her nephew was n good heath and she reped that she beeved so because
she had no nformaton that he was sck, and thereupon , the pocy was handed to her by the agent.
On Ian. 20, 1933, the agent earned of the death of Sndayen, afterwhch he caed upon Fecdad and
asked her to return the pocy. Fecdad dd so.
On Feb. 4, 1933, the company obtaned from Sndayens wdow Fortunata (aso the benefcary), her
sgnature on a ega document whereby n consderaton of the sum 40.06 representng the amount of
premum pad, Fortunata thereby reeases forever and dscharges Insuar from any and a cams and
obgatons she may have aganst the atter.
A check for the above-mentoned amount was drawn n the name of Fortunata, but the same was never
encashed.
Instead, t was returned to Insuar and ths compant to enforce payment under the pocy was
nsttuted.
The appcaton whch Sndayen sgned n Camng contaned the foowng provsons:
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 l am in good health."
The man defense of the company s the pocy never took effect because of par. 3 of the appcaton,
snce at the tme of the devery of the agent, the nsured was not n good heath.
lssue: WON the pocy took effect.
Held: YES.
There s one ne of Amercan cases whch hods that the stpuaton contaned par. 3 s n the nature of a
condton precedent, that s to say, that there can be no vad devery to the nsured uness he s n good
heath at that tme; that ths condton precedent goes to the very essence of the contract and cannot be
waved by the agent makng devery of the pocy; HOWEVER, there s aso a number of Amercan decson
whch state the contrary.
These decsons say that an agent to whom a fe nsurance pocy (smar to the one at bar) was sent
wth nstructon to dever t to the nsured, has authorty to bnd the company by makng such devery,
ALTHOUGH the nsured was NOT n good heath at the tme of devery, on the theory that the devery of the
pocy beng the fna act to the consummaton of the contract, the condton as to the nsureds good heath
was WAIVED by the company.
These same cases further hod that the devery of the pocy by the agent to the nsured consummates
the contract even though the agent knew that the nsured was NOT n good heath at the tme, the theory
beng, that hs knowedge s the companys knowedge; and hs devery s the companys devery; that when
the devery s made notwthstandng ths knowedge of the defect, the company s deemed to have WAIVED
such defect.
The agent, Mendoza was duy censed by the Insurance Commsson to act for Insuar Lfe. He had the
authorty gven by hm by the company to wthhod the devery of the pocy to the nsured unt the frst
premum has been pad and the pocy has been devered to and accepted by the nsured whe he s n good
heath. Whether that condton had been met or not pany cas for the exercse of dscreton. Mendozas
decson that the condton had been met by the nsured and that t was proper to make devery of the pocy
to hm s ust as bndng on the company as f the decson had been made by ts Board of Drectors.
Admttedy, Mendoza made a mstake of udgment because he acted on nsuffcent evdence as to the state
of heath of the nsured, and ths mstake cannot be sad to be nduced by any msconduct on the part of the
nsured.
It s n the nterest of not ony of the appcant but of a nsurance companes as we that there shoud be
some act whch gves the appcant the defnte assurance that the contract has been consummated. Ths
sense of securty and of pece of mnd that ones dependents are provded for wthout rsk of ether oss or of
tgaton s the bedrock of fe nsurance.
A coud w be thrown over the entre nsurance busness f the condton of heath of the nsured at the
tme of the devery of the pocy may be nqured nto years afterwards wth the vew of avodng the pocy
on the ground that t never took effect because of an aeged ack of good heath at the tme of devery.
It s therefore n the pubc nterest that we are constraned to hod, as we do, that the devery of the
pocy to the nsured by an agent of the company who s authorzed to make devery or wthhod devery s
the fna act whch bnds the company and the nsured, n the absence of fraud or other ega grounds for
rescsson. The fact that the agent to whom t has entrusted ths duty s derect or neggent or even
dshonest n the performance of the duty whch has been entrusted to hm woud create an obgaton based
upon the authorzed acts of the agent toward a thrd party who was not n couson wth the agent.
(76) Enriquez v. SunLlfe
41 PHlL 269
Facts:
On Sept. 24 1917, Herrer made an appcaton to SunLfe through ts offce n Mana for fe annuty.
2 days ater, he pad the sum of 6T to the companys anager n ts Mana offce and was gven a recept.
On Nov. 26, 1917, the head offce gave notce of acceptance by cabe to Mana. On the same date, the
Mana offce prepared a etter notfyng Herrer that hs appcaton has been accepted and ths was
paced n the ordnary channes of transmsson, but as far as known was never actually maed and
never received by Herrer.
Herrer ded on Dec. 20, 1917. The pantff as admnstrator of Herrers estate brought ths acton to
recover the 6T pad by the deceased.
lssue: WON the nsurance contract was perfected.
Held: NO.
The contract for fe annuty was NOT perfected because t had NOT been proved satsfactory that the
acceptance of the appcaton ever came to the knowedge of the appcant. An acceptance of an offer of
nsurance NOT actuay or constructvey communcated to the proposer does NOT make a contract of
nsurane, as the locus poenitentiae s ended when an acceptance has passed beyond the contro of the party.
NOTE: Lfe annuty s the opposte of a fe nsurance. In fe annuty, a bg amount s gven to the nsurance
company, and f after a certan perod of tme the nsured s st vng, he s entted to reguar smaer
amounts for the rest of hs fe. Exampes of Lfe annuty are pensons. Lfe Insurance on the other hand, the
nsured durng the perod of the coverage makes sma reguar payments and upon hs death, the nsurer
pays a bg amount to hs benefcares.
(77) Tang v. CA
(90 SCRA 236)
Facts:
On Sept. 25, 2965, Lee Su Guat, wdow, 61 years od and terate who spoke ony Chnese, apped for
fe nsurance for 60T wth Phamfe. The appcaton was n two parts, both n Engsh.
The second part deat wth her state of heath. Her answers havng shown that she was heath, Phamfe
ssued her a pocy effectve Oct. 23, 1965 wth her nephew Vcente Tang as benefcary.
On Nov. 15, 1965, Lee agan apped for addtona nsurance of her fe for 40T. Snce t was ony recent
from the tme she frst apped, no further medca exam was made but she accompshed Part 1 (whch
certfed the truthfuness of statements made n Part. 2)
The pocy was agan approved. On Apr 20 1966, Lee Su Guat ded of Lung cancer.
Tang camed the amount o 100T but Phamfe refused to pay on the ground that the nsured was guty
of conceament and msrepresentaton.
Both tra court and CA rued that Lee was guty of conceament.
Tangs poston, however, s that because Lee was terate and spoke ony Chnese, she coud not be
hed guty of conceament of her heath hstory because the appcaton for nsurance was Engsh, and
the nsurer has not proven that the terms thereof had been fuy expaned to her as provded by Art.
1332 of CC.
lssue: WON Art. 1332 appes.
Held: NO.
