Philippine Legal Guide: Insurance Notes Outline Part One

I. General Concepts
A. Insurance
1. Definition [Secs. 2(1) I.C.]

Insurance Code

Sec. 2(1)

contract of insurance

an agreement whereby one undertakes for a consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event

contract of suretyship

shall be deemed to be an insurance contract, within the meaning of this Code, only if made by a surety who or which, as such, is doing an insurance business as hereinafter provided

2. Elements (aside from the elements of a contract)
a. The insured has an insurable interest [Secs. 12-14, I.C.]
b. The insured is subject to a risk of loss by the happening of the
designated peril [Sec. 3, par. 1, I.C.]

Insurance Code

Sec. 3(par. 1)

Sec. 3. Any contingent or unknown event, whether past or future, which may damnify a person having an insurable interest, or create a liability against him, may be insured against, subject to the provisions of this chapter.

c. The insurer assumes the risk [Sec. 2, I.C.]
d. Such assumption of risk is part of a general scheme to distribute actual
losses among a large group of persons bearing a similar risk; and
e. In consideration of the insurer's promise, the insured pays a premium [Sec 77, I.C]

Insurance Code

Sec. 77

Sec. 77. An insurer is entitled to payment of the premium as soon as the thing insured is exposed to the peril insured against. Notwithstanding any agreement to the contrary, no policy or contract of insurance issued by an insurance company is valid and binding unless and until the premium thereof has been paid, except in the case of a life or an industrial life policy whenever the grace period provision applies.

Philamcare Health Systems, Inc. v. CA (2002)

Summary: Julita Trinos, not the legal wife of Ernani Trinos who was hospitalized at Manila Medical Center due to a heart attack, claim against Philamcare Health Systems, Inc. who rejected her claim. Soon, he was Ernani was transferred to Chinese General Hospital (CGH) but soon went home due to financial difficulties. When he had a fever and felt weak, he was again sent to CGH where he died. SC favored Julita.
Laws:

Insurance Code

Sec. 2 (1)

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

Sec. 3

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

Any minor of the age of eighteen years or more, may, notwithstanding such minority, contract for life, health and accident insurance, with any insurance company duly authorized to do business in the Philippines, provided the insurance is taken on his own life and the beneficiary appointed is the minor's estate or the minor's father, mother, husband, wife, child, brother or sister.

The married woman or the minor herein allowed to take out an insurance policy may exercise all the rights and privileges of an owner under a policy.

All rights, title and interest in the policy of insurance taken out by an original owner on the life or health of a minor shall automatically vest in the minor upon the death of the original owner, unless otherwise provided for in the policy.

Sec. 10

Sec. 10. Every person has an insurable interest in the life and health:
(1) of himself, of his spouse and of his children;

(2) of any person on whom he depends wholly or in part for education or support, or in whom he has a pecuniary interest;

(3) of any person under a legal obligation to him for the payment of money, respecting property or service, of which death or illness might delay or prevent the performance; and

(4) of any person upon whose life any estate or interest vested in him depends.

Sec. 27

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

Concealment as a defense for the health care provider or insurer to avoid liability is an affirmative defense and the duty to establish such defense by satisfactory and convincing evidence rests upon the provider or insurer.
Where matters of opinion or judgment are called for, answers made in good faith and without intent to deceive will not avoid a policy even though they are untrue.
cancellation of health care agreements as in insurance policies require the concurrence of the following conditions:

1. Prior notice of cancellation to insured;

2. Notice must be based on the occurrence after effective date of the policy of one or more of the grounds mentioned;

3. Must be in writing, mailed or delivered to the insured at the address shown in the policy;

4. Must state the grounds relied upon provided in Section 64 of the Insurance Code and upon request of insured, to furnish facts on which cancellation is based.

health care agreement is in the nature of a contract of indemnity
payment should be made to the party who incurred the expenses

Philippine Health Care Providers, Inc. v. CIR (2009)

summary: CIR sent a formal demand letter for deficiency of tax to Phil. Health Care Providers Inc. [Health Maintenance Org. (HMO)] contending that it is doing an insurance business and that the health care agreement it enters is a non-life insurance contract thus making it subject both to VAT and DST under the 1997 Tax Code. SC held that it was subject to VAT and not DST.
laws:

Insurance Code

Sec. 2 (2)

(2) The term "doing an insurance business" or "transacting an insurance business", within the meaning of this Code, shall include:

(a) making or proposing to make, as insurer, any insurance contract;

(b) making or proposing to make, as surety, any contract of suretyship as a vocation and not as merely incidental to any other legitimate business or activity of the surety;

(c) doing any kind of business, including a reinsurance business, specifically recognized as constituting the doing of an insurance business within the meaning of this Code;

(d) doing or proposing to do any business in substance equivalent to any of the foregoing in a manner designed to evade the provisions of this Code.

In the application of the provisions of this Code the fact that no profit is derived from the making of insurance contracts, agreements or transactions or that no separate or direct consideration is received therefor, shall not be deemed conclusive to show that the making thereof does not constitute the doing or transacting of an insurance business.

doctrines:

basic distinction between medical service corporations and ordinary health and accident insurers:

medical service corp. - undertake to provide prepaid medical services through participating physicians, thus relieving subscribers of any further financial burden
ordinary health and accident insurers - only undertake to indemnify an insured for medical expenses up to, but not beyond, the schedule of rates contained in the policy

health care services (HMO)

one who agrees in writing to render health care services to or for persons covered by a contract issued by health service corporation in return for which the health service corporation agrees to make payment directly to the participating provider

any indemnification resulting from the payment for services rendered in case of emergency by non-participating health providers would still be incidental to petitioner’s purpose of providing and arranging for health care services and does not transform it into an insurer.

obligation to maintain the good health of its members (NOT to indemnify its members against any loss or damage arising from a medical condition)
undertakes a business risk when it offers to provide health services (NOT insurance risk or actuarial risk - risk that the cost of insurance claims might be higher than the premiums paid)

"insurance-like" aspect of petitioner’s business is miniscule compared to its non-insurance activities

principal purpose test

purpose of determining what "doing an insurance business" means, we have to scrutinize the operations of the business as a whole and not its mere components
no profit is derived - NOT be deemed conclusive evidence that it does not constitute the doing or transacting of an insurance business

3. Characteristics (AIPUC)

a. Aleatory (but NOT wagering) [Art. 2010, Civil Code; Sec. 25 I.C.]

Civil Code

Art. 2010

Art. 2010. By an aleatory contract, one of the parties or both reciprocally bind themselves to give or to do something in consideration of what the other shall give or do upon the happening of an event which is uncertain, or which is to occur at an indeterminate time.

Insurance Code

Sec. 25

Sec. 25. Every stipulation in a policy of insurance for the payment of loss whether the person insured has or has not any interest in the property insured, or that the policy shall be received as proof of such interest, and every policy executed by way of gaming or wagering, is void.

b. Indemnity (EXCEPT life and accident insurance where the result is

death, and valued policies)

Insurance Code

Sec. 17

Sec. 17. The measure of an insurable interest in property is the extent to which the insured might be damnified by loss or injury thereof.

c. Personal

d. Unilateral

executed as to insured and executory as to insurer upon payment of premiums

e. Conditional

distinguish between property insurance, where loss may or may not occur and may be total or partial, and life insurance, where death will occur so that the time of happening is the contingent element

4. Perfection - [Arts. 1318-1319, Civil Code; Secs. 77 and 226, I.C.]

Civil Code

Art. 1318

Art. 1318. There is no contract unless the following requisites concur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established.

Art. 1319

Art. 1319. Consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. The offer must be certain and the acceptance absolute. A qualified acceptance constitutes a counter-offer.
Acceptance made by letter or telegram does not bind the offerer except from the time it came to his knowledge. The contract, in such a case, is presumed to have been entered into in the place where the offer was made.

P.D. 612 Insurance Code

Sec. 77

Sec.226

Sec. 226. No policy, certificate or contract of insurance shall be issued or delivered within the Philippines unless in the form previously approved by the Commissioner, and no application form shall be used with, and no rider, clause, warranty or endorsement shall be attached to, printed or stamped upon such policy, certificate or contract unless the form of such application, rider, clause, warranty or endorsement has been approved by the Commissioner.

Enriquez v. Sun Life Assurance Co. of Canada (1920)

Summary: Joaquin Herrer applied and paid to Sun Life Insurance Manila Office and it was approved by its main branch in Montreal Canada. Subsequently, through attorney Aurelio A. Torres, Herrer notified Sun Life Manila that he wished to withdraw his application. Mr. Herrer died on Dec. 20, 1917. The next morning, Atty. Torres the notification of November 26, 1917 which stated the approval of its main office. Rafael Rodriguez, administrator of Herrara's estate, filed a claim against Sun Life for the 6,000 php paid by Mr. Herrera for his application. In ruling whether there was a perfected insurance contract, CA held there was none because it didn't come to Mr. Herrera's knowledge thereby reversing the RTC judgment.
Laws:

Civil Code

Art. 1319 (formerly Art.1262)

Doctrines:

Cognition Theory: not perfected because it has not been proved satisfactorily that the acceptance of the application ever came to the knowledge of the applicant

BUT SEE: Eternal Gardens Memorial Park Corp. v. Philippine American Life Insurance Corp. (2008)

Summary: Philam Life and Eternal entered into an agreement wherein its lot purchasers in installments will be insured for a maximum of 100,000 php subject to Philam's approval. Eternal sent a claim for the death of Chuang but it was unheeded so after a year, it sent a demand but it was rejected since Philam alleges that it is sent only after the death of Chuang and that it was not approved. Moreover, acceptance of the premium only meant it was entrust for.
Doctrines:

construed in favor of the insured and in favor of the effectivity of the insurance contract
Upon a party’s purchase on installment, an insurance contract is created,effective, valid, and binding until terminated by Philam Life's disapproval
mere inaction of the insurer on the insurance application must not work to prejudice the insured
The termination of the insurance contract by the insurer must be explicit and unambiguous

??? So what circumstance in Eternal Gardens is different from Enrique that made the court change its decision?

5. Kinds of Insurance

a. Life Insurance
i. Individual Life [Secs. 179-183, 227]

Insurance on human lives and insurance appertaining thereto or connected therewith

ii. Group Life [Secs. 50 (last par),228]

A blanket policy covering a number of individuals

iii. Industrial Life [Secs. 229-331]

A form of life insurance under which premiums are payable either monthly or oftener, if the face amount of insurance provided in any policy is not more than 500 times that of the current statutory minimum daily wage in the City of Manila and if the words “industrial” policy are printed upon the policy as part of the descriptive matter.

b. Non-life Insurance
i. Marine [Secs. 99-166]
ii. Fire [Secs. 167-173]
iii. Casualty [Sec. 174]

Note:

Health and accident insurance - either covered under life or casualty insurance
Marine, fire and the property aspect of casualty insurance are also referred to as property insurance

c. Contracts of Surety of bonding [Secs. 175-178]

B. Insurance Distinguished from Other Contracts
1. Suretyship [Art. 2047, Civil Code; Sec. 2(1), par. 2 I.C.]

Civil Code

Art. 2047

Art. 2047. By guaranty a person, called the guarantor, binds himself to the creditor to fulfill the obligation of the principal debtor in case the latter should fail to do so.
If a person binds himself solidarily with the principal debtor, the provisions of Section 4, Chapter 3, Title I of this Book shall be observed. In such case the contract is called a suretyship.

