INSURANCE
Midterm Reviewer
PRESIDENTIAL DECREE NO. 612
December 18, 1974
ORDAINING AND INSTITUTING AN INSURANCE CODE OF
THE PHILIPPINES
I, Ferdinand E. Marcos, President of the Philippines, by
virtue of the powers in me vested by the Constitution, do
hereby decree and order the following:
GENERAL PROVISIONS
Sec. 1. This Decree shall be known as "The Insurance Code".
Sec. 2. Whenever used in this Code, the following terms shall
have the respective meanings hereinafter set forth or
indicated, unless the context otherwise requires:
(1) A "contract of insurance" is an agreement whereby one
undertakes for a consideration to indemnify another against
loss, damage or liability arising from an unknown or
contingent event.
A contract of suretyship shall be deemed to be an insurance
contract, within the meaning of this Code, only if made by a
surety who or which, as such, is doing an insurance business
as hereinafter provided.
(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.
(3) As used in this code, the term "Commissioner" means
the "Insurance Commissioner".
NCC shall also be applied in contracts of insurance.
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.
Thus, NCC subsidiarily applied.
Provisions applicable to contracts of insurance, Arts. 739
& 2012 on Void Donations:
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,
descendants and ascendants, by reason of his office.
By: RJ MARTINEZ
1 III LLB, EH404, USC College of Law
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.
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.
Naming somebody as a beneficiary and giving donations are
BOTH ACTS OF LIBERALITY.
But husband may designate wife as beneficiary despite
prohibition in F prohibiting husband and wife from making
donations to each other.
Designating spouse as beneficiary is not a donation inter
vivos it is donation mortis causa to take effect only
upon death of insured spouse.
On the Insurers Right of Subrogation (NCC)
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.
2 PURPOSES OF SUBROGATION
1. To make the person who has caused the loss
legally RESPONSIBLE (otherwise, if you already
received from the insurer, you may no longer be
interested to pursue the other party making him
free from liability)
2. To PREVENT DOUBLE RECOVERY on the part of the
insured from recovering first from the insurance
company and then from the wrongdoer.
Subrogation is based on the principles of equity and
justice.
It does not arise out of a contract or an assignment of
claim.
- accrues the moment the insurer paid the insured
- operates as an equitable assignment
- insurer now steps into the shoes of the insured and
acquires all the rights pertaining to the insured as
against the third party or the wrongdoer.
i.e. he can be considered a party to contracts
entered into by the insured with another who
caused the loss (i.e. contract of carriage
shipment of goods).
Based on Syllabus AY2011-12; De Leons Book; and Transcribed Notes
 INSURANCE
Midterm Reviewer
- Applies to property insurance only.
- Property insurance = CONTRACT OF INDEMNITY.
Indemnity you can only recover to the extent of
your loss or to the extent of your insurable interest.
Compared to life insurance policy, which as a
general rule, is not a contract of indemnity
Value of life is unlimited (not subject to
pecuniary benefit or estimation) no limit to
the amount recoverable to compensate for
the loss of a persons life.
- Subrogation is only up to the extent/value of the
insurance (i.e. if house worth 2M is burned and
insurance is only 1.5M insurer is subrogated to
1.5M and insured can go after the one who caused
the fire for the remaining 500K.)
*if there is court order/judgment setting the
amount the victim can recover from guilty party,
then insurer is subrogated only up to that
amount.
i.e. if amount was set by court to 1M,
subrogation only up to 1M remember: IC
only steps into the shoes of the insured.
- Any act of the insured, whether fault or negligence,
which defeats the insurers right of subrogation then
the insurer can refuse payment or if the insurer
already paid then he can demand reimbursement.
i.e. if A executes a release or waiver of quitclaim
as against B and Insurance Co. [IC] pays A. IC
can no longer go after B since B is already
released from liability. IC can go after A because
through As act, A defeats the right of
subrogation of IC.
Compulsory Motor Vehicle insurance (NCC)
Art. 2186. Every owner of a motor vehicle shall file
with the proper government office a bond executed
by a government-controlled corporation or office, to
answer for damages to third persons. The amount of
the bond and other terms shall be fixed by the
competent public official.
Arts. 2021 2027 with respect to LIFE ANNUITY
CONTRACTS
In Case of Application and Acceptance By Mail
Insurance Code is silent on the perfection of contracts in this
particular case.
Art. 1319 of NCC which provides that if the
acceptance is sent through a letter or correspondence
then the contract shall be perfected at the TIME OF
KNOWLEDGE of such acceptance.
CONTRACT OF INSURANCE an agreement whereby one
party, called the INSURER, promises to pay money or its
equivalent to the INSURED in consideration for the insured
paying a PREMIUM arising from a LOSS, DAMAGE OR
LIABILITY by reason of an UNKNOWN OR CONTINGENT
EVENT.
By: RJ MARTINEZ
2 III LLB, EH404, USC College of Law
UNKNOWN EVENT those which may already happen
but such event is unknown to the parties.
i.e. in Marine Insurance vessel may be insured if it
is unknown to the insured that the vessel is already
lost at sea.
CONTINGENT EVENT an event which may or may not
happen.
ELEMENTS OF INSURANCE CONTRACT
1. CONSENT of the contracting parties
2. OBJECT transfer and distribution of risk
3. CONSIDERATION payment of premiums
4. SUBJECT MATTER:
a. Property Insurance the thing that you
insured
b. Life Insurance life.
c. Casualty Insurance risk of loss, damage or
liability.
5 DISTINGUISHING ELEMENTS OF AN INSURANCE
CONTRACT (Or Risk-Distributing Device)
1. There must be INSURABLE INTEREST or the insured must
have insurable interest.
2. The insurable interest is SUBJECT TO A RISK OF LOSS.
3. There must be ASSUMPTION OF RISK by the INSURER.
4. The assumption of risk must be part of the general
scheme TO DISTRIBUTE ACTUAL LOSSES among parties or
persons who are somehow EXPOSED TO THE SAME RISK.
5. As CONSIDERATION for the insurers promise, the
insured makes a RATABLE CONTRIBUTION called
PREMIUM to a general insurance fund.
NOTE: If only elements 1, 2 & 3 are present then it is
only called a RISK-SHIFTING DEVICE.
Creditor has an insurable interest in the payment of his
loan. He tends to suffer a loss in case his not paid when
Debtor dies or becomes insolvent, thus there is risk of loss.
XYZ Company can assume the risk of non-payment to
pay Creditor in case D cannot.
NOT A CONTRACT OF INSURANCE the assumption
of risk is not part of a general scheme its ONLY
BETWEEN CREDITOR AND XYZ Co. and also there is
NO RATABLE CONTRIBUTION or payment of
PREMIUM. Contract GUARANTY/SURETYSHIP.
Guaranty guarantor is subsidiarily liable with the
benefit of exhaustion of assets.
Suretyship surety is primarily liable with no
benefit of exhaustion of assets
Both are not contracts of insurance the 4th
and 5th distinguishing elements are not present
merely a RISK-SHIFTING DEVICE.
**But if the surety does it as part of his
vocation (not just an isolated transaction)
like in the above case the contract
becomes a general scheme to distribute
the loss not only with respect to one
Based on Syllabus AY2011-12; De Leons Book; and Transcribed Notes
 INSURANCE
Midterm Reviewer
person but to other persons who are
similarly situated.
But where members of a group (racing enthusiasts) agree
to make monthly contributions to a common fund for the
purpose of answering for the hospital/medical expenses
of members who meet an accident during their event
CONTRACT OF INSURANCE.
*But not where the fund is for whoever wins
WAGERING CONTRACT.
CHARACTERISTICS OF AN INSURANCE CONTRACT
1. Consensual perfected by mere meeting of minds.
2. Voluntary generally, not compulsory, except
insurance for motor vehicles (TPL).
3. Aleatory insurer will be obligated to indemnify only
upon the happening of the contingent event, which