Art. 1332 s NOT appcabe. Under sad artce, the obgaton to show that the terms of the contract had
been fuy expaned to the party who s unabe to read or understand the anguage of the contract, when
fraud or mstake s aeged, devoves on the party seekng to enforce t. Here, the nsurance company s
NOT seekng to enforce the contract; on the contrary, t s seekng to avod ts performance.
It s pettoner who s seekng to enforce t, even as fraud or mstake s NOT aeged. Accordngy,
Phamfe was under no obgaton to prove that the terms of the nsurance contract were fuy expaned to
the other party. Even f we were to say that the nsurer s the one seekng the performance of the cont
contracts by avodng payng the cam, t has to be noted as above stated that there has been NO mputaton
of mstake of fraud by the terate nsured whose personaty s represented by her benefcary. In sum, Art.
1332 s nappcabe, and consderng the fndngs of both the tra court and the CA as to the Conceament of
Lee, the SC affrms ther decsons.
Concurrng: I., Antono
In a contract of nsurance, each party must communcate to the other, n good fath, a facts wthn hs
knowedge whch are matera to the contract, and whch the other has no means of ascertanng. As a
genera rue, the faure by the nsured to dscose condtons affectng the rsk of whch he s aware makes
the contract vodabe at the opton of the nsurer.
The reason for ths rue s that nsurance poces are tradtonay contracts uberrmae fde, whch means
"most abundant good fath", "absoute and perfect candor or openness and honesty," "absence of any
conceament or decepton however sght." Here the CA found that the nsured deberatey conceaed
matera facts about her physca condton and hstory and/or conceaed wth whoever asssted her n
reayng fase nformaton to the medca examner. Certany, the pettoner cannot assume nconsstent
postons by attemptng to enforce the contract of nsurance for the purpose of coectng the proceeds of the
pocy and at the same tme nufy the contract by camng that t was executed through fraud or mstake.
NOTE: Art. 1332: When one of the partes s unabe to read or f the contract s n a anguage not understood
by hm, and mstake or fraud s aeged, the person enforcng the contract must show that the terms thereof
have been fuy expaned to hm.
(78) Perez v. CA
323 SCRA 613 (2000)
Facts:
Prmtvo Perez had been nsured wth the BF Lfeman Insurance Corporaton snce 1980 for P20,000.00.
In October 1987, an agent of Lfeman, Rodofo Laog, vsted Perez n Ouezon and convnced hm to appy
for addtona nsurance coverage of P50,000.00, to ava of the ongong promotona dscount of P400.00
f the premum were pad annuay.
Prmtvo B. Perez accompshed an appcaton form for the addtona nsurance coverage. Vrgna A.
Perez, hs wfe, pad P2,075.00 to Laog. The recept ssued by Laog ndcated the amount receved was a
"depost."
Unfortunatey, Laog ost the appcaton form accompshed by Perez and so on October 28, 1987, he
asked the atter to f up another appcaton form. On November 1, 1987, Perez was made to undergo
the requred medca examnaton, whch he passed.
Laog forwarded the appcaton for addtona nsurance of Perez, together wth a ts supportng papers,
to the offce of BF Lfeman Insurance Corporatonn n Ouezon whch offce was supposed to forward the
papers to the Mana offce.
On November 25, 1987, Perez ded whe he was rdng a banca whch capszed durng a storm.
At the tme of hs death, hs appcaton papers for the addtona nsurance were st wth the Ouezon
offce. Laog testfed that when he went to foow up the papers, he found them st n the Ouezon offce
and so he personay brought the papers to the Mana offce of BF Lfeman Insurance Corporaton. It was
ony on November 27, 1987 that sad papers were receved n Mana.
Wthout knowng that Perez ded on November 25, 1987, BF Lfeman Insurance Corporaton approved the
appcaton and ssued the correspondng pocy for the P50,000.00 on December 2, 1987
Vrgna went to Mana to cam the benefts under the nsurance poces of the deceased. She was pad
P40,000.00 under the frst nsurance pocy for P20,000.00 (doube ndemnty n case of accdent) but the
nsurance company refused to pay the cam under the addtona pocy coverage of P50,000.00, the
proceeds of whch amount to P150,000.00 n vew of a trpe ndemnty rder on the nsurance pocy.
In ts etter of Ianuary 29, 1988 to Vrgna A. Perez, the nsurance company mantaned that the
nsurance for P50,000.00 had not been perfected at the tme of the death of Prmtvo Perez.
Consequenty, the nsurance company refunded the amount of P2,075.00 whch Vrgna Perez had pad
Lfeman fed for the rescsson and the decaraton of nuty. Perez, on the other hand, averred that the
deceased had fufed a hs prestatons under the contract and a the eements of a vad contract are
present.
RTC rued n favor of Perez. CA reversed.
lssue: WON there was a perfected addtona nsurance contract.
Held: The contract was not perfected.
Insurance s a contract whereby, for a stpuated consderaton, one party undertakes to compensate the
other for oss on a specfed subect by specfed pers. A contract, on the other hand, s a meetng of the
mnds between two persons whereby one bnds hmsef, wth respect to the other to gve somethng or to
render some servce.
Consent must be manfested by the meetng of the offer and the acceptance upon the thng and the
cause whch are to consttute the contract. The offer must be certan and the acceptance absoute. When
Prmtvo fed an appcaton for nsurance, pad P2,075.00 and submtted the resuts of hs medca
examnaton, hs appcaton was subect to the acceptance of prvate respondent BF Lfeman Insurance
Corporaton. The perfecton of the contract of nsurance between the deceased and respondent corporaton
was further condtoned upon compance wth the foowng requstes stated n the appcaton 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 l/We, am/are in good health."
The assent of prvate respondent BF Lfeman Insurance Corporaton therefore was not gven when t
merey receved the appcaton form and a the requste supportng papers of the appcant. Its assent was
gven when t ssues a correspondng pocy to the appcant. Under the abovementoned provson, t s ony
when the appcant pays the premum and receves and accepts the pocy whe he s n good heath that the
contract of nsurance s deemed to have been perfected.
It s not dsputed, however, that when Prmtvo ded on November 25, 1987, hs appcaton papers for
addtona nsurance coverage were st wth the branch offce of respondent corporaton n Gumaca and t
was ony two days ater, or on November 27, 1987, when Laog personay devered the appcaton papers to
the head offce n Mana. Consequenty, there was absoutey no way the acceptance of the appcaton coud
have been communcated to the appcant for the atter to accept nasmuch as the appcant at the tme was
aready dead.
(79) ClR v. Lincoln Phil Life
379 SCRA 423 (2002)
Facts:
In the years pror to 1984, Lncon ssued a speca knd of fe nsurance pocy known as the "Iunor
Estate Buder Pocy," the dstngushng feature of whch s a cause provdng for an automatc ncrease
n the amount of fe nsurance coverage upon attanment of a certan age by the nsured wthout the
need of ssung a new pocy. The cause was to take effect n the year 1984.
Documentary stamp taxes due on the pocy were pad to the pettoner ony on the nta sum assured.