Insurance Code

Sec. 2(1), par. 2

A contract of suretyship shall be deemed to be an insurance contract, within the meaning of this Code, only if made by a surety who or which, as such, is doing an insurance business as hereinafter provided.

2. Pre-Need Plans [Sec. 3.9, SRC]

Securities Regulation Code

Sec. 3.9

Pre-Need Plans

contracts which provide for the performance of future services or the payment of future monetary considerations at the time of actual need, for which plan holders pay in cash or installment at stated prices, with or without interest or insurance coverage and includes life, pension, education, interment, and other plans which the Commission may from time to time approve.

3. Variable Contracts [Sec. 232 I.C.]

Insurance Code

Sec. 232

Sec. 232. (1) No insurance company authorized to transact business in the Philippines shall issue, deliver, sell or use any variable contract in the Philippines, unless and until such company shall have satisfied the Commissioner that its financial and general condition and its methods of operations, including the issue and sale of variable contracts, are not and will not be hazardous to the public or to its policy and contract owners. No foreign insurance company shall be authorized to issue, deliver or sell any variable contract in the Philippines, unless it is likewise authorized to do so by the laws of its domicile.

(2) The term "variable contract" shall mean any policy or contract on either a group or on an individual basis issued by an insurance company providing for benefits or other contractual payments or values thereunder to vary so as to reflect investment results of any segregated portfolio of investments or of a designated separate account in which amounts received in connection with such contracts shall have been placed and accounted for separately and apart from other investments and accounts. This contract may also provide benefits or values incidental thereto payable in fixed or variable amounts, or both. It shall not be deemed to be a "security" or "securities" as defined in The Securities Act, as amended, or in the The Investment Company Act, as amended, nor subject to regulation under said Acts.

(3) In determining the qualifications of a company requesting authority to issue, deliver, sell or use variable contracts, the Commissioner shall always consider the following: (a) the history, financial and general condition of the company: Provided, That such company, if a foreign company, must have deposited with the Commissioner for the benefit and security of its variable contract owners in the Philippines, securities satisfactory to the Commissioner consisting of bonds of the Government of the Philippines or its instrumentalities with an actual market value of two million pesos; (b) the character, responsibility and fitness of the officers and directors of the company; and (c) the law and regulation under which the company is authorized in the state of domicile to issue such contracts.

(4) If after notice and hearing, the Commissioner shall find that the company is qualified to issue, deliver, sell or use variable contracts in accordance with this Code and the regulations and rules issued thereunder, the corresponding order of authorization shall be issued. Any decision or order denying authority to issue, deliver, sell or use variable contracts shall clearly and distinctly state the reasons and grounds on which it is based.

C. Insurance Business

1. Doing an Insurance Business [Sec. 2(2) I.C.]

Insurance Code

Sec. 2(2)

(2) The term "doing an insurance business" or "transacting an insurance business", within the meaning of this Code, shall include:

(a) making or proposing to make, as insurer, any insurance contract;

(b) making or proposing to make, as surety, any contract of suretyship as a vocation and not as merely incidental to any other legitimate business or activity of the surety;

(c) doing any kind of business, including a reinsurance business, specifically recognized as constituting the doing of an insurance business within the meaning of this Code;

(d) doing or proposing to do any business in substance equivalent to any of the foregoing in a manner designed to evade the provisions of this Code.

Phil. American Life Insurance Company v. Ansaldo (1994)

Summary: Ramon M. Paterno, Jr. filed a complaint against the insurance commissioner about illegality in agency contracts of Philam Life. Philam Life contends that the Insurance Commissioner does not have the power to decide the case. CA: favored Philam Life.
Laws:

Insurance Code

Sec. 414

Sec. 414. The Insurance Commissioner shall have the duty to see that all laws relating to insurance, insurance companies and other insurance matters, mutual benefit associations, and trusts for charitable uses are faithfully executed and to perform the duties imposed upon him by this Code, and shall, notwithstanding any existing laws to the contrary, have sole and exclusive authority to regulate the issuance and sale of variable contracts as defined in section two hundred thirty-two and to provide for the licensing of persons selling such contracts, and to issue such reasonable rules and regulations governing the same.

The Commissioner may issue such rulings, instructions, circulars, orders and decision as he may deem necessary to secure the enforcement of the provisions of this Code, subject to the approval of the Secretary of Finance. Except as otherwise specified, decisions made by the Commissioner shall be appealable to the Secretary of Finance.

Sec. 415

Sec. 415. In addition to the administrative sanctions provided elsewhere in this Code, the Insurance Commissioner is hereby authorized, at his discretion, to impose upon the insurance companies, their directors and/or officers and/or agents, for any willful failure or refusal to comply with, or violation of any provision of this Code, or any order, instruction, regulation, or ruling of the Insurance Commissioner, or any commission or irregularities, and/or conducting business in an unsafe or unsound manner as may be determined by theInsurance 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.

Doctrines:

Insurance Commissioner has the authority to regulate the business of insurance

power does not cover the relationship affecting the insurance company and its agents but is limited to adjudicating claims and complaints filed by the insured against the insurance company
Chapter IV, Title I of the Insurance Code, speaks only of the licensing requirements and limitations imposed on insurance agents and brokers.

2. Mutual Insurance Companies

White Gold Marine Services, Inc. v. Pioneer Insurance Surety Corp. (2005)

Summary: Steamship Mutual through its agent, Pioneer filed for collection from White Gold on the protection and indemnity coverage for its vessels. In return, White Gold filed with the Insurance Commissioner stating that Steamship Mutual and Pioneer have violated the Insurance Code because it had no license. SC: Steamship Mutual as a P & I Club is a mutual insurance association engaged in the marine insurance business so ordered both Steamship and Pioneer to obtain a license.
Laws:

Insurance Code

Sec. 2(2)

(2) The term "doing an insurance business" or "transacting an insurance business", within the meaning of this Code, shall include:

(a) making or proposing to make, as insurer, any insurance contract;

(b) making or proposing to make, as surety, any contract of suretyship as a vocation and not as merely incidental to any other legitimate business or activity of the surety;

(c) doing any kind of business, including a reinsurance business, specifically recognized as constituting the doing of an insurance business within the meaning of this Code;

(d) doing or proposing to do any business in substance equivalent to any of the foregoing in a manner designed to evade the provisions of this Code.

Sec. 299

Sec. 299. No insurance company doing business in the Philippines, nor any agent thereof, shall pay any commission or other compensation to any person for services in obtaining insurance, unless such person shall have first procured from the Commissioner a license to act as an insurance agent of such company or as an insurance broker as hereinafter provided.

No person shall act as an insurance agent or as an insurance broker in the solicitation or procurement of applications for insurance, or receive for services in obtaining insurance, any commission or other compensation from any insurance company doing business in the Philippines, or any agent thereof, without first procuring a license to act from the Commissioner, which must be renewed annually on the first day of January, or within six months thereafter. Such license shall be issued by the Commissioner only upon the written application of the person desiring it, such application if for a license to act as insurance agent, being approved and countersigned by the company such person desires to represent, and shall be upon a form prescribed by the Commissioner giving such information as he may require, and upon payment of the corresponding fee hereinafter prescribed. The Commissioner shall satisfy himself as to competence and trustworthiness of the applicant and shall have the right to refuse to issue or renew and to suspend or revoke any such license in his discretion. No such license shall be valid after the thirtieth day of June of the year following its issuance unless it is renewed.

Doctrines:

marine insurance - undertakes to indemnify the assured against marine losses, such as the losses incident to a marine adventure
mutual insurance company

cooperative enterprise where the members are both the insurer and insured
the members all contribute, by a system of premiums or assessments, to the creation of a fund from which all losses and liabilities are paid, and where the profits are divided among themselves, in proportion to their interest
provide 3 types of coverage:

protection and indemnity
war risks
defense costs

P & I Club

a form of insurance against third party liability, where the third party is anyone other than the P & I Club and the members

D. Laws Governing Insurance

1. I.C. of 1978 [See. Sec. 5 I.C.]

Insurance Code

Sec. 5

Sec. 5. All kinds of insurance are subject to the provisions of this chapter so far as the provisions can apply.

2. Civil Code [Art. 2011, Civil Code]

Civil Code

Art. 2011

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

The Insular Life Assurance Co. Ltd. v. Ebrado (1977)

Summary: Buenaventura Cristor Ebrado designated his common law wife Carponia T. Ebrado as revocable beneficiary then his widowed legal wife filed a claim so Insular Life Assurance filed an interpleader.
Laws:

Civil Code

Art. 2011

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

Art. 2012

Art. 2012. Any person who is forbidden from receiving any donation under Article 739 cannot be named beneficiary of a life insurance policy by the person who cannot make any donation to him, according to said article.

Art. 739

Art. 739. The following donations shall be void:

(1) Those made between persons who were guilty of adultery or concubinage at the time of the donation;
(2) Those made between persons found guilty of the same criminal offense, in consideration thereof;
(3) Those made to a public officer or his wife, descedants and ascendants, by reason of his office.

In the case referred to in No. 1, the action for declaration of nullity may be brought by the spouse of the donor or donee; and the guilt of the donor and donee may be proved by preponderance of evidence in the same action.

Doctrines:

SC affirmed CA and RTC: Carponia is disqualified because of adultery under Art. 739 of the Civil Code although the Insurance Code is silent.

a. Revocation of irrevocable beneficiaries in terminated marriages [Arts. 43(4), 50 and 64, Family Code]

b. Void Donations [Arts. 739, 2012 Civil Code] (see above)

c. Life Annuity Contracts [Arts. 2021-2027 Civil Code]

d. Compulsory motor vehicle liability insurance [Art.2186, Civil Code]

e. Insurer's right of subrogration [Art. 2207, Civil Code]

Civil Code

Art. 2207

Art. 2207. If the plaintiff's property has been insured, and he has received indemnity from the insurance company for the injury or loss arising out of the wrong or breach of contract complained of, the insurance company shall be subrogated to the rights of the insured against the wrongdoer or the person who has violated the contract. If the amount paid by the insurance company does not fully cover the injury or loss, the aggrieved party shall be entitled to recover the deficiency from the person causing the loss or injury.

Aboitiz Shipping Corp. v. Insurance Co. of North America (2008)

Summary: MSAS procured an "all-risk" marine insurance from ICNA for wooden work tools and workbenches for consignee Science Teaching Improvement Project (STIP). The goods were damage because it was left outside during heavy rains by Aboitiz so ICNA paid STIP and it was issued a right to subrogation against Aboitiz. Aboitiz didn't reply so a case for collection was filed with the RTC who dismissed the case. SC affirmed CA's reversal.
Laws:

Insurance Code

Sec. 57

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

Civil Code

Art. 366

Article 366. Within twenty four hours following the receipt of the merchandise, the claim against the carrier for damages or average which may be found therein upon opening the packages, may be made, provided that the indications of the damage or average which give rise to the claim cannot be ascertained from the outside part of such packages, in which case the claim shall be admitted only at the time of receipt.