may or may not happen.
4. Personal based on character, conduct and credit
of a person (the insurer may be willing to insure you but
he may not be willing to insure your seatmate or some
other person).
5. Contract of Indemnity insurer is to make good only
the loss of the insured to the extent of his insurable
interest.
EXC: Life Insurance
EXC to EXC: If creditor insures the life of debtor
the life insurance now becomes a contract of
indemnity because his insurable interest would
only be to the extent of the loan (where debt is
already paid, creditor cannot recover from
insurance because no more insurable interest).
6. Executory or Executed EXECUTED as to the insured
after the payment of the premium, and EXECUTORY on
the part of the insurer in the sense that it is not
executed until payment for a loss or his obligation will
not arise until the contingent happens.
7. Conditional obligation of the insurer arises only
upon the happening of the contingent event.
8. Property in Legal Contemplation
INTERPRETATION OF INSURANCE CONTRACTS
When CLEAR interpreted according to the tenor of the
agreement.
When there is AMBIGUITY construed liberally IFO the
insured and strictly against the insurer.
**because insurance contracts are usually contracts
of adhesion (most of the terms of the contracts do
not result from mutual negotiation between the
parties prescribed by the insurer in final printed
forms with the aid of legal experts working for its
benefit and the only participation of the insured is to
either to adhere to or reject the terms.
CASES:
DEL ROSARIO V EQUITABLE INSURANCE
By: RJ MARTINEZ
3 III LLB, EH404, USC College of Law
QF: Life of A, son of B, was insured. Indemnity from the
policy varies from P1k to 3k depending on the cause of
death. While aboard a motor launch, A and his
companions were forced to jump off due to a fire that
broke out resulting in death by drowning.
ISSUE: W.O.N. the father B, as sole heir, may recover P1k
or 3k from the death of his son considering that the policy
did not clearly state the amount recoverable in case of
drowning.
HELD: All the parties agree that indemnity has to be paid.
The conflict centers on how much should the indemnity
be. We believe that under the proven facts and
circumstances, the findings and conclusions of the trial
court, are well taken, for they are supported by the
generally accepted principles or rulings on insurance,
which enunciate that where there is an ambiguity with
respect to the terms and conditions of the policy, the
same will be resolved against the one responsible
thereof. It should be recalled in this connection, that
generally, the insured, has little, if any, participation in the
preparation of the policy, together with the drafting of its
terms and Conditions. The interpretation of obscure
stipulations in a contract should not favor the party who
cause the obscurity which, in the case at bar, is the
insurance company.
. . . . And so it has been generally held that the "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," and the reason for this
rule is that the "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".
. . . . Where two interpretations, equally fair, of
languages used in an insurance policy may be
made, that which allows the greater indemnity will
prevail.
At any event, the policy under consideration, covers
death or disability by accidental means, and the
appellant insurance company agreed to pay P1,000.00
to P3,000.00. is indemnity for death of the insured.
FIELDMENSINSURANCE V VDA. DE SONGCO
QF: A, a man of scant education, insured his private
jeepney with Common Carrier Liability Insurance thru the
inducement of B, insurance agent. After a year, the
insurance was renewed. During the effectivity of the new
poicy, the jeep, driven by As son, met an accident.
ISSUE: W.O.N. A can recover from Insurance Company
despite the fact that his vehicle was not a private jeep.
HELD: As much, if not much more so than the Qua Chee
Gan decision, this is a case where the doctrine of
estoppel undeniably calls for application. After petitioner
Based on Syllabus AY2011-12; De Leons Book; and Transcribed Notes
 INSURANCE
Midterm Reviewer
Fieldmen's Insurance Co., Inc. had led the insured
Federico Songco to believe that he could qualify under
the common carrier liability insurance policy, and to enter
into contract of insurance paying the premiums due, it
could not, thereafter, in any litigation arising out of such
representation, be permitted to change its stand to the
detriment of the heirs of the insured. As estoppel is
primarily based on the doctrine of good faith and the
avoidance of harm that will befall the innocent party due
to its injurious reliance, the failure to apply it in this case
would result in a gross travesty of justice.
xxx xxx xxx
Even if it be assumed that there was an ambiguity, an
excerpt from the Qua Chee Gan decision would reveal
anew the weakness of petitioner's contention. Thus:
"Moreover, taking into account the well known rule that
ambiguities or obscurities must be strictly interpreted
against the party that caused them, the 'memo of
warranty' invoked by appellant bars the latter from
questioning the existence of the appliances called for in
the insured premises, since its initial expression, 'the
undernoted appliances for the extinction of fire being
kept on the premises insured hereby, ... it is hereby
warranted ...,' admits of interpretation as an admission of
the existence of such appliances which appellant cannot
now contradict, should the parol evidence rule apply."
Chapter 1
THE CONTRACT OF INSURANCE
Title 1
WHAT MAY BE INSURED
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.
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.
YOU CAN INSURE:
1. Anything that would cause damage (example:
insurance of property against fire)
a. Insure something that would cause damage to
your property like the happening of a fire or
accident
2. Or anything that would cause liability to 3rd persons
a. Example: liability from bumping a pedestrian or
car (Compulsory 3rd party liability)
By: RJ MARTINEZ
4 III LLB, EH404, USC College of Law
b. something that would create liability against the
one taking out the policy
c. but if the policy states it will indemnify you
against damage to 3rd persons, it is still insurance
against damage (for it to be insurance to be
liability, insurer has to bind itself to pay a 3rd
party).
These risks arise from contingent and unknown events
which can be past or future
CONTINGENT EVENT relates to the future, may or may
not happen.
UNKNOWN EVENT has already happened as long
as the past event is unknown at the time the policy
took effect.
**the policy must expressly provide that the insurer
undertakes to insure you for a prior loss (a past
event), by state lost or not lost that it is willing to
insure a past unknown event peculiar only to
MARINE INSURANCE (not to fire and property
insurance because they normally conduct ocular
inspection).
MARRIED WOMAN can take policy even WITHOUT
CONSENT of her HUSBAND, as long as it insures:
a. Her own LIFE
b. Life of her CHILDREN, or HUSBAND.
c. Her OWN PROPERTY (paraphernal).
INSURANCE OBTAINED BY MINOR
A policy obtained by minor is valid, provided the policy
must comply with the following:
1. LIFE, HEALTH, or ACCIDENT Insurance
2. Minor insured is HIS OWN LIFE.
3. Designated beneficiary is the ESTATE, MOTHER,
FATHER, CHILD, BROTHERS and SISTERS.
**Insurer cannot raise the defense of minority
(those who are capable cannot raise the
incapacity of parties with whom they have
contracted) but the MINOR can raise the
defense (voidable from the instance of the
minor).
EXC: when the minor misrepresented his age
(there is fraud).
LAST PARAGRAPH OF SEC. 3 (Illustration)
Father owns the policy and obtains policy over life of
minor son, with father as beneficiary.
If father dies, the insurance proceeds will vest
automatically to the son and not the estate of
the father.
But assuming father obtained life insurance policy but
this time, designates his wife as beneficiary --- the wife
will receive the proceeds because of the provision
unless otherwise provided for in the policy.
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.
Based on Syllabus AY2011-12; De Leons Book; and Transcribed Notes
 INSURANCE
Midterm Reviewer