Subsequenty, pettoner ssued defcency documentary stamps tax assessment for the year 1984,
correspondng to the amount of automatc ncrease of the sum assured on the pocy ssued by
respondent.
Lncon questoned the defcency assessments and sought ther canceaton n a petton fed n the
Court of Tax Appeas. CTA found no bass for the assessment. CA affrmed.
lssue: WON the automatc ncrease of the sum assured on the pocy s taxabe.
Held: YES.
CIR cams that the "automatc ncrease cause" n the subect nsurance pocy s separate and dstnct
from the man agreement and nvoves another transacton; and that, whe no new pocy was ssued, the
orgna pocy was essentay re-ssued when the addtona obgaton was assumed upon the effectvty of
ths "automatc ncrease cause" n 1984; hence, a defcency assessment based on the addtona nsurance
not covered n the man pocy s n order. The SC agreed wth ths contenton.
The subect nsurance pocy at the tme t was ssued contaned an "automatc ncrease cause."
Athough the cause was to take effect ony n 1984, t was wrtten nto the pocy at the tme of ts ssuance.
The dstnctve feature of the "unor estate buder pocy" caed the "automatc ncrease cause" aready
formed part and parce of the nsurance contract, hence, there was no need for an executon of a separate
agreement for the ncrease n the coverage that took effect n 1984 when the assured reached a certan age.
It s cear from Secton 173 of the NIRC that the payment of documentary stamp taxes s done at the tme
the act s done or transacton had and the tax base for the computaton of documentary stamp taxes on fe
nsurance poces under Secton 183 of NIRC s the amount fxed n pocy, uness the nterest of a person
nsured s susceptbe of exact pecunary measurement.
Logcay, we beeve that the amount fxed n the pocy s the fgure wrtten on ts face and whatever
ncreases w take effect n the future by reason of the "automatc ncrease cause" emboded n the pocy
wthout the need of another contract.
Here, athough the automatc ncrease n the amount of fe nsurance coverage was to take effect ater
on, the date of ts effectvty, as we as the amount of the ncrease, was aready defnte at the tme of the
ssuance of the pocy. Thus, the amount nsured by the pocy at the tme of ts ssuance necessary ncuded
the addtona sum covered by the automatc ncrease cause because t was aready determnabe at the
tme the transacton was entered nto and formed part of the pocy.
The "automatc ncrease cause" n the pocy s n the nature of a condtona obgaton under Artce
1181, 8 by whch the ncrease of the nsurance coverage sha depend upon the happenng of the event
whch consttutes the obgaton. In the nstant case, the addtona nsurance that took effect n 1984 was an
obgaton subect to a suspensve obgaton, 9 but st a part of the nsurance sod to whch prvate
respondent was abe for the payment of the documentary stamp tax.
Section 51. A pocy of nsurance must specfy:
(a) The partes between whom the contract s made;
(b) The amount to be nsured except n the cases of open or runnng poces;
(c) The premum, or f the nsurance s of a character where the exact premum s ony
determnabe upon the termnaton of the contract, a statement of the bass and rates upon whch the
fna premum s to be determned;
(d) The property or fe nsured;
(e) The nterest of the nsured n property nsured, f he s not the absoute owner thereof;
(f) The rsks nsured aganst; and
(g) The perod durng whch the nsurance s to contnue.
What must a policy contain and what are the reason behind such requirements7
A pocy must contan:
1. Names of the partes
2. Amount of nsurance
to easy and exacty determne the amount of ndemnty to be pad n case of oss or damage.
Ths requrement however can be dspensed wth n cases of open or runnng poces.
3. Rate of premum
Because the premum represents the consderaton of the contract; these rates are deveoped on
the bass of the nature and character of the rsk assumed. Remember Atty. Oumsons famous
words? As the rsk ncreases, the rate of premum aso ncreases.
4. Property or fe or thng nsured
Consttutes the Subect Matter
5. Interests of the nsured n the property
In order to determne actua damage. Remember, an owner gets the fu vaue of the oss whe a
mortgagee gets ony the vaue of hs credt.
6. Rsks nsured aganst
In order to know when the nsurer s caed to ndemnfy the nsured, because f ths s NOT
stated, and you hod the nsurer abe for any oss due to any cause whatsoever, t w resut to a
bg oss on the part of the nsurer.
7. Duraton of the nsurance
Ths perod sgnfes the fe of the pocy. If the duraton of nsurance has aready ended, t can
no onger be revved.
What are the kinds of insurable risks7
1) Persona rsks - fe or heath rsks
2) Property rsks - oss or damage to property
3) Labty rsks - nvove abty of the nsured for an nury caused to the person or property of
another
What are the requirements in order that a risk be insurable7
1) The oss to be nsured aganst must be mportant enough to warrant the exstence of an nsurance
contract
2) Rsk must permt a reasonabe statstca estmate of the chance of oss n order to determne the
amount of premum to be pad
3) The oss shoud be defnte as to cause, tme, pace and amount
4) The oss s not catastrophc
5) Rsk s accdenta n nature
NOTE: Read sectons 227, 228, and 230 for addtona matters to be ncuded n ndvdua, group and
ndustra fe poces.
Section 52. Cover notes may be ssued to bnd nsurance temporary pendng the ssuance of
the pocy. Wthn sxty days after the ssue of the cover note, a pocy sha be ssued n eu thereof,
ncudng wthn ts terms the dentca nsurance bound under the cover note and the premum
therefor.
Cover notes may be extended or renewed beyond such sxty days wth the wrtten approva of
the Commssoner f he determnes that such extenson s not contrary to and s not for the purpose
of voatng any provsons of ths Code. The Commssoner may promugate rues and reguatons
governng such extensons for the purpose of preventng such voatons and may by such rues and
reguatons dspense wth the requrement of wrtten approva by hm n the case of extenson n
compance wth such rues and reguatons.
What are two types of preliminary contracts of insurance7
The premnary contract of present insurance and the premnary executory contract of insurance.
What is a preliminary contract of present insurance7
By a premnary contract of nsurance, the nsurer nsures the subect matter usuay by what s known
as a "bndng sp" or "bnder" or "cover note" whch s the contract to be effectve unt the forma pocy s
ssued or the rsk s reected.
What is a cover note7
The cover not s merey a wrtten memorandum of the most mportant terms of the premnary contract
of nsurane, ntended to gve temporary protecton pendng the nvestgaton of the rsk by the nsurer, or
unt the ssuance of a forma pocy, provded that t s ater determned that the appcant was nsurabe at
the tme t was gven.
By ts nature, t s subect to a condtons n the pocy expected even though that pocy may never
ssue. In fe nsurance, where an agreement s made between an appcant and the nsurers agent, no
abty sha attach unt the nsurer approves the rsk. Thus, n life insurance, a bndng sp or bndng
recept DOES NOT nsure tsef.