After the periods mentioned have elapsed, or the transportation charges have been paid, no claim shall be admitted against the carrier with regard to the condition in which the goods transported were delivered.

Art. 2207

Art. 1735

Art. 1735. In all cases other than those mentioned in Nos. 1, 2, 3, 4, and 5 of the preceding article, if the goods are lost, destroyed or deteriorated, common carriers are presumed to have been at fault or to have acted negligently, unless they prove that they observed extraordinary diligence as required in Article 1733.

Doctrines:

Only when that foreign corporation is "transacting" or "doing business" (NOT isolated cases) in the country will a license be necessary before it can institute suits
right of subrogation accrues simply upon payment by the insurance company of the insurance claim even assuming that it is an unlicensed foreign corporation
right of subrogation, however, has its limitations.

First, both the insurer and the consignee are bound by the contractual stipulations under the bill of lading
Second, the insurer can be subrogated only to the rights as the insured may have against the wrongdoer. If by its own acts after receiving payment from the insurer, the insured releases the wrongdoer who caused the loss from liability, the insurer loses its claim against the latter.

3. General Principles on Insurance

Constantino v. Asia Life Insurance Co. (1950)

Summary: 2 cases were filed on insurance claim but refused by Asia Life, an American Corp. which closed its office in Manila during the Japanese Occupation, for non-payment of premiums. CA and lower court absolved Asia Life adopting the United States Rule that payment of premium is the essence of an insurance contract.
Doctrines:

United States Rule

contract is not merely suspended, but is abrogated by reason of non-payments is peculiarly of the essence of the contract
it would be unjust to allow the insurer to retain the reserve value of the policy, which is the excess of the premiums paid over the actual risk carried during the years when the policy had been in force

The business of insurance is founded on the law of average; that of life insurance eminently so
contract of insurance is sui generis

Whether the insured will continue it or not is optional with him. There being no obligation to pay for the premium, they did not constitute a debt.

It should be noted that the parties contracted not only for peacetime conditions but also for times of war, because the policies contained provisions applicable expressly to wartime days. The logical inference, therefore, is that the parties contemplated uninterrupted operation of the contract even if armed conflict should ensue.

4. Special Laws

a. Revised Government Service Insurance Act of 1977 - covers insurance

of government employees

b. Social Security Act of 1954 - covers insurance of employees in private

employment

c. Property Insurance Law - covers insurance of government property

d. R.A. No. 4898 - provides life, disability and accidental insurance

coverage to barangay officials

e. E.O No. 250 - provides increased insurance benefits or barangay

officials under R.A. No. 4898, as well as members of Sangguniang

Panalalawigan, Panglungsod, and Bayan; and

f. PDIC Charter - insures deposits of all banks entitled to benefits of

insurance thereunder

5. Corporation Code - for insurance corp. [Sec. 185 par. 2 I.C.]

Insurance Code

Sec. 185

Sec. 185. Corporations formed or organized to save any person or persons or other corporations harmless from loss, damage, or liability arising from any unknown or future or contingent event, or to indemnify or to compensate any person or persons or other corporations for any such loss, damage, or liability, or to guarantee the performance of or compliance with contractual obligations or the payment of debt of others shall be known as "insurance corporations".

The provisions of the Corporation Law shall apply to all insurance corporations now or hereafter engaged in business in the Philippines insofar as they do not conflict with the provisions of this chapter.

E. Interpretation of Insurance Contracts

1. Clear Provision Given Ordinary Meaning

Union Manufacturing Co. Inc. v. Phil Guaranty Co. (1972)
Ty v. First National Surety & Assurance Co., Inc. (1961)

Summary: Ty insured himself with 18 local insurance companies with his employer Broadway Cotton Factory as beneficiary. When fire broke out at the Broadway Cotton Factory, Ty fractured his index, middle and the fourth fingers on his left hand so he filed for a claim on temporary total disability on his left hand against the insurance companies but it was rejected since the policy expressly states that an amputation is required. Both RTC and CA: absolved the insurance companies.
Doctrines:

can not go beyond the clear and express conditions of the insurance policies
agreement contained in the insurance policies is the law between the parties

2. Ambiguous Provisions Interpreted Against Insurer

Qua Chee Gan v. Law Union and Rock Insurance Co., Ltd. (1955)

Summary: Qua Chee Gan insured his 4 bodegas with Law Union. Bodegas 1, 2 and 4 was bruned in a fire that lasted almost for a week. Law Union refused the claim because it was against the memo warranty of supposely having 11 hydrants instead of 2 and that bodega 2 stored gasoline which under its hemp warranty is classified under the prohibited oils. CA and RTC: favored Ty because Law Union is barred to claim against the hydrants and that the oil stated is ambiguous to include gasoline.
Doctrines:

It is a well settled rule of law that an insurer which with knowledge of facts entitling it to treat a policy as no longer in force, receives and accepts a preium on the policy, estopped to take advantage of the forfeiture
by reason of the exclusive control of the insurance company over the terms and phraseology of the contract, the ambiguity must be held strictly against the insurer and liberraly in favor of the insured, specially to avoid a forfeiture

Del Rosario v. Equitable Ins. and Casualty Co., Inc. (1963)

Summary: Simeon del Rosario, father of the insured who died from drowning filed a claim for payment with Equitable Ins. and Casualty Co., Inc. but it refused to pay more than P1,000 php so a case was filed with the RTC for the P2,000 balance stating that under the policy they are entitled to P1,000 to P3,000 as indemnity. RTC and CA: favored Simeon
Doctrines:

terms in an insurance policy, which are ambiguous, equivocal or uncertain are to be construed strictly against, the insurer, and liberally in favor of the insured so as to effect the dominant purpose of indemnity or payment to the insured, especially where a forfeiture is involved

reason: insured usually has no voice in the selection or arrangement of the words employed and that the language of the contract is selected with great care and deliberation by expert and legal advisers employed by, and acting exclusively in the interest of, the insurance company

BUT SEE: Verendia v. CA (1993)

Summary: Verendia was claiming against Fidelity and Surety Insurance for his residential building that was destroyed by fire. Fidelity refused his claim on the ground that it was against Sec. 13 of the policy that states the false declaration forfeits his claim. CA and RTC: absolved Fidelity since the terms in Sec. 13 are clear and unambiguous and by presenting a false lease contract, Verendia, reprehensibly disregarded the principle that insurance contracts are uberrimae fidae and demand the most abundant good faith
Doctrines:

clear and unambiguous terms must be enforced.

3. Stipulations Cannot Be Segregated

Gulf Resorts Inc. v. Philippine Charter Insurance Corp. (2005)

Summary: Gulf Resorts insurred with American Home Assurance Company its resort porperty in Agoo, La Union which was subsequently damaged by an earthquake. American Home contends that only the two swimming pools are covered as stated in the rider. On the other hand, Gulf contends that the rider contains no scope so it covers all. RTC and CA: favored American Home since the rider should be interpreted with the other parts as a whole and that no premium where paid aside for the other parts.
Laws:

Insurance Code

Section 2(1)

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

Doctrines:

It is basic that all the provisions of the insurance policy should be examined and interpreted in consonance with each other.
An insurance is the consideration paid an insurer for undertaking to indemnify the insured against a specified peril.

4. Judicial Construction Cannot Alter Terms

Misamis Lumber Corp. v. Capital Ins. & Surety Co., Inc. (1966)

Summary: Misamis insured its Ford car with Capital. When the car broke and it was repaired for P302.27, Misamis filed a report to Cpaita who paid admits a limited liability of P150 as clearly stated in its policy. RTC and CA: favored Capital
Doctrines:

insurance contract may be rather onerous (one-sided) but that in itself does not justify the abrogation of its express terms, terms which the insured accepted or adhered to and which is the law between the contracting parties

Fortune Insurance and Surety Co., Inc. v. CA (1995)

Summary: Producers insured with Fortune P725,000 which was lost when its armor vehicle was robbed in transit by its driver and security guard among others. SC reversed RTC and CA: stating that the driver and security guard although contractual workers are among the representatives stated under the general exceptions to the policy.
Doctrines:

A "representative" is defined as one who represents or stands in the place of another; one who represents others or another in a special capacity, as an agent, and is interchangeable with "agent."
It is clear to us that insofar as Fortune is concerned, it was its intention to exclude and exempt from protection and coverage losses arising from dishonest, fraudulent, or criminal acts of persons granted or having unrestricted access to Producers' money or payroll. When it used then the term "employee," it must have had in mind any person who qualifies as such as generally and universally understood, or jurisprudentially established in the light of the four standards in the determination of the employer-employee relationship, or as statutorily declared even in a limited sense as in the case of Article 106 of the Labor Code which considers the employees under a "labor-only" contract as employees of the party employing them and not of the party who supplied them to the employer
NOTE: here intention of the terms was followed

II. Parties

A. Insured

1. Definition - the person to be indemnified; the person who applied for

and to whom an insurance policy is issued

2. Capacity [Art. 1390, Civil Code]

Civil Code

Art. 1390

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

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

a. Married women [Sec. 3, par. 2 and 4, I.C.; Art. 73 Family Code]

Insurance Code

Sec. 3, par. 2 and 4

Sec. 3.

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

The married woman or the minor herein allowed to take out an insurance policy may exercise all the rights and privileges of an owner under a policy.

Family Code

Art. 73

Art. 73. Either spouse may exercise any legitimate profession, occupation, business or activity without the consent of the other. The latter may object only on valid, serious, and moral grounds.

In case of disagreement, the court shall decide whether or not:

(1) The objection is proper; and

(2) Benefit has occurred to the family prior to the objection or thereafter. If the benefit accrued prior to the objection, the resulting obligation shall be enforced against the separate property of the spouse who has not obtained consent.

The foregoing provisions shall not prejudice the rights of creditors who acted in good faith

b. Minors [Sec. 3, pars. 3-5, I.C.; Art. 38 Civil Code, R.A. No. 6809]

Insurance Code

Sec. 3, pars. 3-5

The married woman or the minor herein allowed to take out an insurance policy may exercise all the rights and privileges of an owner under a policy.

Civil Code

Art. 38

Art. 38. Minority, insanity or imbecility, the state of being a deaf-mute, prodigality and civil interdiction are mere restrictions on capacity to act, and do not exempt the incapacitated person from certain obligations, as when the latter arise from his acts or from property relations, such as easements.

3. Disqualification: Public Enemy [Sec. 7 Insurance Code]

Insurance Code

Sec. 7

Sec. 7. Anyone except a public enemy may be insured.