Sec. 8. Unless the policy otherwise provides, where a

INSURANCE for games of chance, gambling, lottery are mortgagor of property effects insurance in his own name
prohibited no insurable interest. wagering contract providing that the loss shall be payable to the mortgagee, or
assigns a policy of insurance to a mortgagee, the insurance is
(contract of chance). deemed to be upon the interest of the mortgagor, who does
i.e. Gambling operator cannot insure against loss in not cease to be a party to the original contract, and any act of
case someone wins the jackpot. 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
DISTINCTION
contract of insurance, is to be performed by the mortgagor,
INSURANCE WAGERING CONTRACT may be performed by the mortgagee therein named, with the
Insurance contract is to Gambling contract is to same effect as if it had been performed by the mortgagor.
avoid loss (indemnity). gain.
Sec. 9. If an insurer assents to the transfer of an insurance
from a mortgagor to a mortgagee, and, at the time of his
Insurance contract the risk Gambling creates risk of assent, imposes further obligation on the assignee, making a
of loss already exists. losing. new contract with him, the act of the mortgagor cannot affect
the rights of said assignee.

Sec. 5. All kinds of insurance are subject to the provisions of

this chapter so far as the provisions can apply. SECTION 8 (Illustration)
If the PROPERTY is mortgaged there are 2 SEPARATE
Title 2
INSURABLE INTERESTS that of the mortgagor and the
PARTIES TO THE CONTRACT
mortgagee.
Sec. 6. Every person, partnership, association, or they can both insure the property under the
corporation duly authorized to transact insurance business same/ different insurer.
as elsewhere provided in this code, may be an insurer.

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

Extent of Recovery:
Mortgagors the value of the property the extent
PARTIES TO AN INSURANCE CONTRACT that he would be damnified.
INSURED INSURER Mortgagees value/amount of the debt property
The person COVERED by The one who only serves as a security.
the insurance contract; ASSUMES/ASSURES the RISK
NOT always the one of loss or who indemnifies When the Mortgagor Obtains the Insurance Policy for His
entitled to the proceeds when the contingent event Own Benefit
(there may be a arises. House = 2.0M
BENEFICIARY). Policy = 2.0M
May be a NATURAL or Debt = 1.5M
Insured vs. Assured JURIDICAL person If the house is destroyed ONLY the MORTGAGOR can
sometimes insured is at the (individual, partnership, recover from the policy.
same time the assured. But corporations) --- provided The DEBT is NOT EXTINGUISHED because the policy is for
assured refers more to the they are duly authorized the mortgagors interest alone (debt is still unpaid).
beneficiary. issued a CERTIFICATE OF
AUTHORITY from the If mortgagor makes the loss payable/ assigns to the
Who may be Insured? insurance commissioner. mortgagee contract is still BETWEEN the MORTGAGOR
ANYONE with capacity to **insurance industry is and INSURER (not between the mortgagee and the
enter into contract and regulated because it is insurer).
with insurable interest. imbued with public interest. i.e. if the policy allows the mortgagor to pre-terminate
*As long as he is not a **Mostly corporations enter the contract but the insurer gives the notice of pre-
PUBLIC ENEMY. because of the termination to the mortgagee. Later a fire broke out
Must be a citizen/subject of CAPITALIZATION and destroyed the property
country with which we are requirement. INSURED can STILL RECOVER from the INSURER
at war. because the parties to the policy were the
i.e. Abu Sayaff is NOT a mortgagor and insurer. Notice given was not
PUBLIC ENEMY. payable to the mortgagor, since the mortgagor
If Public Enemy: Insurance does not cease to be party to the contract.
policy CEASES, insurer is NO Notice must be personal to the mortgagor.
LONGER LIABLE. The interest of the policy is still for the mortgagor.
**The ACT performed by the mortgagor will AFFECT the
RIGHTS of the MORTGAGEE, because mortgagor does not
cease to be party to the contract. Any act of the