Can you explain a preliminary executory contract of insurance7
By a premnary executory contract of nsurance, the nsurer makes a contract to nsure the subect
matter at some subsequent tme whch may be defnte or ndefnte. Under such an executory contract, the
rght acqured by the nsured s merey to demand the devery of the pocy n accordance wth the terms
agreed upon and the obgaton assumed by the nsurer s to dever the sad pocy.
What are the rules governing cover notes7
1) Insurance companes dong busness n the Phppnes may ssue cover notes to bnd nsurance
temporary pendng the ssuance of the pocy
2) A cover not sha e deemed to be a contract of nsurance wthn the meanng of Sec. 1(1) of IC.
3) NO cover note sha be ssued or renewed uness n the form prevousy approved by the Insurance
Commsson.
4) A cover not sha be vad and bndng for a perod NOT exceedng 60 days from the date of ts
ssuance, whether or not the premum therefore has been pad or not, BUT such cover note may be
canceed by ether party upon at east 7 days notce to the other party.
5) If a cover not s not so canceed, a pocy of nsurance sha, wthn 60 days after the ssuance of the
cover not be ssued n eu thereof. Such pocy sha ncude wthn ts terms the dentca nsurance
bound under the cover note and the premums therefore.
6) A cover note may be extended or renewed beyond the aforementoned perod of 60 days wth the
wrtten approva of the Insurance Commssoner, provded that such wrtten approva may be
dspensed wth upon the certfcaton of the Pres, VP or Genera Mgr of the Insurance company
concerned, that the rsks nvoved, the vaues of such rsks, and the premums therefore have not as
yet been determned or estabshed and that such extenson or renewa s NOT contrary to and s not
for the purpose of voatng any provson of the IC.
7) The nsurance companes may mpose on cover notes a depost premum equvaent to at east 25%
of the estmated premum of the ntended nsurance coverage but n no case ess than P500.
Cases:
(80) Lim v. Sun Life
41 PHlL 263
Facts:
On Iuy 6, 1917, Lus Lm Y Garca of Zamboanga apped for a pocy of fe nsurance wth Sunfe n the
amount of 5T.
He desgnated hs wfe Par Lm as the benefcary. The frst premum of P433 was pad by Lm and
company ssued a "provsona pocy"
Such pocy contaned the foowng provsons 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, PROVlDED that
the company shall confirm this agreement by issuing a policy on said application xxx. 5hould 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.
Lm ded on Aug. 23, 1917 after the ssuance of the provsona pocy but before the approva of the
appcaton by the home offce of the nsurance company.
The nstant acton s brought by the benefcary to recover from Sun Lfe the sum of 5T.
lssue: WON the benefcary can coect the 5T.
Held: NO.
The contract of nsurance was not consummated by the partes. The above quoted agreement ceary
stated that the agreement shoud NOT go nto effect unt the home offce of the Company sha confrm t by
ssung a pocy. It was nothng but an acknowedgment by the Company that t has receved a sum of
money agreed upon as the frst years premum upon a pocy to be ssued upon the appcaton f t s
accepted by the Company.
When an agreement s made between the appcant and the agent whether by sgnng an appcaton
contanng such condton or otherwse, that no abty sha attach unt the prncpa approves the rsk and a
recept s gven by the agent, such acceptance s merey condtona and s subordnated to the companys
act n approvng or reectng; so n fe nsurance a "bndng sp or recept" does not nsure tsef.
(81) Grepalife v. CA
89 SCRA 543
Facts:
On March 14, 1957, respondent Ngo Hng fed an appcaton wth Grepafe for a 20-yr endowment pocy
for 50T on the fe of hs one year od daughter Heen Go.
A the essenta data regardng Heen was supped by Ngo to Lapu-Lapu Mondragon, the branch
manager of Grepafe-Cebu. Mondragon then typed the data on the appcaton form whch was ater
sgned by Ngo.
Ngo then pad the nsurance premum and a bndng depost recept was ssued to hm. The bndng
recept contaned the foowng provson: lf 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 appcaton form hs strong recommendaton for the approva of
the nsurance appcaton.
On Apr 30, 1957, Mondragon receved a etter from Grepafe Man offce dsapprovng the nsurance
appcaton of Ngo for the smpe reason that the 20yr endowment pan s not avaabe for mnors beow
7 yrs od.
Mondragon wrote back the man offce agan strongy recommendng the approva of the endowment
pan on the fe of Heen, addng that Grepafe was the ony nsurance company NOT seng endowment
pans to chdren.
On may 1957, Heen ded of nfuenza wth compcaton of broncho pneumona. Ngo fed a cam wth
Gepafe, but the atter dened abty on the ground that there was no contract between the nsurer and
the nsured and a bndng recept s NOT evdence of such contract.
lssue: WON the bndng depost recept, consttuted a temporary contract of fe nsurance.
Held: NO.
The bndng recept n queston was merey an acknowedgement on behaf of the company, that the
atters branch offce had receved from the appcant, the nsurance premum and had accepted the
appcaton subect for processng by the nsurance company, and that the atter w ether approve or reect
the same on the bass of whether or not the appcant s nsurabe on standard rates.
Snce Grepafe dsapproved the nsurance appcaton of Ngo, the bndng depost recept had never
became on force at any tme, pursuant to par. E of the sad recept. A bndng recept s manfesty merey
condtona and does NOT nsure outrght. Where an agreement s made between the appcant and the
agent, NO abty sha attach unt the prncpa approves the rsk and a recept s gven by the agent.
The acceptance s merey condtona, and s subordnated to the act of the company n approvng or
reectng the appcaton. Thus n fe nsurance, a bndng sp or bndng recept does NOT nsure by tsef.
(82) Pacific Timber v. CA
112 SCRA 199
Facts:
On March 13, 1963, Pacfc secured temporary nsurance from the Workemens Insurance Co. for ts
exportaton of ogs to Iapan. Workmen ssued on sad date Cover Note 1010 nsurng sad cargo.
The reguar marne poces were ssued by the company n favor of Pacfc on Apr 2, 1963. The 2 marne
poces bore the number 53H01032 and 53H01033.
After the ssuance of the cover note but BEFORE the ssuance of the 2 poces, some of the ogs ntended
to be exported were ost due to a typhoon.
Pacfc fed ts cam wth the company, but the atter refused, contendng that sad oss may not be
consdered as covered under the cover note because such became nu and vod by vrtue of the ssuance
of the marne poces.
lssue: WON the cover not was wthout consderaton, thus nu and vod.
Held: lt was with consideration.
SC uphed Pacfcs contenton that sad cover not was wth consderaton. The fact that no separate
premum was pad on the cover note before the oss was nsured aganst occurred does not mtate aganst
the vadty of Pacfcs contenton, for no such premum coud have been pad, snce by the nature of the
cover note, t dd not contan, as a cover notes do not contan, partcuars of the shpment that woud serve
as bass for the computaton of the premums. As a ogca consequence, no separate premums are requred
to be pad on a cover note.
If the note s to be treated as a separate pocy nstead of ntegratng t to the reguar poces
subsequenty ssued, ts purpose woud be meanngess for t s n a rea sense a contract, not a mere
appcaton.