Filipinas Compania de Seguros v. Christern Henefeld & Co. (1951)

Summary: Christern is a German Company while Filipinas is organized under Philippine laws but under American jurisdiction so when the U.S. declared war against Germany, Filipinas refused to pay the claim for the building that was burned during the Japanese Occupation. SC reversed CFI and CA decision stating that a public enemy may not be insured but he is entitled the recovery for the unused period (from the declaration of the war)
Doctrines:

public enemy may be insured
when the parties become alien enemies, the contractual tie is broken and the contractual rights of the parties, so far as not vested
elementary rules of justice that premium paid for unused period should be returned

4. Trustee or Agent[Sec.54 I.C.]

Insurance Code

Sec. 54

Sec. 54. When an insurance contract is executed with an agent or trustee as the insured, the fact that his principal or beneficiary is the real party in interest may be indicated by describing the insured as agent or trustee, or by other general words in the policy.

5. Partner[Sec.55 I.C.]

Insurance Code

Sec. 55

Sec. 55. To render an insurance effected by one partner or part-owner, applicable to the interest of his co-partners or other part-owners, it is necessary that the terms of the policy should be such as are applicable to the joint or common interest.

B. Insurer
1. Definition - the person who undertakes to indemnify another by a contract of insurance [Sec. 184 I.C.]

Insurance Code

Sec. 184

Sec. 184. For purposes of this Code, the term "insurer" or "insurance company" shall include all individuals, partnerships, associations, or corporations, including government-owned or controlled corporations or entities, engaged as principals in the insurance business, excepting mutual benefit associations. Unless the context otherwise requires, the terms shall also include professional reinsurers defined in section two hundred eighty. "Domestic company" shall include companies formed, organized or existing under the laws of the Philippines. "Foreign company" when used without limitation shall include companies formed, organized, or existing under any laws other than those of the Philippines.

a. Insurance Corporations [Sec. 185 par. 1 I.C.]

Corporations formed or organized to save any person or personsor other corporations harmless from loss, damage, orliability from any unknown or future or contingentevent, or to indemnify or to compensate any personor persons or other corporations for any such loss,damage, or liability, or to guarantee the performanceof or compliance with contractual obligations or thepayment of debt of others. [Sec. 185 par. 1 I.C.]
It must have:

(1) sufficient capital and assets required under the Insurance Code and pertinent regulations issued by the Commission, and
(2) a certificate of authority to operate issued by the Insurance Commission which should be renewed every year.

b. Mutual Insurance Companies [Sec. 262 I.C.]
c. Professional Reinsurers [Sec. 280 I.C.]
d. Mutual Benefit Associations (excluded from definition, but still subject to I.C. regulation)[Sec. 390 I.C.]
2. Capitalization/Certificate of Authority [Secs. 6, 186-187 I.C.]
3. Prohibited Acts [Secs. 361-362 I.C.]

Insurance Code

Sec. 361

Sec. 361. No insurance company doing business in the Philippines or any agent thereof, no insurance broker, and no employee or other representative of any such insurance company, agent, or broker, shall make, procure or negotiate any contract of insurance or agreement as to policy contract, other than is plainly expressed in the policy or other written contract issued or to be issued as evidence thereof, or shall directly or indirectly, by giving or sharing a commission or in any manner whatsoever, pay or allow or offer to pay or allow to the insured or to any employee of such insured, either as an inducement to the making of such insurance or after such insurance has been effected, any rebate from the premium which is specified in the policy, or any special favor or advantage in the dividends or other benefits to accrue thereon, or shall give or offer to give any valuable consideration or inducement of any kind, directly or indirectly, which is not specified in such policy or contract of insurance; nor shall any such company, or any agent thereof, as to any policy or contract of insurance issued, make any discrimination against any Filipino in the sense that he is given less advantageous rates, dividends or other policy conditions or privileges than are accorded to other nationals because of his race.

Sec. 362

Sec. 362. No insurance company doing business in the Philippines, and no officer, director, or agent thereof, and no insurance broker or any other person, partnership or corporation shall issue or circulate or cause or permit to be issued or circulated any literature, illustration, circular or statement of any sort misrepresenting the terms of any policy issued by any insurance company of the benefits or advantages promised thereby, or any misleading estimate of the dividends or share of surplus to be received thereon, or shall use any name or title of any policy or class of policies misrepresenting the true nature thereof; nor shall any such company or agent thereof, or any other person, partnership or corporation make any misleading representation or incomplete comparison of policies to any person insured in such company for the purpose of inducing or tending to induce such person to lapse, forfeit, or surrender his said insurance.

C. Beneficiary
1. Definition - the person who receives a benefit or advantage, or who is entitled to the benefit of the contract i.e. the one to whom the insurance is payable or who is entitled to the proceeds is of the policy on the occurrence of the event designated
2. To whom insurance proceeds payable [Secs. 53 and 56 I.C.]

Insurance Code

Sec. 53

Sec. 53. The insurance proceeds shall be applied exclusively to the proper interest of the person in whose name or for whose benefit it is made unless otherwise specified in the policy.

Sec. 56

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

Heirs of Loreto C. Maramag v Maramag (2009)

Summary: Loreto Maramag named his concubine Eva as his beenficiary but his wife Vicenta filed alleging that she is disqualified under the civil code on prohibition of donation. SC affirmed RTC: Eva can claim being the designated beneficiary which will inure to the benefit of the illegitimate children
Doctrines:

Any person who is forbidden from receiving any donation under Article 739 cannot be named beneficiary of a life insurance policy of the person who cannot make any donation to him

If a concubine is made the beneficiary, it is believed that the insurance contract will still remain valid, but the indemnity must go to the legal heirs and not to the concubine, for evidently, what is prohibited under Art. 2012 is the naming of the improper beneficiary.

GR: only persons entitled to claim the insurance proceeds are either the insured, if still alive; or the beneficiary, if the insured is already deceased, upon the maturation of the policy.
EX: situation where the insurance contract was intended to benefit third persons who are not parties to the same in the form of favorable stipulations or indemnity. In such a case, third party may directly sue and claim from the insurer
It is only in cases where the insured has not designated any beneficiary, or when the designated beneficiary is disqualified by law to receive the proceeds, that the insurance policy proceeds shall redound to the benefit of the estate of the insured

a. Stipulation Pour Autrui [Art. 1311 Civil Code]

Civil Code

Art. 1311

Art. 1311. Contracts take effect only between the parties, their assigns and heirs, except in case where the rights and obligations arising from the contract are not transmissible by their nature, or by stipulation or by provision of law. The heir is not liable beyond the value of the property he received from the decedent.

If a contract should contain some stipulation in favor of a third person, he may demand its fulfillment provided he communicated his acceptance to the obligor before its revocation. A mere incidental benefit or interest of a person is not sufficient. The contracting parties must have clearly and deliberately conferred a favor upon a third person

Bonifacio Bros. Inc. v. Mora (1967)

Summary: Enrique Mora, a sedan-owner, mortgage his sedan complying with its condition to name the mortgagor H.S. Reyes, Inc. as the beneficiary. When the sedan met an accident, it was repaired by the Bonifacio Bros. and the parts was supplied by Ayala Auto Parts. The insurance proceeds was held in trust for the appraiser Bayne Adjustment Co. Though unpaid the car was already delivered to Enrique so Bonifacio Bros. and Ayala Auto parts filed with the MTC on the theory that it should be paid to them directly. MTC, CFI and CA: it should not since there is no stipulation pour autrui
Doctrines:

GR: contracts take effect only between the parties thereto
EX: some specific instances provided by law where the contract contains some stipulation in favor of a third person - stipulation pour autrui
stipulation pour autrui must be clearly expressed
loss" in insurance law embraces injury or damage

Coquia v. Fieldmen's Insurance Co., Inc. (1968)

Summary: The Taxi Driver of Manila Yellow Taxicab Co., Inc. insured with Fieldmen's Insurance Company, Inc. died from an accident so his parents claimed on his behalf. RTC and CA: there is a stipulation pour autrui and ordered Fieldman to pay his parents since it was stated that the company will "indemnify his personal representatives"
Doctrines:

typical of contracts pour autrui, this character being made more manifest by the fact that the deceased driver paid 50% of the corresponding premiums, which were deducted from his weekly commissions
both parties from the inception of their dispute proceeded in entire disregard of the provisions of the contract relating to arbitration - waived

Guingon v. Del Monte (1967)

Summary: Julio Aguilar owner and operator of several jeepneys insured them with Capital Insurance & Surety Co., Inc. Its driver Iluminado del Monte and Gervacio Guingon bumped and Guingon died so Iluminado del Monte was charged with homicide thru reckless imprudence and was penalized 4 months imprisonment. The heirs filed against del Monte, Guingon and Capital CFI: del Monte and Guingon P8,572.95 plus P1,000 attorney's fees and cost and Capital jointly liable by paying P5,000 damage and P500 attorney's fees. Capital filed alleging its "no action clause" that it can only be held liable upon finality of judgment CA: affirmed
TEST:

Where the contract provides for indemnity against liability to third persons, then third persons to whom the insured is liable, CAN sue the insurer.
Where the contract is for indemnity against actual loss or payment, then third persons CANNOT proceed against the insurer, the contract being solely to reimburse the insured for liability actually discharged by him thru payment to third persons, said third persons' recourse being thus limited to the insured alone.
"no action" clause in the policy of insurance cannot prevail over the Rules of Court provision aimed at avoiding multiplicity of suits

b. Estate

Del Val v. Del Val (1915)

Summary: Gregorio Nacianceno del Val died leaving his brother Andres as the sole beneficiary of his life insurance. Andres claimed the insurance and use it to repurchase his estate and kept the balance along with personal properties in his possession. Francisco et. al, his brothers and sisters, filed in the CFI alleging that the insurance claim as well as the personal property should belong to the estate. CFI: dismissed holding the issue partition of coheirs and case as to the personal property is closed. CA: remanded back to CFI to ascertain facts and presentation of evidence whether it was intended to be a gift or donation to the estate
Doctrines:

insurance claim is an exclusive property of the beneficiary
The contract of life insurance is a special contract and the destination of the proceeds thereof is determined by special laws which deal exclusively with that subject. The Civil Code has no provisions which relate directly and specifically to life- insurance contracts or to the destination of life insurance proceeds

c. Assignee

Rizal Commercial Banking Corporation v. CA (1998)

GOYU in exchange for credit facilities and accommodations with RCBC endorsed without signature 9 MICO. After favoring GOYU against MICO. In another case, RCBC seeks to intervene between Sebastian and RCBC. RTC and CA: endorsements do not bear the signature of any officer of GOYU concluded that the endorsements favoring RCBC as defective. SC: intentions of the parties as shown by their contemporaneous acts, must be given due consideration in order to better serve the interest of justice and equity.
Doctrine: mortgagor and a mortgagee have separate and distinct insurable interests in the same mortgaged property, such that each one of them may insure the same property for his own sole benefit. RCBC has the right to claim the insurance proceeds, in substitution of the property lost in the fire. Having assigned its rights, GOYU lost its standing as the beneficiary of the said insurance policies.