By: RJ MARTINEZ Based on Syllabus AY2011-12; De Leons Book; and Transcribed Notes
5 III LLB, EH404, USC College of Law
 INSURANCE
Midterm Reviewer

mortgagor prior to the loss which avoids the contract of

insurance --- has the same effect, although the property ANOTHER EXAMPLE:
is in the hands of the mortgagee. IF POLICY = 1.5M AND DEBT = 800K
i.e. if the policy provides that no flammable materials BY MORTGAGOR FOR HIS OWN BY MORTGAGEE FOR HIS OWN
are to be stored in the warehouse and the mortgagor INTEREST INTEREST
stored gasoline in the premises, the mortgagee Mortgagor entitled to the Mortgagee is entitled to
cannot recover because he is bound by the act of proceeds of 1.5M. recover 800K.
the mortgagor.
**Conversely, ANY ACT which is to be done by the Debt is not extinguished The EXCESS will NOT go to
mortgagor can be DONE BY THE MORTGAGEE (as if it is there was no subrogation. the mortgagee.
performed by the mortgagor).
i.e. like payment of premium, giving notice of loss. If ASSIGNED to The debt is not
MORTGAGEE extinguished the insurer
Upon occurrence of the loss, when mortgagor assigns to mortgagee can recover for is SUBROGATED to the
the mortgagee, the latter is entitled but the excess of .5M 1.5M but he holds the 700K extent of the amount he
is held in trust for the mortgagor. in trust for the mortgagor. PAID (800K).
policy is payable to the mortgagee = debt is The debt is now
extinguished. extinguished. If policy was obtained by
No, subrogation, because the debt is already if at the time of the loss, the mortgagee, but the
extinguished (since it is the mortgagor himself who debt was already paid debt is 1.7M.
paid the policy). Mortgagor is entitled to
recover for 1.5M. MORTGAGEE is ENTITLED to
If the debt is already paid at the time of loss = the recover 1.5M.
mortgagee can no longer recover. If the policy states that
Mortgagor will recover even if the loss is made there should be notice if INSURER is SUBROGATED to
payable to the mortgagee (because the mortgagee there are other insurance, the rights of the mortgagee
no longer has insurable interest). and this was not complied for 1.5M.
**This is fair because the policy was paid by the with by the mortgagor
mortgagor. Mortgagee is not entitled Excess of 200K
to recover because the mortgagee can also
If It was the Mortgagee Himself who Obtained the Policy act of the mortgagor recover **from the
ONLY the MORTGAGEE can recover. affects the policy since he mortgagor/debtor (added
After the insurer pays the mortgagee, the DEBT is NOT does not cease being a by author).
EXTINGUISHED the RIGHT of SUBROGATION exists. party to the contract
The insurer steps into the shoes of the subrogee and If the violation was by the
can demand payment from the mortgagor mortgagee, is there
recovery? Yes, because he
House = 2.0M who comes to court must
Policy = 1.0M come with clean hands.
Debt = 1.5M Mortgagors hands are
If the house is destroyed, mortgagee is entitled to recover clean. Because the
only 1.5M (extent of credit). mortgagor does not cease
Excess of 0.5M the mortgagor cannot recover to be party to the contract,
because the policy was obtained by the mortgagee contract is between the
alone. insurer and mortgagor. The
Debt is not extinguished because the insurer is acts of the mortgagee do
subrogated into the rights of the mortgagee and not bind the mortgagor.
he can demand payment of 1M. Mortgagee can
no longer go after the mortgagor.
What If, 800K Debt, 1.5M Property and Both of Them
If Debt = 2.0M and Policy = 1.5M Obtained Different Policies
Mortgagee can recover for 1.5 M. Mortgagees policy (with ABC co.) only he can claim
The debt is not extinguished as to the 1.5M because the 800K
insurer is subrogated. Mortgagors policy (with XYZ co.) only he can claim
As to the remaining .5M, mortgagee can recover. 1.5M. **Debt is not extinguished insurer will exercise the
right of SUBROGATION.
At the Time of the Loss, if Debt is Already Paid

By: RJ MARTINEZ Based on Syllabus AY2011-12; De Leons Book; and Transcribed Notes
6 III LLB, EH404, USC College of Law
 INSURANCE
Midterm Reviewer