(83) Gloria v. Philamlife lnsurance Co.
73 OG 8660
Facts:
In 1966, Roberto Narto apped for a 100T fe nsurance pocy wth Phamfe Insurance Company.
Narto was examned by Dra. Verge de dos, the nsurers medca examner.
She opned that Narto was nsurabe. Her opnon was confrmed by Dr. Oroba, the Assocate Medca
Drector of the nsurer.
On Oc. 31, 1966, an agent of the nsured prepared an appcaton for the fe nsurance whose annua
premum was P1,178. On the same date, the appcaton was sgned by Narto.
Narto pad the frst annua premum on the pocy apped for. The nsurers appcaton form contaned a
so-caed "Bndng Recept" whch was detachabe.
It s not sure whether or not Narto was gven the Bndng Recept upon hs payment of the frst premum,
but what s certan that he was handed a Cashers Recept.
From the tme the nsured receved the appcaton form ts agent on Nov. 5, 1966, up to Dec. 6, 1966, t
dd not take any acton wth regard to the controverted nsurance coverage.
On Dec. 6, 1966, Narto was shot and ked. The benefcares submtted a cam to the nsurer. After an
underwrtng anayss conducted by the nsurer, t found out that Narto was unacceptabe as an
nsurance rsk. The cam was dened.
lssue: WON the benefcares can cam.
Held: YUP
The appcaton for nsurance sgned by the deceased contaned the foowng stpuaton: 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 evdence s to the effect that the bndng recept was not ssued to the
deceased when he pad the companys agent, the frst annua premum of P1,178. Hence the rghts of the
benefcares and the obgaton of the company have to be determned soey n the appcaton for nsurance
an n the Cashers recept.
The appcaton for nsurance contaned the foowng cause: There shall be no contract of insurance
unless a policy is issued on this application and the full first premium thereon actually paid." It shoud be
conceded that there sha be a contract of nsurance once the frst premum s pad and a pocy s ssued.
There s no queston that the frst premum was pad.
The probem s to resove whether or not t can be sad that the pocy has been ssued. IN ths
connecton, what may be noted s that, n contrast to the requrement of actua payment of the premum, t
was NOT requred that the pocy be actuay ssued. An assumng that no pocy had ndeed been ssued, t
shoud st be hed that the appcaton for nsurance was approved by the company, wth the actua ssuance
of the pocy beng a mere techncaty. When an nsurer accepts and retans the frst premum for an
unreasonabe ength of tme, t shoud be presumed that the nsurer had assumed the rsk. It shoud
therefore be abe for oss before the appcaton s subsequenty reected. In the case at bar, the company
dd NOT act on the appcaton for nsurance, one way or the other, from Nov. 2 to Dec. 5, 1966, and no
ustfcaton for the deay had been proven.
Hence, t shoud be hed that the appcaton for nsurance of the deceased had been approved pror to
hs death, athough the pocy had not actuay been ssued, for whch reason, the company shoud be abe
to the benefcares.
40 PHlL 674
Facts:
mortgagee.
Hardng.
appea.
Held: NOPE.
done.
Aside from the ruling, for what other reason did Atty. Ouimson ask us to read the case of Gloria
v. Philamlife7
The case defned a bndng recept.
What is a binding receipt according to Glora v. Philamlife7
A bndng recept or sp s ordnary a document, sp or memorandum gven to the nsured, whch bnds
the nsurance company to pay nsurance shoud a oss occur pendng acton upon the appcaton and actua
ssuance of a pocy.
The purpose of a bnder s to provde temporary nsurance pendng an nqury by the nsurer as to the
character of the rsk and to take the pace of the pocy unt the atter can be ssued.
The ssuance of a bnder evdences, a compete, temporary or premnary contract of nsurance effectve
from that tme unt the ssuance of the forma pocy or unt reecton of the rsk. Under a fe pocy, t woud
estabsh abty upon the nsurer f death occurred pror to the ssuance of the pocy.
A bnder recept woud be msnamed f t does NOT bnd the nsurer. If the nsurer ssues a bnder recept
wth terms whch w negate, or neutraze the bndng resut of the recept, then the nsurer woud have
actuay practced fraud on the appcant for nsurance.
Section 53. The nsurance proceeds sha be apped excusvey to the proper nterest of the
person n whose name or for whose beneft t s made uness otherwse specfed n the pocy.
Recall Section 12.
Secton 12 provdes: The nterest of a benefcary n a fe nsurance pocy sha be forfeted when the
benefcary s the prncpa, accompce or accessory n wfuy brngng about the death of the nsured; n
whch event, the nearest reatve of the nsured sha receve the proceeds of sad nsurance f not otherwse
quafed.
So7
It s an excepton to Secton 53.
What does Art. 2127 of the CC say7
Art. 2127. The mortgage extends to the natura accesson, to the mprovements, growng fruts and the
rents or ncome not yet receved when the obgaton becomes due, and the amount of the indemnity
granted or owing to the proprietor from the insurers of the property mortgaged, or n vrtue of expropraton
for pubc use, wth decaratons, ampfcatons and mtatons estabshed by aw, whether the estate
remans n the possesson of the mortgagor or t passes nto the hands of a thrd person.
Problems.
A had taken out a policy on his car with the stipulation: loss if any payable to Z, the mortgagee of the car".
The car got lost and X, the owner of the auto repair shop where the car was fixed filed a claim with the
insurance company. ls X entitled to collect the cost of repair?
NO. As far as the nsurance company s concerned, X s not prvy to the nsurance contract. Even f there
was a provson n the contract authorzng ether A or Z to contract for repars, ths does not mean that X
became entted to cam the proceeds. In ths case, the proceeds must be pad to Z, and n case Z was the
one who contracted for the repars, Z must pay X.
Cases:
(85) Bonifacio Bros. v. Mora
20 SCRA 262
Facts:
Enrque Mora mortgaged hs Odsmobe sedan car to HS Reyes Inc. wth the condton that Mora woud
nsure the car wth HS Reyes as benefcary.
The car was then nsured wth State Insurance Company and the pocy devered to Mora.
Durng the effectvty of the nsurance contract, the car fgured n an accdent. The company then
assgned the accdent to an nsurance appraser for nvestgaton and apprasa of the damage.
Mora wthout the knowedge and consent of HS Reyes, authorzed Bonfaco Bros to fx the car, usng
materas supped by the Ayaa Auto Parts Company.
For the cost of Labor and materas, Mora was bed P2,102.73. The b was sent to the nsurers
appraser. The nsurance company drew a check n the amount of the nsurance proceeds and entrusted
the check to ts appraser for devery to the proper party.
The car was devered to Mora wthout the consent of HS Reyes, and wthout payment to Bonfaco Bros
and Ayaa.
Upon the theory that the nsurance proceeds shoud be drecty pad to them, Bonfaco and Ayaa fed a
compant aganst Mora and the nsurer wth the muncpa court for the coecton of P2,102.73.