3. Designation of Beneficiary

a. No Designation

In Re: Mario v. Chanliongco (1977)

Summary: Atty. Chanliongco died leaving his heirs widow, Dra. Fidel B. Chanliongco (4/16) Mario II Legitimate 17 years old (8/16) Ma. Angelina C. Illegitimate (2/16) and Mario Jr., Illegitimate (2/16). No designation so law of succession is followed.
Doctrine: Heirs shall be the beneficiaries according to their legitime

Vda. Dde Consuegra v. Governments Service Insurance System (1971)

Summary: Jose Consuegra contracted 2 marriages. First with Rosario Dia with 2 children who predeceased their father: Jose Consuegra, Jr. and Pedro Consuegra and Second with Basilia Berdin while marriage is still subsisting with 7 children: Juliana, Pacita, Maria Lourdes, Jose, Rodrigo, Lenida and Luz, all surnamed Consuegra. He died without designating the beneficiary of his retirement insurance benefit. GSIS: legal heirs were Rosario Diaz (1/2 or 8/16), Basilia Berdin and their seven children (1/2 or 8/16) (1/16 each) RTC: dismissed the case CA: affirmed
Doctrine:

If the employee failed or overlooked to state the beneficiary of his retirement insurance, the retirement benefits will accrue to his estate and will be given to his legal heirs in accordance with law, as in the case of a life insurance if no beneficiary is named in the insurance policy.

b. Invalid Designation [Art. 2012 in relation to Art. 739, Civil Code]

Insurance Code

Art. 2012

Civil Code

Art. 739

Art. 739. The following donations shall be void:

(1) Those made between persons who were guilty of adultery or concubinage at the time of the donation;
(2) Those made between persons found guilty of the same criminal offense, in consideration thereof;

(3) Those made to a public officer or his wife, descedants and ascendants, by reason of his office.

In the case referred to in No. 1, the action for declaration of nullity may be brought by the spouse of the donor or donee; and the guilt of the donor and donee may be proved by preponderance of evidence in the same action.

The Insular Life Assurance Company, Ltd. v. Ebrado (1977) (see above)

Doctrine:

Common-law spouses are, definitely, barred from receiving donations from each other. In essence, a life insurance policy is no different from a civil donation insofar as the beneficiary is concerned. Both are founded upon the same consideration: liberality
We do not think that a conviction for adultery or concubinage is exacted before the disabilities mentioned in Article 739 may effectuate.

Southern Luzon Employees' Ass. v. Golpeo, et al. (1954)

Summary: Roman A. Concepcion listed as his beneficiaries his common-law wife Aquilina Maloles together with his illegitimate children: Roman, Estela, Rolando and Robin M. Concepcion for the death benefit. RTC: confirmed in their favor but his legal wife Juanita Golpeo and her minor children appealed. SC: favored Aquilina.
Doctrines:

Juanita Golpeo, by her silence and actions, had acquiesced in the illicit relations between her husband and appellee Aquilina Maloles
new Civil Code recognized certain successional rights of illegitimate children

Separate Opinions:

Reyes: I concur in the result for the reason that the contract here involved was perfected before the new Civil Code took effect, and hence its provisions cannot be made to apply retroactively

Social Security System v. Davac (1966)

Summary: Petronilo Davac, a former employee of Lianga Bay Logging Co., Inc. became a member of the Social Security System (SSS) he designated Candelaria Davac as his beneficiary and indicated his relationship to her as that of "wife". His legal wife and legitimate children filed their claims. Social Security Commission: favored Candelaria Davac SC: Affirmed Social Security Commission
Doctrines:

Candelaria Davac was not guilty of concubinage, there being no proof that she had knowledge of the previous marriage of her husband Petronilo
It is only when there is no designated beneficiaries or when the designation is void, that the laws of succession are applicable. And we have already held that the Social Security Act is not a law of succession.

NOTE: There is no confusion as the rule is simple:

Common Law Wife

Before NCC: allowed as beneficiary (Southern Luzon Employees' Ass. v. Golpeo, et al. (1954))
After NCC:

GR: prohibited under Art. 739 whether convicted or not since it is same as donation (The Insular Life Assurance Company, Ltd. v. Ebrado (1977))
EX: allowed if no knowledge of the of the previous marriage since not guilty of concubinage (Social Security System v. Davac (1966))

Illegitimate children are allowed as beneficiaries before and after NCC

c. Revocable Designation [Sec. 11 I.C.]

Insurance Code

Sec. 11

Sec. 11. The insured shall have the right to change the beneficiary he designated in the policy, unless he has expressly waived this right in said policy.

Gercio v. Sun Life Assurance Co. of Canada (1925) (see above)

Summary: Sun Life Assurance Co. of Canada issued a 20-year endowment insurance policy on the life of Hilario Gercio who agreed to insure his life to be paid him in 20 years or if the insured should die before said date,to his wife, Mrs. Andrea Zialcita, should she survive him; otherwise to the executors, administrators, or assigns of the insured. His policy did not include any provision reserving to the insured the right to change the beneficiary. Subsequently, his wife was convicted of adultery and a divorce decree was issued. Gercio wanted to revoke his wife as beneficiary. RTC: favored Gercio.
Doctrines:

If the husband wishes to retain to himself the control and ownership of the policy he may so provide in the policy.

d. Irrevocable Designation

Nario v. Philippine American Life Ins. Co (1967)

Summary: Philippine American Life Insurance Co. issued a life insurance to Mrs. Alejandra Santos-Mario a life insurance policy under a 20-year endowment plan, designating her husband Delfin Nario and their unemancipation son Ernesto Nario, as her irrevocable beneficiaries. Subsequently, she applied for a loan and her husband signed as guardian. RTC, CA and SC: favored the insurance company
Doctrines:

SEC. 7. Parents as guardians. — When the property of the child under parental authority is worth two thousand pesos or less, the father or the mother, without the necessity of court appointment, shall be his legal guardian. When the property of the child is worth more than two thousand pesos, the father or the mother shall be considered guardian of the child's property, with the duties and obligations of guardians under these rules, and shall file the petition required by Section 2 hereof. For good reasons the court may, however, appoint another suitable person.
even if worth less than P2,000 parent's authority over the estate of the ward as a legal-guardian would not extend to acts of encumbrance or disposition, as distinguished from acts of management or administration.

Philippine American Life Insurance Co. v. Pineda (1989)

Summary: Rodolfo c. Dimayuga acquired a life insurance from Philippine American Insurance Company and designated his wife and six minor children as irrevocable beneficiaries. Subsequently, he wanted to change it to revocable. RTC: favor him CA: set aside.
Doctrines:

inasmuch as the designation of the primary/contingent beneficiary/beneficiaries in this Policy has been made without reserving the right to change said beneficiary/ beneficiaries, such designation may not be surrendered to the Company, released or assigned; and no right or privilege under the Policy may be exercised, or agreement made with the Company to any change in or amendment to the Policy, without the consent of the said beneficiary/beneficiaries
it is only with the consent of all the beneficiaries that any change or amendment in the policy concerning the irrevocable beneficiaries may be legally and validly effected
parent-insured cannot exercise rights and/or privileges pertaining to the insurance contract, for otherwise, the vested rights of the irrevocable beneficiaries would be rendered inconsequential

e. Exceptions to Irrevocable Designation [Art. 43(4), 50, 64 Family Code]

Family Code

Art. 43(4)

Art. 43. The termination of the subsequent marriage referred to in the preceding Article shall produce the following effects:

(4) The innocent spouse may revoke the designation of the other spouse who acted in bad faith as beneficiary in any insurance policy, even if such designation be stipulated as irrevocable; and

Art. 50

Art. 50. The effects provided for by paragraphs (2), (3), (4) and (5) of Article 43 and by Article 44 shall also apply in the proper cases to marriages which are declared ab initio or annulled by final judgment under Articles 40 and 45.

The final judgment in such cases shall provide for the liquidation, partition and distribution of the properties of the spouses, the custody and support of the common children, and the delivery of third presumptive legitimes, unless such matters had been adjudicated in previous judicial proceedings.

All creditors of the spouses as well as of the absolute community or the conjugal partnership shall be notified of the proceedings for liquidation.

In the partition, the conjugal dwelling and the lot on which it is situated, shall be adjudicated in accordance with the provisions of Articles 102 and 129.

Art. 64

Art. 64. After the finality of the decree of legal separation, the innocent spouse may revoke the donations made by him or by her in favor of the offending spouse, as well as the designation of the latter as beneficiary in any insurance policy, even if such designation be stipulated as irrevocable. The revocation of the donations shall be recorded in the registries of property in the places where the properties are located. Alienations, liens and encumbrances registered in good faith before the recording of the complaint for revocation in the registries of property shall be respected. The revocation of or change in the designation of the insurance beneficiary shall take effect upon written notification thereof to the insured.

The action to revoke the donation under this Article must be brought within five years from the time the decree of legal separation become final.

6. Insured Outlives Policy [Sec. 180 I.C.]

Insurance Code

Sec. 180

Sec. 180. An insurance upon life may be made payable on the death of the person, or on his surviving a specified period, or otherwise contingently on the continuance or cessation of life.

Every contract or pledge for the payment of endowments or annuities shall be considered a life insurance contract for purpose of this Code.

In the absence of a judicial guardian, the father, or in the latter's absence or incapacity, the mother, or any minor, who is an insured or a beneficiary under a contract of life, health or accident insurance, may exercise, in behalf of said minor, any right under the policy, without necessity of court authority or the giving of a bond, where the interest of the minor in the particular act involved does not exceed twenty thousand pesos. Such right may include, but shall not be limited to, obtaining a policy loan, surrendering the policy, receiving the proceeds of the policy, and giving the minor's consent to any transaction on the policy.

Villanueva v. Oro (1948)

Summary: West Coast Life Insurance Company issued 2 policies of insurance on the life of Esperanza J. Villanueva. If she survived the policy, it will be payable to her and if not to her father who was subsequently substituted by her brother. She outlives the policy but was not able to claim so the brother and the her estate both claimed. RTC and CA: estate of the insured Esperanza.
Doctrines:

To sustain the beneficiary's claim would be altogether eliminate from the policies the condition that the insurer "agrees to pay . . . to the insured hereunder, if living
Upon the insured's death, within the period, the beneficiary will take, as against the personal representative or the assignee of the insured. Upon the other hand, if the insured survives the endowment period, the benefits are payable to him or to his assignee, notwithstanding a beneficiary is designated in the policy

D. Insurance Agent and Insurance Broker
1. Insurance Agent [Sec. 300 I.C.]

Insurance Code

Sec. 300

Sec. 300. Any person who for compensation solicits or obtains insurance on behalf of any insurance company or transmits for a person other than himself an application for a policy or contract of insurance to or from such company or offers or assumes to act in the negotiating of such insurance shall be an insurance agent within the intent of this section and shall thereby become liable to all the duties, requirements, liabilities and penalties to which an insurance agent is subject.