MORTGAGEE CANNOT RECOVER because he has since the insured goods were burned after December 10,
no more insurable interest. 1941, and during the war, the respondent was not
MORTGAGOR can still RECOVER. entitled to any indemnity under said policy from the
petitioner. However, elementary rules of justice (in the
What if Mortgagors policy from XYZ is payable to absence of specific provision in the Insurance Law)
mortgagee AND the mortgagee also has his own policy. require that the premium paid by the respondent for the
The house was destroyed, under the policy of XYZ co. period covered by its policy from December 11, 1941,
who can recover? should be returned by the petitioner.
Mortgagee, for 1.5M but hold excess in trust. The
debt is extinguished. GEAGONIA V CA
If ABC paid first (to mortgagee), XYZ would no QF: Geagonia, owner of Normans Mart, obtained fire
longer pay the mortgagee, instead pay to ABC. insurance. The policy contained a clause stating that:
the insured shall give notice to the Co. of any
If the mortgagor assigns the insurance policy to the insurance/s already effected, and unless such notice be
mortgagee with the consent of the insurer AND the given and the particulars of such insurance/s be stated
insurer imposes additional terms or conditions (i.e. require therein, all benefits under this policy shall be deemed
additional payment of premiums) a separate contract forfeited. A fire of accidental origin broke out destroying
between the mortgagee and the insurer. all the merchandise of insured.
Acts of the mortgagor NO LONGER AFFECT the ISSUE: W.O.N. insured may recover given that the
policy (as if the contract is between the merchandise was also covered by other policies with a
mortgagee and insurer). mortgage clause.
The assignment has to be WITH the CONSENT (an HELD: Condition 3 of the private respondent's Policy No. F-
insurance contract is personal). 14622 is a condition which is not proscribed by law. Its
NOTE: incorporation in the policy is allowed by Section 75 of the
SEC. 8 SEC. 9 Insurance Code 15 which provides that "[a] policy may
a.k.a. OPEN OR LOSS a.k.a. STANDARD UNION declare that a violation of specified provisions thereof
PAYABLE MORTGAGE MORTGAGE CLAUSE shall avoid it, otherwise the breach of an immaterial
CLAUSE provision does not avoid the policy." Such a condition is a
provision which invariably appears in fire insurance
ACTS of MORTGAGOR BIND ACTS of MORTGAGOR WILL policies and is intended to prevent an increase in the
the mortgagee. NO LONGER BIND the moral hazard. It is commonly known as the additional or
Party to the contract is still mortgagee. "other insurance" clause and has been upheld as valid
the mortgagor. If the MORTGAGEE and as a warranty that no other insurance exists. Its
Ordinary assignment only. RECEIVES payment, the violation would thus avoid the
If the MORTGAGEE debt is NOT EXTINGUISHED, policy. However, in order to constitute a violation, the
RECEIVES payment the because it is as if the other insurance must be upon same subject matter, the
DEBT IS EXTINGUISHED. contract is between the same interest therein, and the same risk.
mortgagee and the insurer. As to a mortgaged property, the mortgagor and the
mortgagee have each an independent insurable interest
therein and both interests may be one policy, or each
FILIPINAS CIA DE SEGUROS V HUNEFELED & CO. may take out a separate policy covering his interest,
QF: On 1941, Hunefeld obtained from FCdS insurance either at the same or at separate times. 18 The
company fire insurance covering merchandise in a mortgagor's insurable interest covers the full value of the
building in Manila. During the Japanese occupation, the mortgaged property, even though the mortgage debt is
building and insured merchandise were burned. equivalent to the full value of the property. The
ISSUE: W.O.N. Hunefeld, a company whose majority mortgagee's insurable interest is to the extent of the debt,
stockholders were German subjects, can recover on said since the property is relied upon as security thereof, and
policy. in insuring he is not insuring the property but his interest or
HELD: he Philippine Insurance Law (Act No. 2427, as lien thereon. His insurable interest is prima facie the value
amended,) in section 8, provides that "anyone except a mortgaged and extends only to the amount of the debt,
public enemy may be insured." It stands to reason that an not exceeding the value of the mortgaged
insurance policy ceases to be allowable as soon as an property. Thus, separate insurances covering different
insured becomes a public enemy. insurable interests may be obtained by the mortgagor
xxx xxx xxx and the mortgagee.
The respondent having become an enemy corporation A mortgagor may, however, take out insurance for the
on December 10, 1941, the insurance policy issued in its benefit of the mortgagee, which is the usual practice.
favor on October 1, 1941, by the petitioner (a Philippine The mortgagee may be made the beneficial payee in
corporation) had ceased to be valid and enforcible, and several ways. He may become the assignee of the policy

By: RJ MARTINEZ Based on Syllabus AY2011-12; De Leons Book; and Transcribed Notes
7 III LLB, EH404, USC College of Law
 INSURANCE
Midterm Reviewer
with the consent of the insurer; or the mere pledgee
without such consent; or the original policy may contain
a mortgage clause; or a rider making the policy payable
to the mortgagee "as his interest may appear" may be
attached; or a "standard mortgage clause," containing a
collateral independent contract between the
mortgagee and insurer, may be attached; or the policy,
though by its terms payable absolutely to the mortgagor,
may have been procured by a mortgagor under a
contract duty to insure for the mortgagee's benefit, in
which case the mortgagee acquires an equitable lien
upon the proceeds.
In the policy obtained by the mortgagor with loss
payable clause in favor of the mortgagee as his interest
may appear, the mortgagee is only a beneficiary under
the contract, and recognized as such by the insurer but
not made a party to the contract himself. Hence, any act
of the mortgagor which defeats his right will also defeat
the right of the mortgagee. This kind of policy covers only
such interest as the mortgagee has at the issuing of the
policy.
On the other hand, a mortgagee may also procure a
policy as a contracting party in accordance with the
terms of an agreement by which the mortgagor is to pay
the premiums upon such insurance. It has been noted,
however, that although the mortgagee is himself the
insured, as where he applies for a policy, fully informs the
authorized agent of his interest, pays the premiums, and
obtains on the assurance that it insures him, the policy is
in fact in the form used to insure a mortgagor with loss
payable clause.
PNB V CA
QF: Spouses A & B, applied for retailers loan with PNB.
Loan was approved subject to a chattel mortgage ifo
bank consisting of inventory of stocks. The goods were
also insured with bank as beneficiary. The building and
goods were later on destroyed by fire. PNB did not claim
on the policy from insurance company. The company
later on folded up due to insolvency.
ISSUE: W.O.N. PNB can claim from the spouses.
HELD: The petitioner as the attorney-in-fact of the private
respondents and as the beneficiary of the insurance
policy had the obligation to collect the proceeds of the
policy. The argument of the petitioner to the effect that
there is no express provision in the Chattel Mortgage
Contract which compels the petitioner to collect the
proceeds of the insurance in case of loss is a mere
rationalization of one trying hard to put the blame on
another for its own fault or negligence. For "under the
chattel mortgage covering the goods offered as security
for payment of the loan, the private respondents as
mortgagors constituted and appointed the petitioner as
mortgagee their attorney-in-fact with full power and
authority to collect and receive any interest, income or
benefits produced by the mortgaged property and
apply such amount collected and received in payment
of the interest accruing and of the principal obligation.
By: RJ MARTINEZ
8 III LLB, EH404, USC College of Law
The petitioner was itself the beneficiary of the insurance
policy to which it was duly indorsed and made payable,
and was in possession thereof." 5
Indeed, and as found by the lower courts, the petitioner
could have collected the insurance proceeds if only it
were not negligent. It had ample time and enough legal
remedies, not to mention resources, to collect the
insurance proceeds when the same became due, yet, it
merely sent demand letters to the insurance company.
And when the company did not act on the letters, the
petitioner did not pursue other remedies to press its claim.
It did not even file a suit for the recovery of the insurance
proceeds against the insurance company before and
even during the liquidation of the company. It allowed
seven long years to pass before finally deciding to file a
collection case. Realizing that it could no longer collect
from the insurance company because the same had
already folded up, the petitioner directed the collection
suit against the private respondents whose obligation
with the petitioner had long been extinguished.
For, indeed, under the facts obtaining, the private
respondents cannot have been expected to initiate
moves for the collection of the insurance proceeds. It
was the petitioner which was duty bound to enforce the
claim for the insurance proceeds, being, as earlier
mentioned, the attorney-in-fact of the private
respondents and the beneficiary of the insurance policy.
PALILEO V COSIO
QF: A, obtained from B a loan of P12K secured by pacto
de retro of a two-storey building. B insured the building
against fire for P15K. The building was partly destroyed by
fire and B was able to claim P13K from the insurer. A
demanded that she be credited with the necessary
amount (P1K+) to pay her obligation out of the insurance
proceeds but defendant refused to do so.
ISSUE: W.O.N. the obligation of A to B has been
extinguished/compensated by the insurance amount
and B should refund P1K+ to A.
HELD: xxx The rule is that "where a mortgagee,
independently of the mortgagor, insures the mortgaged
property in his own name and for his own interest, he is
entitled to the insurance proceeds in case of loss, but in
such case, he is not allowed to retain his claim against
the mortgagor, but is passed by subrogation to the insurer
to the extent of the money paid." Or, stated in another
way, "the mortgagee may insure his interest in the
property independently of the mortgagor. In that event,
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."
This is the same rule upheld by this Court in a case that
arose in this jurisdiction. In the case mentioned, an
insurance contract was taken out by the mortgagee
Based on Syllabus AY2011-12; De Leons Book; and Transcribed Notes
 INSURANCE
Midterm Reviewer