The nsurance company fed ts answer wth a countercam for nterpeader, requrng Bonfaco and HS
Reyes to nterpead n order to determne who has a better rght to the proceeds.
lssue: WON there s prvty of contract between Bonfcaco and Ayaa on one hand and State Insurance on
the other.
Held: NONE.
It s fundamenta that contracts take effect ony between the partes thereto, except n some specfc
nstance provded by aw where the contract contans some stpuaton n favor of a thrd person. Such
stpuaton s known as a stpuaton pour autru; or a provson n favor of a thrd person not a party to the
contract.
Under ths doctrne, a thrd person s aowed to ava hmsef of a beneft granted to hm by the terms of
the contract, provded that the contractng partes have ceary and deberatey conferred a favor upon such
person. Consequenty, a thrd person NOT a party to the contract has NO acton aganst the aprtes thereto,
and cannot generay demand the enforcement of the same.
The queston of whether a thrd person has an enforceabe nterest n a contract must be setted by
determnng whether the contractng partes ntended to tender hm such an nterest by deberatey nsertng
terms n ther agreement wth the avowed purpose of conferrng favor upon such thrd person. IN ths
connecton, ths court has ad down the rue that the farest test to determne whether the nterest of a 3
rd
person n a contract s a stpuaton pour autru or merey an ncdenta nterest, s to rey upon the ntenton
of the partes as dscosed by ther contract.
In the nstant case the nsurance contract does not contan any words or causes to dscose an ntent to
gve any beneft to any reparmen or matera men n case of repar of the car n queston. The partes to the
nsurance contract omtted such stpuaton, whch s a crcumstance that supports the sad concuson. On
the other hand, the "oss payabe" cause of the nsurance pocy stpuates that "Loss, f any, s payabe to
H.S. Reyes, Inc." ndcatng that t was ony the H.S. Reyes, Inc. whch they ntended to beneft.
A pocy of nsurance s a dstnct and ndependent contract between the nsured and nsurer, and thrd
persons have no rght ether n a court of equty, or n a court of aw, to the proceeds of t, uness there be
some contract of trust, expressed or mped, by the nsured and thrd person. In ths case, no contract of
trust, express or mped. In ths case, no contract of trust, expressed or mped exsts. We, therefore, agree
wth the tra court that no cause of acton exsts n favor of the appeants n so far as the proceeds of
nsurance are concerned. The appeant's cam, f at a, s merey equtabe n nature and must be made
effectve through Enrque Mora who entered nto a contract wth the Bonfaco Bros Inc. Ths concuson s
deducbe not ony from the prncpe governng the operaton and effect of nsurance contracts n genera,
but s ceary covered by the express provsons of secton 50 of the Insurance Act (now Sec. 53).
The pocy n queston has been so framed that "Loss, f any, s payabe to H. S. Reyes, Inc." whch
unmstakaby shows the ntenton of the partes.
(86) Coquia v. Fieldmen's lnsurance
26 SCRA 172
Facts:
On Dec. 1, 1961, Fedmens Insurance co. Issued n favor of the Mana Yeow Taxcab a common carrer
nsurance pocy wth a stpuaton that the company sha ndemnfy the nsured of the sums whch the
atter wmy be hed abe for wth respect to death or bodily injury to any faire-paying passenger
including the driver and conductor".
The pocy aso stated that n "the event of the death of the driver, the Company shall indemnify his
personal representatives and at the Companys option may make indemnity payable directly to the
claimants or heirs of the claimants."
Durng the pocys fetme, a taxcab of the nsured drven by Coqua met an accdent and Coqua ded.
When the company refused to pay the ony hers of Coqua, hs parents, they nsttued ths compant.
The company contends that pantffs have no cause of acton snce the Coquas have no contractua
reatonshp wth the company.
lssue: WON pantffs have the rght to coect on the pocy.
Held: YES.
Athough, n genera, ony partes to a contract may brng an acton based thereon, ths rue s subect to
exceptons, one of whch s found n the second paragraph of Artce 1311 of the Cv Code of the Phppnes,
readng: "lf 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." Ths s but the restatement of a we-known prncpe concernng
contracts pour autru, the enforcement of whch may be demanded by a thrd party for whose beneft t was
made, athough not a party to the contract, before the stpuaton n hs favor has been revoked by the
contractng partes
In the case at bar, the pocy under consderaton s typca of contracts pour autru ths character beng
made more manfest by the fact that the deceased drver pad ffty percent (50%) of the correspondng
premums, whch were deducted from hs weeky commssons. Under these condtons, t s cear that the
Coquas - who, admttedy, are the soe hers of the deceased - have a drect cause of acton aganst the
Company, and, snce they coud have mantaned ths acton by themseves, wthout the assstance of the
nsured t goes wthout sayng that they coud and dd propery on the atter n fng the compant heren.
(87) Guingon v. Del Monte
80 SCRA 181
Facts:
The nsured owned a feet of eepneys. He nsured the operaton of hs eepneys aganst accidents with
third part liability" wth Capta Insurance and Surety Co.
One day, one of hs eepney drvers, bumped and ked Gungon.
An acton for damages was then fed aganst the owner-nsured, the drver and the company.
The company sough to dsmss the charges aganst t on the ground of ack of cause of acton aganst t.
lssue: WON there s a cause of acton aganst the company.
Held: YES.
The rght of a person nured to sue the nsurer of the party at faut depends on whether the contract of
nsurance was ntended to beneft thrd persons. The test apped here s: Where the contract provdes for
ndemnty aganst abty to thrd persons, then thrd persons to whom the nsured s abe, can sue the
nsurer. On the other hand, where the contract s for ndemnty aganst actua oss or payment, then thrd
persons cannot proceed aganst the nsurer, the contract beng soey to remburse the nsured for abty
actuay dscharged by hm through payment to thrd persons, sad thrd persons' recourse beng thus mted
to the nsured aone
The pocy n the present case, s one whereby the nsurer agreed to ndemnfy the nsured "aganst a
sums . whch the Insured sha become egay abe to pay n respect of: a. death of or body nury to any
person . . ." Ceary, therefore, t s one for ndemnty aganst abty from the fact then that the nsured s
abe to the thrd person, such thrd person s entted to sue the nsurer.
Snce the pocy n questoned contaned a stpuaton pour autru, then the nsurance company must
dever the proceeds to the camants.
(88) Del Val v. Del Val
29 Phil 535
Facts:
Pettoners and prvate respondents are brothers and Ssters and are the ony hers and next of kn of
Gregoro de Va who ded ntestate.
It was found out that the deceased took out nsurance on hs fe for the sum of 40T and made t payabe
to prvate respondents as soe benefcary.
After Gregoros death, Andres coected the proceeds of the pocy.
Of the sad pocy, Andres pad 18T to redeem some rea property whch Gregoro had sod to thrd
persons durng hs fetme.
Sad redempton of the property was made by Andres aywer n the name of Andres and the pettoners.