Aisporna v. CA (1982)

Summary: Eugenio S. Isidro was issued a Personal Accident Policy by Perla thru its author representative, Rodolfo for 12 months with beneficiary as Ana M. Isidro for P5,000. He called to renew it where the wife of Rodoldo Mapalad Aisporna answered his call. A case was file against Mapalad for not having the proper certification. RTC and CA: guilty as charged SC: reversed. No Compensation was received.
Laws: Sec. 189 of the Insurance Act (old law)
Doctrines:

To be an insurance agent, it must be for compensation

2. Insurance Broker [ Sec. 301 I.C.]

Insurance Code

Sec. 301

Sec. 301. Any person who for any compensation, commission or other thing of value acts or aids in any manner in soliciting, negotiating or procuring the making of any insurance contract or in placing risk or taking out insurance, on behalf of an insured other than himself, shall be an insurance broker within the intent of this Code, and shall thereby become liable to all the duties, requirements, liabilities and penalties to which an insurance broker is subject.

Philippine Health-Care Providers, Inc. v. Estrada (2008)

Summary: Philippine Health-Care Providers, Inc. (Maxicare) formally appointed Estrada as its General Agent evidenced by a letter-agreement dated February 16, 1991 granting him a commission. Estrada initiated the proposal and presentations with Meralco. But, Meralco directly negotiated with Maxicare. Estrada through counsel demanded his commission but Maxicare denied. RTC, CA and SC: favored Estrada. Maxicare successfully landed the Meralco account for the sale of healthcare plans only by virtue of Estrada’s involvement and participation in the negotiations
Doctrines:

Agent vs. Broker:

agent

receives a commission upon the successful conclusion of a sale

broker

earns his pay merely by bringing the buyer and the seller together, even if no sale is eventually made

"procuring cause" in describing a broker’s activity

cause originating a series of events which, without break in their continuity, result in the accomplishment
efforts must have been the foundation on which the negotiations resulting in a sale began

She was entitled to commission even after renewal

3. Authority to Receive Payment/Effect of Payment [Sec. 306 I.C. ]

Insurance Code

Sec. 306

Sec. 306. The premium, or any portion thereof, which an insurance agent or insurance broker collects from an insured and which is to be paid to an insurance company because of the assumption of liability through the issuance of policies or contracts of insurance, shall be held by the agent or broker in a fiduciary capacity and shall not be misappropriated or converted to his own use or illegally withheld by the agent or broker.

Any insurance company which delivers to an insurance agent or insurance broker a policy or contract of insurance shall be deemed to have authorized such agent or broker to receive on its behalf payment of any premium which is due on such policy or contract of insurance at the time of its issuance or delivery or which becomes due thereon.

Malayan Insurance Co., Inc. v. Arnaldo (1987)

Summary: Pinca paid MICO on December 24, 1981 for its fire insurance property effective July 22, 1981 through its agent Adora. On January 15, 1982, Adora remitted the payment to MICO. On January 18, 1982, Pinca's property was completely burned. On February 5, 1982, MICO returned her payment stating that they sent her a notice for cancellation due to non-payment on October 15, 1981 but there was no proof other than its employee's testimony that it was sent through their mailing section. Pinca refused it and instead filed her claim. Insurance Commission and CA: favored Pinca since Insurance Agent was authorize to receive for its principal MICO
Laws: Article 64, Article 65, Section 77, Section 306 of the Insurance Code (See Above)
Doctrines:

A valid cancellation must, therefore, require concurrence of the following conditions:

(1) There must be prior notice of cancellation to the insured;

(2) The notice must be based on the occurrence, after the effective date of the policy, of one or more of the grounds mentioned;

(3) The notice must be (a) in writing, (b) mailed, or delivered to the named insured, (c) at the address shown in the policy;

(4) It must state (a) which of the grounds mentioned in Section 64 is relied upon and (b) that upon written request of the insured, the insurer will furnish the facts on which the cancellation is based.

Payment to an agent having authority to receive or collect payment is equivalent to payment to the principal himself; such payment is complete when the money delivered is into the agent's hands and is a discharge of the indebtedness owing to the principal.

South Sea Surety and Insurance Co., Inc. v. CA (1995)

Summary: Valenzuela Hardwood and Industrial Supply, Inc. shipped with Seven Brothers' vessel M/V Seven Ambassador lauan round logs numbering 940 at the port of Maconacon, Isabela for shipment to Manila. The logs were insured with South Sea Surety and Insurance Co. under a Marine Cargo Insurance Policy. January 24 1984: It paid a check to Mr. Victorio Chua, the one who delivered the policy to them. January 25 1984: The vessel sank January 30 1984: The check was tendered to South Sea but it refused and cancelled the policy for non-payment RTC,CA, SC: favored Valenzuela and held South Sea liable (the shipper was stipulated to be exempted)
Doctrines:

Since the policy was delivered to Chua to be delivered to Valenzuela, he was deemed authorized to receive the premium

III. Insurable Interest

A. Concept

1. Definition

In general, a person has an insurable interest in the subject matter insured where he has such a relation or connection with, or concern in, such subject matter that he derive pecuniary benefit or advantage from its preservation or will suffer pecuniary loss or damage from its destruction, termination or injury by the happening of the event insured against

2. Necessity of Insurable Interest

Consequence of Lack of [Secs. 3, 4, 18 and 25, I.C.]

Insurance Code

Sec. 3

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

The married woman or the minor herein allowed to take out an insurance policy may exercise all the rights and privileges of an owner under a policy.

Sec. 4

Sec. 4. The preceding section does not authorize an insurance for or against the drawing of any lottery, or for or against any chance or ticket in a lottery drawing a prize.

Sec. 18

Sec. 18. No contract or policy of insurance on property shall be enforceable except for the benefit of some person having an insurable interest in the property insured.

Sec. 25

B. In life and health insurance

1. Who has insurable interest [Sec. 10, I.C.]

Insurance Code

Sec. 10

Sec. 10. Every person has an insurable interest in the life and health:

(a) Of himself, of his spouse and of his children;

(b) Of any person on whom he depends wholly or in part for education or support, or in whom he has a pecuniary interest;

(c) Of any person under a legal obligation to him for the payment of money, or respecting property or services, of which death or illness might delay or prevent the performance; and

(d) Of any person upon whose life any estate or interest vested in him depends.

a. Blood relationship [Sec. 10(a), I.C.] (see above)

Philamcare Health Systems, Inc. v. CA (2002) (see above)

Summary: not the legal wife (deceased was previously married to another woman who was still alive)
Doctrines:

health care agreement is in the nature of a contract of indemnity.

payment should be made to the party who incurred the expenses

Gercio v. Sun Life Assurance Co. of Canada (1925) (see above)

Doctrines:

The beneficiary has an absolute vested interest in the policy from the date of its issuance and delivery.
So when a policy of life insurance is taken out by the husband in which the wife is named as beneficiary, she has a subsisting interest in the policy

applies to a policy to which there are attached the incidents of a loan value, cash surrender value, an automatic extension by premiums paid, and to anendowment policy, as well as to an ordinary life insurance policy

b. Education or support [Sec. 10(b), I.C. (see above); Art. 195 Family Code]

Family Code

Art. 195

Art. 195. Subject to the provisions of the succeeding articles, the following are obliged to support each other to the whole extent set forth in the preceding article:

(1) The spouses;

(2) Legitimate ascendants and descendants;

(3) Parents and their legitimate children and the legitimate and illegitimate children of the latter;

(4) Parents and their illegitimate children and the legitimate and illegitimate children of the latter; and

(5) Legitimate brothers and sisters, whether of full or half-blood

c. Creditor [Sec. 10(c) IC] (see above)

Great Pacific Life Assurance Corp. v. CA (1999)

Summary:

Group life insurance was executed between Great Pacific Life Assurance and Development Bank of the Philippines ensuring the lives of its eligible housing loan mortgagors which includes Dr. Wilfredo Leuterio who answered in the survey that he didn't have any heart condition. He died of massive cerebral hemorrhage. Grepalife denied the claim alleging that Dr. Leuterio was not physically healthy when he applied. RTC, CA, SC: favored widow of Dr. Leuterio.
Doctrines:

DBP has insurable interest as creditor
mortgagee is simply an appointee of the insurance fund, such loss-payable clause does not make the mortgagee a party to the contract
Insured may be regarded as the real party in interest, although he has assigned the policy for the purpose of collection, or has assigned as collateral security any judgment he may obtain
Insured may be regarded as the real party in interest, although he has assigned the policy for the purpose of collection, or has assigned as collateral security any judgment he may obtain
misrepresentation as a defense of the insurer to avoid liability is an affirmative defense and the duty to establish such defense by satisfactory and convincing evidence rests upon the insurer

d. Pecuniary Interest [Sec. 10(d) IC] (see above)

El Oriente, Fabrica de Tabacos, Inc., v. Posadas (1931)

Summary:

El Oriente, Fabrica de Tabacos, Inc. in order to protect itself against the loss that it might suffer by reason of the death of its manager, A. Velhagen, who had more than 35 years of experience in the manufacture of cigars in the Philippine Islands, and whose death would be a serious loss procured from the Manufacturers Life Insurance Co., of Toronto, Canada, thru its local agent E.E. Elser, an insurance policy on the life of A. Velhagen for $50,000. When Velhagen died, El Oriente received its proceeds.

Doctrines:

proceeds of life insurance policies paid to corporate beneficiaries upon the death of the insured are also exempted
in the nature of an indemnity for the loss which it actually suffered because of the death and not taxable income

2. When Insurable Interest Must Exist [Sec. 19 IC]

Insurance Code

Sec. 19

Sec. 19. An interest in property insured must exist when the insurance takes effect, and when the loss occurs, but not exist in the meantime; and interest in the life or health of a person insured must exist when the insurance takes effect, but need not exist thereafter or when the loss occurs.

When Insurable Interest Must Exist
Interest in the	Property insured	Life or health of a person insured
When insurance takes effect	YES	YES
In the meantime	NO	NO
When the Loss occurs	YES	NO

3. Transfer by Will or Succession Upon Death of Insured [Sec. 181 IC]

Insurance Code

Sec. 181

Sec. 181. A policy of insurance upon life or health may pass by transfer, will or succession to any person, whether he has an insurable interest or not, and such person may recover upon it whatever the insured might have recovered.

C. In Proper Insurance

1. Who has insurable interest [Secs. 13 and 14 IC]

Insurance Code

Sec. 13

Sec. 13. Every interest in property, whether real or personal, or any relation thereto, or liability in respect thereof, of such nature that a contemplated peril might directly damnify the insured, is an insurable interest.

Sec. 14

Sec. 14. An insurable interest in property may consist in:

(a) An existing interest;

(b) An inchoate interest founded on an existing interest; or

a. Existing Interest [Sec 14 (a) IC] (see above)

Traders Insurance & Surety Co. v. Golangco, et al (1954)

Summary:

The Archbishop leased a parcel of landowned by church to Lianco who erected a building which he transferred to Kaw Eng Si who transferred it to Golangco. The Archbishop filed an ejectment case against Lianco. The right of Golangco to receive rent on the building was judicially recognized in a case decided between Lianco and others occupying the premises pursuant to a compromise agreement which the Archbishop didn't question. Golanco applied for fire insurance with Trader’s Insurance and Surety Co. which includes rent. The the building premises was burned so Golangco requested Trader’s Insurance to pay the insurance but it was declined stating the Golangco didn't have an insurable interest.