upon his own interest, it being stipulated that the already sufficient insurable interest on the
proceeds would be paid to him only and when the case evidence of good life of the insured C also
came up for decision, this Court held that the faith. does not have insurable
mortgagee, in case of loss, may only recover upon the Also there are interest in the life of B.
policy to the extent of his credit at the time of the loss. It safeguards provided in
was declared that the mortgaged had no right of action the insurance code to
against the mortgagee on the policy. prevent the
beneficiary from
benefitting from the
Title 3
INSURABLE INTEREST
policy if he willfully
brings about the death
Sec. 10. Every person has an insurable interest in the life and of the insured.
health:
(a) Of himself, of his spouse and of his children; INSTANCES when
(b) Of any person on whom he depends wholly or in part for
education or support, or in whom he has a pecuniary designating a 3RD PERSON
interest; WITHOUT INSURABLE
(c) Of any person under a legal obligation to him for the INTEREST may be VOIDED:
payment of money, or respecting property or services, of A. PROPOSAL to
which death or illness might delay or prevent the
obtain the policy was AT
performance; and
(d) Of any person upon whose life any estate or interest THE INSTANCE OF THE
vested in him depends. BENEFICIARY.
b. BENEFICIARY himself
INSURABLE INTEREST that relation or connection to the PAID the PREMIUMS.
person or the thing wherein you stand to GAIN or BENEFIT c. BENEFICIARY does NOT
or ADVANTAGE upon its PRESERVATION or you stand to have INSURABLE
suffer LOSS or DAMAGE from its DESTRUCTION or INTEREST.
TERMINATION. *Case-to-case basis.
Required for reasons of public policy to serve as Generally, this type is
deterrence to the insured, to avoid the temptation or VALID.
inducement for someone who has nothing to lose and
everything to gain, in bringing about that event which PERSONS OVER WHOM ONE HAS INSURABLE INTEREST
you make the insurer payable. a) yourself,
**for life insurance policy the expectation of benefit life of your
need not always be pecuniary. Like the insurable spouse, life of
interest over the life of someone or a loved one, your children
need not always be pecuniary. b) on the life Education = Support.
of the person Who are these persons obliged to
SECTION 10 CAN BE DIVIDED INTO 2:
on whom you give support to each other?
UPON OUR OWN LIVES UPON THE LIVES OF OTHERS depend for Art. 195 of FC:
NO QUESTION that we The law now REQUIRES for education or a. Between SPOUSES
have unlimited interest on the OWNER of the policy to support b. Between LEGITIMATE
our own life. have INSURABLE INTEREST ASCENDANTS and DESCENDANTS;
on the life of the insured c. PARENTS and their
Insured can designate otherwise, VOID! legitimate/illegitimate CHILDREN
ANYBODY as BENEFICIARY. d. BROTHERS and SISTERS, whether
If A insures the life of B, his full blood or half-blood (as a rule
BENEFICIARY NEED NOT friend, and designates C, includes illegitimate brother/sister
HAVE INSURABLE INTEREST in another friend, as whether full blood or half blood).
the life of the insured (i.e. a beneficiary, is the policy
friend). valid? For lesser degree/s of kinship (i.e.
Would not C be tempted NO, because A does not uncle/aunt, in-laws)
in killing A, or wishing A have insurable interest Mere BLOOD RELATION is NOT
will die? Are we going to over the life of the ENOUGH;
require C, the beneficiary insured, B. *There must be SOME OTHER
to have insurable interest Furthermore the law BASIS (i.e. expectation of
on A? requires the owner of the pecuniary benefit).
The fact that you policy and the
insure your own life is beneficiary must have **Woman who takes care of orphan
By: RJ MARTINEZ Based on Syllabus AY2011-12; De Leons Book; and Transcribed Notes
9 III LLB, EH404, USC College of Law
 INSURANCE
Midterm Reviewer
both have insurable interest over
one another.
c) Persons Ex. Creditor insuring the life of his
under legal debtor.
obligation to Debtor has a legal obligation to the
pay money or creditor, whose (debtors) death or
render illness, might delay or prevent the
respective performance thereof.
services. **extent of the insurable interest on
the life of his debtor limited only
to the extent of the debt.
If at the time of debtors death, the
debt was already paid, can creditor
still recover? NO MORE, because the
CREDITOR NO LONGER HAS
INSURABLE INTEREST.
*In life insurance policy you must
have insurable interest only at the
time the policy takes effect (not
necessary at the time of loss).
EXC: if the creditor insures the life
of the debtor it is required that he
has insurable interest at the time
the policy takes effect and at the
time of loss.
*Because the life insurance policy
is now considered a CONTRACT
OF INDEMNITY.
If its the debtor this time who
obtained the policy insuring his own
life but makes the proceeds
payable to the creditor, valid?
Yes, because debtor has insurable
interest on his own life.
If the debt was already paid, who
can recover? Will it invalidate the
policy?
No, because the subject of the
insurance is the debtors life. It has
nothing to do whether the debt was
extinguished or not.
Recovery depends on the policy. If it
would state that it shall be payable
to C so long as the debt subsists,
then it should not go to C. But if
there is no condition, just a simple
designation, and at the time of Ds
death, there was no revocation. It
becomes a vested right of C.
*In designating someone as your
beneficiary without condition
after the death of the insured, it
becomes a vested right.
LAW REQUIRES LEGAL OBLIGATION
By: RJ MARTINEZ
10 III LLB, EH404, USC College of Law
mere MORAL/NATURAL obligation
NOT ENOUGH.
i.e. no recovery when right to
collect has already prescribed
(there is no more legal obligation
to pay).
Corporation can insure the life of its
employees only KEY employees
(i.e. CEO, Gen. Manager, Pres., etc.)
somebody indispensable to the
company business; not rank and file
d) Any B (beneficial owner) can insure the
person upon life of A (naked owner) who grants
whose life any him usufructuary rights as long as he
estate or lives
interest vested because when A dies, B will no
in him longer have usufructuary rights
depends. (insurable interest present).
BUT, heir/devisee/legatee cannot
insure the life of a person from whom
he will inherit.
his interest is not on the
preservation of the life of the
decedent/testator (his rights will
accrue upon the moment of death
of the latter).
CONSENT is NOT NECESSARY for one
to insure the life of another the
law merely requires that insurable
interest be present.
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.
DESIGNATION is presumed to be REVOCABLE.
UNLESS EXPRESSLY WAIVED (contrary to the old
provision).
BENEFICIARIES
OWN LIFE you are free to choose any beneficiary.
EXC: those persons who are prohibited by law (i.e.
persons who are guilty of adultery, concubinage, or
public officers by reason of their office).
*If both are single prohibition will not apply (i.e.
common law spouses are not prohibited as long as
there is no legal impediment [of course!])
*But if prohibited designation is made only the
designation is invalidated, not the whole policy
(proceeds will go to the estate).
LIFE OF ANOTHER PERSON one designated as
beneficiary must also have insurable interest over the life
of the insured.
Based on Syllabus AY2011-12; De Leons Book; and Transcribed Notes
 INSURANCE
Midterm Reviewer