(Accdg to Andres, sad redempton n the name of Pettoners and hmsef was wthout hs knowedge and
that snce the redempton, pettoners have been n possesson of the property)
Pettoners now contend that the amount of the nsurance pocy beonged to the estate of the deceased
and not to Andres personay.
Pet fed a compant for partton of property ncudng the nsurance proceeds
Andress cams that he s the soe owner of the proceeds and prayed that he be decared:
Soe owner of the rea property, redeemed wth the use of the nsurance proceeds and ts remander;
Pettoners to account for the use and occupaton of the premses.
lssue: WON the pettoners have a rght to the nsurance proceeds?
Held: NOPE.
The contract of fe nsurance s a speca contract and the destnaton of the proceeds thereof s
determned by speca aws whch dea excusvey wth the subect. Our cv code has no provsons whch
reate drecty and specfcay to fe-nsurance contracts of to the destnaton of fe-nsurance proceeds that
subect s reguated excusvey by the Code of Commerce. Thus, contenton of pettoners that proceeds
shoud be consdered as a dontaton or gft and shoud be ncuded n the estate of the deceased s
UNTENABLE.
Snce the repurchase has been made n the names of a the hers nstead of the defendant aone,
pettoners cam that the property beongs to the hers n common and not to the defendant aone. The SC
hed that f t s estabshed by evdence that that was hs ntenton and that the rea estate was devered to
the pantffs wth that understandng, then t s probabe that ther contenton s correct and that they are
entted to share equay wth the defendant. HOWEVER, t appears from the evdence that the conveyances
were taken n the name of the pantffs wthout the knowedge and consent of Andres, or that t was not hs
ntenton to make a gft to them of rea estate, when t beongs to hm.
(89) lnsular Life. Ebrado
80 SCRA 181
Facts:
Buenaventura Ebrado was ssued a fe pan by Insuar Company. He desgnated Caprona as hs
benefcary, referrng to her as hs wfe.
The nsured then ded and Carpona tred to cam the proceeds of the sad pan.
She admtted to beng ony the common aw wfe of the nsured.
Pascuaa, the ega wfe, aso fed a cam assertng her rght as the ega wfe. The company then fed
an acton for nterpeader.
lssue: WON the common aw wfe named as benefcary can coect the proceeds.
Held: NOPE.
The cv code prohbtons on donatons made between persons guty of aduterous concubnage appes
to nsurance contracts. On matters not specfcay provded for by the Insurance Law, the genera rues on
Cv aw sha appy. A fe nsurance pocy s no dfferent from a cv donaton as far as the benefcary s
concerned, snce both are founded on beraty.
Why was the common law wife not allowed to collect the proceeds despite the fact that she was
the beneficiary7 lsn't this against Sec. 537
It s true that SC went aganst Sec. 53. However, Sec. 53 s NOT the ony provson that the SC had to
consder. Art. 739 and 2012 of CC prohbt persons who are guty of adutery or concubnage from beng
benefcares of the fe nsurance poces of the persons wth whom they commtted adutery or
concubnage. If the SC used ony Sec. 53, t woud have gone aganst Art. 739 and 2012.
(90) RCBC v. CA
289 SCRA 292 (1998)
Facts:
GOYU apped for credt factes and accommodatons wth RCBC. After due evauaton, a credt facty n
the amount of P30 mon was ntay granted. Upon GOYU's appcaton ncreased GOYU's credt facty
to P50 mon, then to P90 mon, and fnay to P117 mon
As securty for ts credt factes wth RCBC, GOYU executed two REM and two CM n favor of RCBC,
whch were regstered wth the Regstry of Deeds at. Under each of these four mortgage contracts, GOYU
commtted tsef to nsure the mortgaged property wth an nsurance company approved by RCBC, and
subsequenty, to endorse and dever the nsurance poces to RCBC.
GOYU obtaned n ts name a tota of 10 nsurance poces from MICO. In February 1992, Achester
Insurance Agency, Inc., the nsurance agent where GOYU obtaned the Maayan nsurance poces, ssued
nne endorsements n favor of RCBC seemngy upon nstructons of GOYU
On Apr 27, 1992, one of GOYU's factory budngs n Vaenzuea was gutted by fre. Consequenty, GOYU
submtted ts cam for ndemnty.
MICO dened the cam on the ground that the nsurance poces were ether attached pursuant to wrts
of attachments/garnshments ssued by varous courts or that the nsurance proceeds were aso camed
by other credtors of GOYU aegng better rghts to the proceeds than the nsured.
GOYU fed a compant for specfc performance and damages. RCBC, one of GOYU's credtors, aso fed
wth MICO ts forma cam over the proceeds of the nsurance poces, but sad cams were aso dened
for the same reasons that AGCO dened GOYU's cams.
However, because the endorsements do not bear the sgnature of any offcer of GOYU, the tra court, as
we as the Court of Appeas, concuded that the endorsements are defectve and hed that RCBC has no
rght over the nsurance proceeds.
lssue: WON RCBC has a rght over the nsurance proceeds.
Held: RCBC has a right over the insurance proceeds.
It s setted that a mortgagor and a mortgagee have separate and dstnct nsurabe nterests n the same
mortgaged property, such that each one of them may nsure the same property for hs own soe beneft.
There s no queston that GOYU coud nsure the mortgaged property for ts own excusve beneft. In the
present case, athough t appears that GOYU obtaned the subect nsurance poces namng tsef as the soe
payee, the ntentons of the partes as shown by ther contemporaneous acts, must be gven due
consderaton n order to better serve the nterest of ustce and equty.
It s to be noted that 9 endorsement documents were prepared by Achester n favor of RCBC. The Court
s n a quandary how Achester coud arrve at the dea of endorsng any specfc nsurance pocy n favor of
any partcuar benefcary or payee other than the nsured had not such named payee or benefcary been
specfcay dscosed by the nsured tsef. It s aso sgnfcant that GOYU vountary and purposey took the
nsurance poces from MICO, a sster company of RCBC, and not ust from any other nsurance company.
Achester woud not have found out that the subect peces of property were mortgaged to RCBC had not
such nformaton been vountary dscosed by GOYU tsef. Had t not been for GOYU, Achester woud not
have known of GOYU's ntenton of obtanng nsurance coverage n compance wth ts undertakng n the
mortgage contracts wth RCBC, and verfy, Achester woud not have endorsed the poces to RCBC had t not
been so drected by GOYU.
On equtabe prncpes, partcuary on the ground of estoppe, the Court s constraned to rue n favor of
mortgagor RCBC. RCBC, n good fath, reed upon the endorsement documents sent to t as ths was ony
pursuant to the stpuaton n the mortgage contracts. We fnd such reance to be ustfed under the
crcumstances of the case. GOYU faed to seasonaby repudate the authorty of the person or persons who
prepared such endorsements. Over and above ths, GOYU contnued, n the meantme, to enoy the benefts
of the credt factes extended to t by RCBC. After the occurrence of the oss nsured aganst, t was too ate
for GOYU to dsown the endorsements for any magned or contrved ack of authorty of Achester to prepare
and ssue sad endorsements. If there had not been actuay an mped ratfcaton of sad endorsements by
vrtue of GOYU's nacton n ths case, GOYU s at the very east estopped from assang ther operatve
effects.
