San Miguel Brewery v.

Law Union Rock Insurance Company

40 PHIL 674
Facts:
On Jan. 12, 1918, Dunn mortgaged a parcel of land to SMB to secure a debt of 10T.
Mortgage contract stated that Dunn was to have the property insured at his own expense,
authorizing SMB to choose the insurers and to receive the proceeds thereof and retain so much of
the proceeds as would cover the mortgage debt.
Dunn likewise authorized SMB to take out the insurance policy for him.
Brias, SMBs general manager, approached Law Union for insurance to the extent of 15T upon the
property. In the application, Brias stated that SMBs interest in the property was merely that of a
mortgagee.
Law Union, not wanting to issue a policy for the entire amount, issued one for P7,500 and procured
another policy of equal amount from Filipinas Cia de Seguros. Both policies were issued in the
name of SMB only and contained no reference to any other interests in the propty. Both policies
required assignments to be approved and noted on the policy.
Premiums were paid by SMB and charged to Dunn. A year later, the policies were renewed.
In 1917, Dunn sold the property to Harding, but no assignment of the policies was made to the
latter.
Property was destroyed by fire. SMB filed an action in court to recover on the policies. Harding
was made a defendant because by virtue of the sale, he became the owner of the property,
although the policies were issued in SMBs name.
SMB sought to recover the proceeds to the extent of its mortgage credit with the balance to go to
Harding.
Insurance Companies contended that they were not liable to Harding because their liability under
the policies was limited to the insurable interests of SMB only.
SMB eventually reached a settlement with the insurance companies and was paid the balance of
its mortgage credit. Harding was left to fend for himself. Trial court ruled against Harding. Hence
the appeal.
Issue: WON the insurance companies are liable to Harding for the balance of the proceeds of the 2
policies.
Held: NOPE.
Under the Insurance Act, the measure of insurable interest in the property is the extent to which
the insured might be daminified by the loss or injury thereof. Also it is provided in the IA that the
insurance shall be applied exclusively to the proper interest of the person in whose name it is made.
Undoubtedly, SMB as the mortgagee of the property, had an insurable interest therein; but it could
NOT, an any event, recover upon the two policies an amount in excess of its mortgage credit.
By virtue of the Insurance Act, neither Dunn nor Harding could have recovered from the two
policies. With respect to Harding, when he acquired the property, no change or assignment of the
policies had been undertaken. The policies might have been worded differently so as to protect the
owner, but this was not done.
If the wording had been: Payable to SMB, mortgagee, as its interests may appear, remainder to
whomsoever, during the continuance of the risk, may become owner of the interest insured, it would
have proved an intention to insure the entire interest in the property, NOT merely SMBs and would
have shown to whom the money, in case of loss, should be paid. Unfortunately, this was not what was
stated in the policies.
If during the negotiation for the policies, the parties had agreed that even the owners interest
would be covered by the policies, and the policies had inadvertently been written in the form in which
they were eventually issued, the lower court would have been able to order that the contract be
reformed to give effect to them in the sense that the parties intended to be bound. However, there is
no clear and satisfactory proof that the policies failed to reflect the real agreement between the parties
that would justify the reformation of these two contracts.