San Miguel Brewery vs La Union and Rock Insurance Co (40 Phil.

674)

March 25, 2016

FACTS

During the negotiations regarding the application for an insurance policy, it was
agreed that the insurance applied for shall protect both the interest of the
mortgage and the residuary interest of the owner of the property. Due to
mistake, the insurance contract was written, failed to cover the interest of the
owner.

ISSUES

Can the instrument be reformed?

HELD

Yes, the instrument can be reformed to give effect to the real agreement of the
parties.

San Miguel Brewery v. Law Union Rock Insurance Company - Insurance

Proceeds

40 PHIL 674

Facts:
> On Jan. 12, 1918, Dunn mortgaged a parcel of land to SMB to secure a debt
of 10T.
> Mortgage contract stated that Dunn was to have the property insured at his
own expense, authorizing SMB to choose the insurers and to receive the
proceeds thereof and retain so much of the proceeds as would cover the
mortgage debt.
> Dunn likewise authorized SMB to take out the insurance policy for him.
> Brias, SMB’s general manager, approached Law Union for insurance to the
extent of 15T upon the property. In the application, Brias stated that SMB’s
interest in the property was merely that of a mortgagee.
> Law Union, not wanting to issue a policy for the entire amount, issued one for
P7,500 and procured another policy of equal amount from Filipinas Cia de
Seguros. Both policies were issued in the name of SMB only and contained no
reference to any other interests in the propty. Both policies required assignments
to be approved and noted on the policy.
> Premiums were paid by SMB and charged to Dunn. A year later, the policies
were renewed.
> In 1917, Dunn sold the property to Harding, but no assignment of the policies
was made to the latter.
> Property was destroyed by fire. SMB filed an action in court to recover on the
policies. Harding was made a defendant because by virtue of the sale, he
became the owner of the property, although the policies were issued in SMB’s
name.
> SMB sought to recover the proceeds to the extent of its mortgage credit with
the balance to go to Harding.
> Insurance Companies contended that they were not liable to Harding because
their liability under the policies was limited to the insurable interests of SMB only.
> SMB eventually reached a settlement with the insurance companies and was
paid the balance of it’s mortgage credit. Harding was left to fend for
himself. Trial court ruled against Harding. Hence the appeal.

Issue:

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

Held:
NOPE.
Under the Insurance Act, the measure of insurable interest in the property is the
extent to which the insured might be daminified by the loss or injury
thereof. Also it is provided in the IA that the insurance shall be applied
exclusively to the proper interest of the person in whose name it is
made. Undoubtedly, SMB as the mortgagee of the property, had an insurable
interest therein; but it could NOT, an any event, recover upon the two policies an
amount in excess of its mortgage credit.
By virtue of the Insurance Act, neither Dunn nor Harding could have recovered
from the two policies. With respect to Harding, when he acquired the property,
no change or assignment of the policies had been undertaken. The policies
might have been worded differently so as to protect the owner, but this was not
done.

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

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

Insurance Case Digest: San Miguel Brewery V. Law Union And Rock Insurance

Co. (1920)

Lessons Applicable:

 Mortgagor (Insurance)
 Measure of Insurable Interest (Insurance)
 Effect of Change of Interest in Thing Insured (Insurance)
 Effect of transfer of thing insured (Insurance)
Laws Applicable: sec. 16,sec. 19 (now sec. 20),sec. 50,sec.55 (now sec. 58) of
the Insurance Code (all old law)

FACTS:
 In the contract of mortgage, the owner P.D. Dunn had agreed, at his own
expense, to insure the mortgaged property for its full value and to indorse
the policies in such manner as to authorize the Brewery Company to receive
the proceeds in case of loss and to retain such part thereof as might be
necessary to satisfy the remainder then due upon the mortgage debt.
Instead, however, of effecting the insurance himself Dunn authorized and
requested the Brewery Company to procure insurance on the property in the
amount of P15,000 at Dunn's expense.
 San Miguel insured the property only as mortgagee.
 Dunn sold the propert to Henry Harding. The insurance was not assigned by
Dunn to Harding.
 When it was destroyed by fire, the two companies settled with San Miguelto
the extent of the mortgage credit.
 RTC: Absolved the 2 companies from the difference. Henry Harding is
not entitled to the difference between the mortgage credit and the face value
of the policies.
 Henry Harding appealed.
ISSUE:
1. W/N San Miguel has insurable interest as mortgagor only to the extent of the
mortgage credit - YES
2. W/N Harding has insurable interest as owner - NO

HELD: affirmed
 section 19 of the Insurance Act:
 a change of interest in any part of a thing insured unaccompanied by a
corresponding change of interest in the insurance, suspends the insurance to
an equivalent extent, until the interest in the thing and the interest in the
insurance are vested in the same person
 section 55:
 the mere transfer of a thing insured does not transfer the policy, but
suspends it until the same person becomes the owner of both the policy and
the thing insured
 Undoubtedly these policies of insurance might have been so framed as to
have been "payable to the San Miguel Brewery, mortgagee, as its interest
may appear, remainder to whomsoever, during the continuance of the risk,
may become the owner of the interest insured." (Sec 54, Act No. 2427.) Such
a clause would have proved an intention to insure the entire interest in the
 property, not merely the insurable interest of the San Miguel Brewery, and
would have shown exactly to whom the money, in case of loss, should be
paid. But the policies are not so written.
 The blame for the situation thus created rests, however, with the Brewery
rather than with the insurance companies, and there is nothing in the record
to indicate that the insurance companies were requested to write insurance
upon the insurable interest of the owner or intended to make themselves
liable to that extent
 If by inadvertence, accident, or mistake the terms of the contract were not
fully set forth in the policy, the parties are entitled to have it reformed. But
to justify the reformation of a contract, the proof must be of the most
satisfactory character, and it must clearly appear that the contract failed to
express the real agreement between the parties
 In the case now before us the proof is entirely insufficient to authorize
reformation.