To permt GOYU to captaze on ts non-confrmaton of these endorsements whe t contnued to enoy
the benefts of the credt factes of RCBC whch beeved n good fath that there was due endorsement
pursuant to ther mortgage contracts, s to countenance grave contraventon of pubc pocy, far deang,
good fath, and ustce. Such an unust stuaton, the Court cannot sancton. Under the pecuar crcumstances
obtanng n ths case, the Court s bound to recognze RCBC's rght to the proceeds of the nsurance poces
f not for the actua endorsement of the poces, at east on the bass of the equtabe prncpe of estoppe.
GOYU cannot seek reef under Secton 53 of the Insurance Code whch provdes that the proceeds of
nsurance sha excusvey appy to the nterest of the person n whose name or for whose beneft t s made.
The pecuarty of the crcumstances obtanng n the nstant case presents a ustfcaton to take excepton to
the strct appcaton of sad provson, t havng been suffcenty estabshed that t was the ntenton of the
partes to desgnate RCBC as the party for whose beneft the nsurance poces were taken out. Consder
thus the foowng:
1. It s undsputed that the nsured peces of property were the subect of mortgage contracts entered
nto between RCBC and GOYU n consderaton of and for securng GOYU's credt factes from RCBC.
The mortgage contracts contaned common provsons whereby GOYU, as mortgagor, undertook to
have the mortgaged property propery covered aganst any oss by an nsurance company acceptabe
to RCBC.
2. GOYU vountary procured nsurance poces to cover the mortgaged property from MICO, no ess
than a sster company of RCBC and defntey an acceptabe nsurance company to RCBC.
3. Endorsement documents were prepared by MICO's underwrter, Achester Insurance Agency, Inc.,
and copes thereof were sent to GOYU, MICO and RCBC. GOYU dd not assa, unt of ate, the vadty
of sad endorsements.
4. GOYU contnued unt the occurrence of the fre, to enoy the benefts of the credt factes extended
by RCBC whch was condtoned upon the endorsement of the nsurance poces to be taken by GOYU
to cover the mortgaged propertes.
Ths Court can not over stress the fact that upon recevng ts copes of the endorsement documents
prepared by Achester, GOYU, despte the absence wrtten conformty thereto, obvousy consdered sad
endorsement to be suffcent compance wth ts obgaton under the mortgage contracts snce RCBC
accordngy contnued to extend the benefts of ts credt factes and GOYU contnued to beneft therefrom.
Iust as pan too s the ntenton of the partes to consttute RCBC as the benefcary of the varous nsurance
poces obtaned by GOYU. The ntenton of the partes w have to be gven fu force and effect n ths
partcuar case. The nsurance proceeds may, therefore, be excusvey apped to RCBC, whch under the
factua crcumstances of the case, s truy the person or entty for whose beneft the poces were ceary
ntended.
Section 54. When an nsurance contract s executed wth an agent or trustee as the nsured,
the fact that hs prncpa or benefcary s the rea party n nterest may be ndcated by descrbng
the nsured as agent or trustee, or by other genera words n the pocy.
Who may take insurance7
An nsurance may be taken by a person, personay or through hs agent or trustee.
lf the insurance is taken by an agent or trustee, what must the agent or trustee do7
Snce the nsurance s to be apped excusvey to the nterest of the person n whose name and for
whose beneft t s made, the agent or trustee when makng an nsurance contract for or on behaf of hs
prncpa shoud, ndcate that he s merey actng n a representatve capacty by sgnng as such agent or
trustee, or by other genera terms n the pocy.
Section 55. To render an nsurance effected by one partner or part-owner, appcabe to the
nterest of hs co-partners or other part-owners, t s necessary that the terms of the pocy shoud be
such as are appcabe to the ont or common nterest.
What happens when the insurance is effected by a partner or a part-owner7
A partner or part-owner who nsures partnershp property n hs own name mts the contract to hs
ndvdua share UNLESS the terms of the pocy ceary show that the nsurance was meant to cover aso the
shares of the other partners.
Section 56. When the descrpton of the nsured n a pocy s so genera that t may
comprehend any person or any cass of persons, ony he who can show that t was ntended to
ncude hm can cam the beneft of the pocy.
What happens when the description of the insured is general7
In order that the nsurance may be apped to the nterest of the person camng the beneft of the pocy,
he must show that he s the person named or descrbed or that he beongs to the cass of persons
comprehended n the pocy.
Example7
If the pocy s payabe "to the chdren", you must show that you are a chd of the deceased. Not a
grand-chd, nor a great-grand-chd.
Section 57. A pocy may be so framed that t w nure to the beneft of whomsoever, durng
the contnuance of the rsk, may become the owner of the nterest nsured.
Section 58. The mere transfer of a thng nsured does not transfer the pocy, but suspends t
unt the same person becomes the owner of both the pocy and the thng nsured.
What is the reason behind Sec. 587
Sec. 58 foows from the we estabshed prncpe that a pocy s a persona contract wth the nsured
and does NOT run wth the nsured property uness so expressy stpuated, and n the absence of an
assgnment of the pocy wth the nsurers consent, the purchaser of the nterest of the property requres no
prvty wth the nsurer.
ln reading sec. 58, take not of Sec. 19 and 20.
Section 19. An nterest n property nsured must exst when the nsurance takes effect, and when the
oss occurs, but need not exst n the meantme; and nterest n the fe or heath of a person nsured must
exst when the nsurance takes effect, but need not exst thereafter or when the oss occurs.
Section 20. Except n the cases specfed n the next four sectons, and n the cases of fe, accdent and
heath nsurance, a change of nterest n any part of a thng nsured, unaccompaned by a correspondng
change of nterest n the nsurance, suspends the nsurance to an equvaent extent, unt the nterests n the
thng and the nterest n the nsurance are vested n the same person.
Problem.
A borrowed 5,000 from 8, and to secure payment of his obligation, he mortgaged his house to 8. 8 then
insured the house for 5T. 5ubsequently, 8 assigned his mortgage credit to X, but did not make the
corresponding transfer of his right over the insurance policy. lF the house burns down, is Paul entitled to
collect the insurance money as assignee-mortgagee?
NO, snce B dd not assgn hs rght over the nsurance pocy to X. A purchaser of nsured property who
does Not take the precauton to obtan a transfer of the pocy on the nsurance, cannot n case of oss,
recover upon the contract, as the transfer of the property has the effect of suspendng the nsurance unt the
purchaser becomes the owner of the pocy as we as the property nsured.
Case:
(91) San Miguel v. Law Union Rock (repeat - Case # 12)
40 PHlL 674
Facts:
mortgagee.
Hardng.
appea.
Held: NOPE.
done.

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