Laws: Sec. 13 of the Insurance Code
Doctrines:

Both at the time of the issuance of the policy and at the time of the fire, Golangco was in legal possession of the premises, collecting rentals from its occupant.
NOTE: 2 Points if Property: When insurance takes effect and When the loss occured
The argument of Trader’s Insurance that a policy of insurance must specify the interest of the insured in the property insured, if he is not the absolute owner thereof, is not meritorious because it was the Trader’s, not Golangco, who prepared that policy, and it cannot take advantage of its own acts to plaintiff's detriment; and, in any case, this provision was substantially complied with by Golangco when he made a full and clear statement of his interests to Trader's manager.
NOTE: Insurable Interest is NOT exclusive to the owner

Filipino Merchants Insurance Co. v. CA (1989)

Summary: Choa Tiek Seng, consignee of the shipment of fishmeal loaded, insured in "all risks policy" 600 metric tons of fishmeal in new gunny bags of 90 kilos each from Bangkok, Thailand to Manila against all risks under warehouse to warehouse terms but only 59.940 metric tons was imported. When it was unloaded 105 bags were in bad condition and when it was delivered by the arrastre contractor E. Razon, Inc. 227 bags were in bad condition so Chao claimed against Filipino Merchants who denied the claim. RTC favored Chao but Filipino Merchants appealed on the ground that Chao didn't have insurable interest. CA, SC: favored Chao against Filipino Merchants absolving the vessel and E. Razon.
Law: Section 13 if IC, Article 1523 of the Civil Code
Doctrines:

GR: the burden of proof is upon the insured to show that a loss arose from a covered peril, but under an "all risks" policy the burden is not on the insured to prove the precise cause of loss or damage for which it seeks compensation. The insured under an "all risks insurance policy" has the initial burden of proving that the cargo was in good condition when the policy attached and that the cargo was damaged when unloaded from the vessel; thereafter, the burden then shifts to the insurer to show the exception to the coverage. - none was shown = liable
As vendee/consignee of the goods in transit has such existing interest. His interest over the goods is based on the perfected contract of sale. The perfected contract of sale between him and the shipper of the goods operates to vest in him an equitable title even before delivery or before be performed the conditions of the sale. The contract of shipment, whether under F.O.B., C.I.F., or C. & F. as in this case, is immaterial in the determination of whether the vendee has an insurable interest or not in the goods in transit.
C & F contracts are shipment contracts. The term means that the price fixed includes in a lump sum the cost of the goods and freight to the named destination. It simply means that the seller must pay the costs and freight necessary to bring the goods to the named destination but the risk of loss or damage to the goods is transferred from the seller to the buyer when the goods pass the ship's rail in the port of shipment.

Gaisano Cagayan, Inc. v. Insurance Company of North America (2006)

Summary: Both Intercapitol Marketing Corporation and Levi Strauss (Phils.) Inc. obtained from Insurance Company of North America fire insurance policies for their book debt endorsements related to their ready-made clothing materials which have been sold or delivered to various customers and dealers of the Insured anywhere in the Philippines which are unpaid 45 days after the time of the loss. When the fire burned Gaisano Superstore Complex, their were able to claim against Insurance Co. of North America who filed against Gaisano Cagayan Inc. as subrogration to IMC and LSPI. But they were denied contending that it had no insurable interest and that fire being a fortuitous event does not hold them liable. RTC: favored Gaisano under res perit domino. CA: reversed-sales invoices are exemption to res perit domino SC: affirmed with modification deleting the order to pay the amount for LPSI because no subrogation receipt was presented. Not exempted by fortuitous event because not delivery of determinate thing but pecuniary in nature.
Laws: Article 1504,Article 1263, Article 2207 of the Civil Code, Section 13 of Insurance Code
Doctrines:

Anyone has an insurable interest in property who derives a benefit from its existence or would suffer loss from its destruction.

it is sufficient that the insured is so situated with reference to the property that he would be liable to loss should it be injured or destroyed by the peril against which it is insured
an insurable interest in property does not necessarily imply a property interest in, or a lien upon, or possession of, the subject
matter of the insurance, and neither the title nor a beneficial interest is requisite to the existence of such an interest

Ong Lim Sing v. FEB Leasing & Finance Corp. (2007)

Summary: FEB Leasing and Finance Corporation (FEB) leased equipment and motor vehicles to JVL Food Products with a monthly rental of P170,494. Ong Lim Sing executed an Individual Guaranty Agreement with FEB to guarantee the prompt and faithful performance of the terms and conditions of the lease agreement. When JVL didn't refused to pay its arrears amounting to P3,414,468.75, FEB filed a complaint for damages and replevin against JVL and Lim. RTC: Sale on installment so only unreturned units and equipment should be paid. CA: reversed. Financial lease so JVL and Lim are jointly and severally liable for P3,414,468.75. SC: affirmed
Doctrines:

Lim, as a lessee, has an insurable interest in the equipment and motor vehicles leased. (NOT exactly the lessor but guarrantor of the lessor)
In the financial lease agreement, FEB did not assume responsibility as to the quality, merchantability, or capacity of the equipment. This stipulation provides that, in case of defect of any kind that will be found by the lessee in any of the equipment, recourse should be made to the manufacturer. “The financial lessor, being a financing company, i.e., an extender of credit rather than an ordinary equipment rental company, does not extend a warranty of the fitness of the equipment for any particular use. Thus, the financial lessee was precisely in a position to enforce such warranty directly against the supplier of the equipment and not against the financial lessor. We find nothing contra legem or contrary to public policy in such a contractual arrangement

Lampano v. Jose (1915)

Summary: Baretto constructed a house for Jose who sold it to Lampano. Then, the house burned during which Lampano still owes Jose P2,000 and Jose owes Baretto P2,000. Lampano filed against Jose and Barretto alleging that Jose and her berbally had an agreement that the insurance policy taken by Barretto before the house was burned was to be delivered to her. RTC: favored Jose ordering Barretto to pay Jose P1,298.50 and offsetting the P2,000 SC: reversed and absolved Barretto. Barretto had an insurable interest in the house since he constructed the building and insured it after it had been completed
Doctrines:

Where different persons have different interests in the same property, the insurance taken by one in his own right and in his own interest does not in any way insure to the benefit of another
A contract of insurance made for the insurer's indemnity only, as where there is no agreement, express or implied, that it shall be for the benefit of a third person, does not attach to or run with the title to the insured property on a transfer thereof personal as between the insurer and the insured.

b. Inchoate Interest [Sec. 14(b) IC] (see above)

Example: Rights in corporation as stock holder

c. Expectancy [Sec.14(c) (see above) and 16 IC]

Insurance Code

Sec. 16

Sec. 16. A mere contingent or expectant interest in anything, not founded on an actual right to the thing, nor upon any valid contract for it, is not insurable.

Example: Future crops

d. Mortgagor [Sec. 8 and 9 IC; Art. 2127 Civil Code]

Insurance Code

Sec. 8

Sec. 8. Unless the policy otherwise provides, where a mortgagor of property effects insurance in his own name providing that the loss shall be payable to the mortgagee, or assigns a policy of insurance to a mortgagee, the insurance is deemed to be upon the interest of the mortgagor, who does not cease to be a party to the original contract, and any act of his, prior to the loss, which would otherwise avoid the insurance, will have the same effect, although the property is in the hands of the mortgagee, but any act which, under the contract of insurance, is to be performed by the mortgagor, may be performed by the mortgagee therein named, with the same effect as if it had been performed by the mortgagor.

Sec. 9

Sec. 9. If an insurer assents to the transfer of an insurance from a mortgagor to a mortgagee, and, at the time of his assent, imposes further obligation on the assignee, making a new contract with him, the act of the mortgagor cannot affect the rights of said assignee.

Civil Code

Art. 2127

Art. 2127. The mortgage extends to the natural accessions, to the improvements, growing fruits, and the rents or income not yet received when the obligation becomes due, and to the amount of the indemnity granted or owing to the proprietor from the insurers of the property mortgaged, or in virtue of expropriation for public use, with the declarations, amplifications and limitations established by law, whether the estate remains in the possession of the mortgagor, or it passes into the hands of a third person

San Miguel Brewery v. Law Union and Rock Insurance Co. (1920)

Summary: In the mortgage agreement, property owner P.D. Dunn agreed to insure at his own expense, 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. However, San Miguel only insured itself as mortgagee and did not express the policy to cover the risk of the owner. Dunn sold the property to Harding without the assignment of the insurance. Harding is claiming for the different between the mortgage debt and the fave value of the property. RTC: absolved the two insurance companies. SC: affirmed
Laws: sec. 16,sec. 19,sec. 50,sec.55 of the Insurance Code

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

Doctrines:

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
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 - none was shown

Saura Import & Export Co., Inc. v. Philippine International Surety Co., Inc. (1963)

Summary: Saura Import & Export Co Inc., mortgaged to the Phil. National Bank, a parcel of land. The land had a building which was insured with Philippine International Surety even before the mortgage contract so it was required to be assigned to PNB. October 15, 1954: 13 days after the issuance of the policy, Philippine Int'l Surety cancelled the fire policy and notifying only PNB and not Saura. April 6, 1955: Fire ensued and burned the building and all its contents so Saura filed a claim against PNB and Philippine Int'l Surety. RTC: Dismissed. SC: reversed ordering Phil. Int'l Surety to pay to Saura since It was the primary duty of Philippine International Surety to notify the insured, but it did not.
Doctrines:

If a mortgage or lien exists against the property insured, and the policy contains a clause stating that loss, if any, shall be payable to such mortgagee or the holder of such lien as interest may appear, notice of cancellation to the mortgagee or lienholder alone is ineffective as a cancellation of the policy to the owner of the property

Palileo v. Cosio (1955)

Summary: Cherie Palileo (debtor-mortgagor) filed a complaint against Beatriz Cosio (creditor-mortgagee) praying that their transaction be one of a loan with an equitable mortgage to secure the payment of the loan. It is a loan of P12,000 secured by a "Conditional Sale of Residential Building" with right to repurchase. After the execution of the contract, Cosio insured in her name the building with Associated Insurance & Surety Co. against fire. The building was partly destroyed by fire so she claimed an indemnity of P13,107. Palileo demanded that the amount of insurance proceeds be credited to her loan. RTC: Insurance Proceeds was credited to the loan but refund the balance. SC: affirmed.
Doctrines:

When the the mortgagee may insure his interest in the property independently of the mortgagor , upon the destruction of the property the insurance money paid to the mortgagee will not inure to the benefit of the mortgagor, and the amount due under the mortgage debt remains unchanged. The mortgagee, however, is not allowed to retain his claim against the mortgagor, but it passes by subrogation to the insurer, to the extent of the insurance money paid
It is true that there are authorities which hold that "If a mortgagee procures insurance on his separate interest at his own expense and for his own benefit, without any agreement with the mortgagor with respect thereto, the mortgagor has no interest in the policy, and is not entitled to have the insurance proceeds applied in reduction of the mortgage debt" But these authorities merely represent the minority view

Great Pacific Life Assurance Corp. v. CA (1999) (see above)

Laws: Sec. 8 of the Insurance Code
NOTE: mortgage redemption insurance - limited to the mortgage amount

e. Carrier or Depositary [Sec. 15 IC; Sec. 6 General Bonded Warehouse Act (cannot find)]

Insurance Code

Sec. 15

Sec. 15. A carrier or depository of any kind has an insurable interest in a thing held by him as such, to the extent of his liability but not to exceed the value thereof.