Sec. 13. Every interest in property, whether real or personal,

EFFECTS or any relation thereto, or liability in respect thereof, of such
nature that a contemplated peril might directly damnify the
REVOCABLE IRREVOCABLE insured, is an insurable interest.
Designation CAN BE BENEFICIARY acquires
CHANGED even without vested right. Sec. 14. An insurable interest in property may consist in:
(a) An existing interest;
the consent of the Any change, addition,
(b) An inchoate interest founded on an existing interest; or
beneficiary alteration cannot be made (c) An expectancy, coupled with an existing interest in that
beneficiary DID NOT without his consent. out of which the expectancy arises.
ACQUIRE VESTED RIGHT
yet. The owner cannot also INSURABLE INTEREST IN PROPERTY
make the policy lapse by - if you derive benefit from its preservation or
not paying the premium, continued benefit and you suffer loss from its
because the beneficiary destruction or damage.
now can pay the - insurable interest in a property can either arise
premiums, because he has from the property itself or in relation to that
acquired vested right. property.
*ownership is not required to have insurable
In case beneficiary In case beneficiary interest over property.
predeceases the insured: predeceases the insured: *Possession is also not necessary.
**as long you benefit from its preservation and you suffer
Proceeds will go to the Proceeds will go to the a loss from its destruction there can be insurable
owner of the policy or the heirs of the beneficiary, interest over the property, BUT. . .
insured, because because it has become a There must be an EXISTING RIGHT on which the
beneficiary has not yet vested right. expectation of profit/gain is based.
acquired vested right. i.e. owner of Kuerks/Tuxedo cannot insure USC Law
building just because he can expect to suffer loss
Sec. 12. The interest of a beneficiary in a life insurance policy from its destruction there must be an existing
shall be forfeited when the beneficiary is the principal, right over the building.
accomplice, or accessory in willfully bringing about the death
of the insured; in which event, the nearest relative of the
insured shall receive the proceeds of said insurance if not SECTION 14 AN INSURABLE INTERS IN PROPERTY MAY
otherwise disqualified. CONSIST IN:
AN EXISTING Either legal title or equitable title.
A safeguard provided by law, against the temptation for INTEREST For instance, the ff:
the beneficiary to bring about the death of the Owner
owner/insured. Mortgagor
Mortgagee
NEAREST RELATIVES (Applying the rule on Intestate Lessee
Succession) A buyer, whose goods has not yet been
1. The legitimate children delivered to him, has insurable interest
2. The father and the mother, if living based on an existing interest because
3. The grandfather and grandmother, or ascendants the buyer already has legal title or
nearest in degree, if living equitable title due to a perfected
4. The illegitimate children contract of sale.
5. The surviving spouse *Even if still unpaid, he already has an
6. The collateral relatives, to wit existing interest (sale already
a. brothers and sisters of the full blood perfected) based on equitable
b. brothers and sisters of the half-blood title.
c. nephews and nieces *if sale was conditional interest up
In default of the above, the state shall be entitled to the extent of amount already paid.
to receive the insurance proceeds Contractor/Architect equitable title
over unpaid fees for services rendered.
The law requires that the person WILLINGLY BRINGING
ABOUT THE DEATH OF THE INSURED. Note:
The act must amount to a felony. In one property there could be several
Self-defense and other justifying circumstances insurable interests, either in the form of
do not forfeit your interest/claim. ownership/legal title or equitable title.

AN INCHOATE INCHOATE RIGHT that right which is

By: RJ MARTINEZ Based on Syllabus AY2011-12; De Leons Book; and Transcribed Notes
11 III LLB, EH404, USC College of Law
 INSURANCE
Midterm Reviewer