General Bonded Warehouse Act

Sec. 6

Lopez v. Del Rosario and Quiogue (1922)

Summary: Benita Quiogue de V. del Rosario (Mrs. del Rosario), owner of a bonded warehouse where Froilan Lopez, holder or 14 waehouse receipts and Elias Zamora had their copra deposited. The warehouse was burned. During that time, Froilan is still liable for the storage and insurance of P315.90. Upon arbitration, all of the other were satisfied except Froilan who appealed. SC: favored Froilan entitled to P88,595.43 minus P7,185.88, his share of the expenses, minus P315.90, due for insurance and storage.

2. Measure of Insurable Interest [Secs. 17 and 14(a) IC (see above)]

Insurance Code

Sec. 17

Sec. 17. The measure of an insurable interest in property is the extent to which the insured might be damnified by loss or injury thereof.

San Miguel Brewery v. Law Union and Rock Insurance Co. (1920) (see above)

Doctrine: insurable interest as mortgagee is only to extent of mortgage credit

Ong Lim Sing v. FEB Leasing & Finance Corp. (2007) (see above)

Doctrine: insurable interest as lessor is the amount of the financial lease in arrears

3. Effect of Lack of Insurable Interest [Sec. 18 IC]

Insurance Code

Sec. 18

Sec. 18. No contract or policy of insurance on property shall be enforceable except for the benefit of some person having an insurable interest in the property insured.

Sharuff & Co. v. Baloise Fire Insurance Co. (1937)

Summary: Salomon Sharruf and Elias Eskenazi were doing business under the firm name of Sharruf & Co. They insured their stocks with aloise Fire Insurance Co., Sun Insurance Office Ltd., and Springfield Insurance Co. raising it to P40,000. Elias Eskenazi having paid the corresponding premiums. Soon they changed the name of their partnership to Sharruf & Eskenazi. A fire ensued at their building at Muelle de la Industria street where petroleum was spilt lasting 27 minutes. There was no evidence that they changed their named to defraud or they initiated the fire. They filed their claim for 40 cases but only 10 or 11 partly burned and scorched cases were found. RTC: ordered Baloise Fire Insurance Co., Sun Insurance Office Ltd., and Springfield Insurance Co., to pay SC: reversed Insurance companies are absolved.
Doctrines:

So great is the difference between the amount of articles insured, which the plaintiffs claim to have been in the building before the fire, and the amount thereof shown by the vestige of the fire to have been therein, that the most liberal human judgment can not attribute such difference to a mere innocent error in estimate or counting but to a deliberate intent to demand of the insurance companies payment of an indemnity for goods not existing at the time of the fire, thereby constituting the so-called "fraudulent claim" which, by express agreement between the insurers and the insured, is a ground for exemption of the insurers from civil liability
acted in bad faith in presenting a fraudulent claim, they are not entitled to the indemnity claimed
when the partners of a general partnership doing business under the firm name of "Sharruf & Co." obtain insurance policies issued to said firm and the latter is afterwards changed to "Sharruf & Eskenazi", which are the names of the same and only partners of said firm "Sharruf & Co.", continuing the same business, the new firm acquires the rights of the former under the same policies

Garcia v. Hongkong Fire & Marine Insurance Co. (1923)

Summary: Garcia thought he had his merchandise insured with Hongkong Fire & Marine Insurance Co. so when he mortgaged the same to PNB, he endorsed it to PNB. PNB informed Hongkong Fire through exchange of letters. Hongkong failed to notify PNB or Garcia that it was for the building not owned by Garcia and not the merchandise. When fire took place and destroyed the merchandise. PNB tried to claim but it was refused. SC affirms RTC: favored Garcia
Doctrine: As a matter of fair dealing, it should have notified the Bank that the policy was on the building. It will be noted that the letters in question were all written several months before the fire.

Cha v. CA (1997)

Summary: Spouses Nilo Cha and Stella Uy-Cha and CKS Development Corporation entered a 1 year lease contract with a stipulation not to insure against fire their merchandise but they insured it with United Insurance Co. When fire destroyed they merchandise and CKS discovered the insurance, it claimed against United. RTC: United to pay CKS the amount of P335,063.11 and Spouses Cha to pay P50,000 as exemplary damages, P20,000 as attorney’s fees and costs of suit CA: deleted exemplary and attorney's fees. SC: reversed and ordered proceeds to be paid to spouses Cha.
Laws:

Sec. 17. Sec. 18, Sec. 25 of the Insurance Code

Doctrines:

A non-life insurance policy such as the fire insurance policy taken by petitioner-spouses over their merchandise is primarily a contract of indemnity. Insurable interest in the property insured must exist a t the time the insurance takes effect and at the time the loss occurs. The basis of such requirement of insurable interest in property insured is based on sound public policy: to prevent a person from taking out an insurance policy on property upon which he has no insurable interest and collecting the proceeds of said policy in case of loss of the property. In such a case, the contract of insurance is a mere wager which is void under Section 25 of the Insurance Code.
The automatic assignment of the policy to CKS under the provision of the lease contract previously quoted is void for being contrary to law and/or public policy.
The liability of the Cha spouses to CKS for violating their lease contract in that Cha spouses obtained a fire insurance policy over their own merchandise, without the consent of CKS, is a separate and distinct issue which we do not resolve in this case.

4. When Insurable Interest Must Exist [Sec. 19 IC]

Insurance Code

Sec. 19

Tai Tong Chuache & Co. v. Insurance Commission (1988)

Summary: Azucena Palomo bought a parcel of land and building from Rolando Gonzales and assumed a mortgage of the building in favor of S.S.S. which was insured with S.S.S. Accredited Group of Insurers. He also obtained a loan from Tai Tong Chuache Inc. in the amount of P100,000 and to secure it, the land and building was mortgaged. He insured the building with Philippine British Assurance Co., Zenith Insurance Corporation and Travellers Multi-Indemnity. When the building burned, Palomo was able to claim P41,546.79 from Philippine British Assurance Co., P11,877.14 from Zenith Insurance Corporation and P5,936.57 from S.S.S. Group of Accredited Insurers but Travellers Multi-Indemnity refused so it demanded the balance from the other three but they refused so they filed against them. Insurance Commission and CFI: dismissed since Arsenio Chua was claiming and NOT Tai Tong Chuache. SC: favored Tai Tong Chuache & Co. against travellers
Doctrines:

Tai Tong Chuache is still a creditor at the time of the occurence of loss

when the creditor is in possession of the document of credit, he need not prove non-payment for it is presumed - not proven otherwise
Chua being a partner of petitioner Tai Tong Chuache & Company is an agent of the partnership. Being an agent, it is understood that he acted for and in behalf of the firm

5. Effect of Change of Interest in Thing Insured

a.GR: suspended [Sec. 20 IC]

Insurance Code

Sec. 20

Sec. 20. Except in the cases specified in the next four sections, and in the cases of life, accident, and health insurance, a change of interest in any part of a thing insured unaccompanied by a corresponding change in 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.

San Miguel Brewery v. Law Union and Rock Insurance Co. (1920) (see above)

Laws: Sec. 20 (sec. 19 in the case old law)
Doctrines:

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
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

Bachrach v. British American Assurance Co. (1910)

Summary: E. M. Bachrach insured goods belonging to a general furniture store, such as iron and brass bedsteads, toilet tables, chairs, ice boxes, bureaus, washstands, mirrors, and sea-grass furniture stored in the ground floor and first story of house and dwelling with an authorized agent of the British American Assurance Company.

British American Assurance Company denied alleging that

property covered by the policy to H. W. Peabody & Co. to secure certain indebtedness due and owing to said company
interest in certain of the goods covered by the said policy is trasnferred to Macke to secure certain obligations assumed by Macke and on behalf of Bachrach
willfully placed a gasoline can containing 10 gallons of gasoline close to the insured goods
made no proof of the loss with the time required by the condition

SC affirmed RTC: favored Bachrach

Doctrines:

keeping of inflammable oils on the premises, though prohibited by the policy, does not void it if such keeping is incidental to the business

It may be added that there was no provision in the policy prohibiting the keeping of paints and varnishes upon the premises where the insured property was stored. If the company intended to rely upon a condition of that character, it ought to have been plainly expressed in the policy.

alienation clause - forfeiture if the interest in the property pass from the insured
there is no alienation within the meaning of the insurance law until the mortgage acquires a right to take possession by default under the terms of the mortgage. No such right is claimed to have accrued in the case at bar, and the alienation clause is therefore inapplicable.
we can not find that there is a preponderance of evidence showing that the plaintiff did actually set fire or cause fire to be set to the goods in question

b. Exceptions

i. Life, accident and health insurance [Sec. 20 IC] (see above)

ii. Change of interest after occurence of loss [Sec. 21 IC]

Insurance Code

Sec. 21

Sec. 21. A change in interest in a thing insured, after the occurrence of an injury which results in a loss, does not affect the right of the insured to indemnity for the loss.

iii. Change of interest in things separately insured [Sec. 22 IC]

Insurance Code

Sec. 22

Sec. 22. A change of interest in one or more several distinct things, separately insured by one policy, does not avoid the insurance as to the others.

iv. Transfer of interest by will or succession upon death of insured [Sec. 23 IC]

Insurance Code

Sec. 23

Sec. 23. A change on interest, by will or succession, on the death of the insured, does not avoid an insurance; and his interest in the insurance passes to the person taking his interest in the thing insured.

v. Transfer of interest by one of partners, joint owners, or common owners jointly insured,

to the others [Sec. 24 IC]

Insurance Code

Sec. 24

Sec. 24. A transfer of interest by one of several partners, joint owners, or owners in common, who are jointly insured, to the others, does not avoid an insurance even though it has been agreed that the insurance shall cease upon an alienation of the thing insured.

vi. Insurance policy framed to insured to benefit of whomsoever becomes owner of thing

insured [Sec. 57 IC]

Insurance Code

Sec. 57

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

6. Effect of transfer of thing insured [Sec. 58 IC]

Insurance Code

Sec. 58

Sec. 58. The mere transfer of a thing insured does not transfer the policy, but suspends it until the same person becomes the owner of both the policy and the thing insured.

San Miguel Brewery v. Law Union and Rock Insurance Co. (1920) (see above)