INTEREST not yet existent at the moment.
FOUNDED ON *to be insurable, must be based on
AN EXISTING an existing interest.
INTEREST
i.e. Stockholders/Partner
Inchoate Interest = interest over
corp./partnership properties which
will be distributed once the
corporation/partnership is dissolved.
Existing Interest = being
stockholder/partner.
AN i.e. Farmer planting crops
EXPECTANCY, EXPECTANCY = the future harvest.
COUPLED WITH EXISTING INTEREST = Either he owns the
AN EXISTING land on which the crops are planted or
INTEREST IN that he is the one who planted these
THAT OUT OF crops even if he does not own the land.
WHICH THE
EXPECTANCY Other Instances:
ARISES. Owner of a vessel can insure the goods
in the vessel.
Operator of a taxi can insure future
boundary or future income.
Owner of business can insure future
profits.
Heir cannot insure something he
expects to inherit from the testator.
His interest is it not founded on an
existing right. The property still belongs
to the testator while still alive.
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.
Depositary is similar to a warehouseman.
He does not own the goods, BUT he has insurable interest
because it would create a liability.
Other Instances:
a. Owner of Car Repair Shop
b. Owner of Laundry Shop
c. Bailee in a Commodatum
d. Owner of Playroom as to the lives of the children.
e. Pawnshops
*insurable interest is to the extent of the credit
because items pawned serve as security so
insurable interest based either on liability or
equitable title as trustee or as pledgee.
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.
Mere expectancy or contingency without existing interest
is not insurable.
i.e. A son (heir) cannot insure the property belonging to
his father and vice-versa.
*Even if COMPULSORY HEIR no existing interest yet; during
the lifetime of testator, testator can still convey the
property to someone else.
LACK OF INSURABLE INTEREST CANNOT BE WAIVED.
a DOCTRINE OF ESTOPPEL would NOT also APPLY.
i.e. If you do not have an insurable interest on the
thing insured, the insurance policy is void but you will
be entitled to return of the premiums paid (provided
not in pari delicto).
GENERAL CREDITOR cannot insure the property of his
debtor NO INSURABLE INTEREST.
- Not a mortgagee merely an unsecured
creditor.
i.e. where creditor cannot insure the car of
debtor where the car was not a security for the
debt.
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.
One of the reasons for requiring insurable interest is that it
serves as a limit of recover.
If a house worth 100k is burned down and the policy is
worth 150k insured can recover 100k (value of the
house).
- If the damage caused by the fire is only 50% of
the house recovery up to 50k.
- If an arsonist is made liable for 80k recovery
only up to 20k (100k 80k).
- Insurance company is then subrogated up to the
amount which it can recover from arsonist.
Architect or contractor has insurable interest over the
house he was made to construct.
- Existing interest based on legal or equitable title.
- Even if architect/contractor was paid
downpayment he can still recover full amount
of the proceeds (because he will still be required
to build the house).
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.
If no insurable interest, you cannot enforce the insurance
policy because it is void.
Doctrine of estoppel will not apply, waiver will not apply.
But when the law states shall not be enforceable except
for the benefit of a person having insurable interest
i.e. a person cannot insure the house of his neighbor
for the reason that its aesthetic value also adds to the

By: RJ MARTINEZ Based on Syllabus AY2011-12; De Leons Book; and Transcribed Notes
12 III LLB, EH404, USC College of Law
 INSURANCE
Midterm Reviewer
market value of his property (VOID! No existing right on
the part of the neighbor).
*if only the designation is void (beneficiary has no
insurable interest) the whole policy is not voided.
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.
In property insurance insurable interest must exist at the
time the policy takes effect and at the time of loss (in life
insurance, insurable interest must exist only at the time the
policy takes effect).
WITHOUT insurable interest at the BEGINNING then it is
more of a WAGERING CONTRACT or speculative
contract.
Insurable interest also necessary at the TIME OF LOSS
because it is a CONTRACT OF INDEMNITY without
insurable interest at the time of loss then you have
nothing to be indemnified.
NOT required in LIFE INSURANCE because not a
contract of indemnity (generally, no value can be
fixed to compensate for human life).
EXC to EXC: creditor insuring the life of the
debtor recovery only up to the amount of the
debt.
**BUT insurable interest NEED NOT EXIST IN THE MEANTIME
or in between the time the policy took effect and the
time of loss.
Ergo, Interest Time of Effectivity + Interest Time of Loss =
Recovery.
ILLUSTRATIONS:
If a person owns a property at the time the policy took
effect and afterwards sold it to another he cannot
recover due to lack of insurable interest.
*but if he has reacquired the property at the tie of loss
recovery is allowed.
If property was mortgaged to secure a debt then
subsequently foreclosed and sold at public auction
debtor still has insurable interest during the redemption
period.
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.
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.
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.
By: RJ MARTINEZ
13 III LLB, EH404, USC College of Law
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.
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.
A change of interest in the property without a
corresponding change of interest in the policy SUSPENDS
the POLICY.
EXCEPT:
A. CHANGE IN INTEREST AFTER THE OCCURRENCE OF
INJURY WHICH RESULTS IN A LOSS
Subsequent transfer after the peril insured against
happens liability of the insurer is already fixed.
i.e. when one sells his house to another after it
has been burned he can still recover the
proceeds.
B. CHANGE OF INTEREST IN ONE OR MORE SEVERAL
DISTINCT THINGS SEPARATELY INSURED IN ONE
POLICY
The policy must be DIVISIBLE (the properties are
separately valued).
- There are several items insured separately but
in one policy.
i.e. car worth 1M and jewelry worth 500K insured
in one policy DIVISIBLE.
- TRANSFER of one of the properties like the car
will not affect the right of A to recover as
against the insurer with respect to the loss of
the jewelry.
But, if car and jewelry insured in one policy
(without separate valuation) INDIVISIBLE.
C. CHANGE IN INTEREST BY WILL OR SUCCESSION
- Automatic transfer of interest.
i.e. If the father owns a house and insured the
house and his son, only compulsory heir, after
the death of his father, the house was
destroyed.
Son can recover although there was a
transfer of interest because the transfer is by
virtue of a will or succession.
D. TRANSFER OF INTEREST BY ONE OF SEVERAL
PARTNERS OR JOINT OWNERS WHO ARE JOINTLY
INSURED TO THE OTHER.
- NO NEW PARTY is brought into the contract
only that a party increases his interest.
E. LIFE, ACCIDENT, AND HEALTH INSURANCE
- A person only needs to have insurable interest at
the time the policy took effect.
SECTION 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.
Based on Syllabus AY2011-12; De Leons Book; and Transcribed Notes
 INSURANCE
Midterm Reviewer
Regardless of transfer, the policy is not suspended like
payable to bearer or whoever is the owner or if bearer
is the owner. The policy is not suspended.
ANOTHER EXCEPTION: If there is an express stipulation in
the policy that if there is a change in the interest
policy is not merely suspended but the policy is
avoided.
REVIVAL
The policy will be revived until the interest in the thing and
the interest in the insurance are vested in the same
person (REVIVAL = Interest in the Thing + Interest in the
Policy).
Remember: INSURANCE CONTRACT is a personal
contract insurer may be willing to insure the property if
it is owned by A but not willing to insure if it is owned by B
or the risk will increase if it is owned by a different person.
*transfer must be absolute (not mere pledge or
mortgage).
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.
No payment of loss shall be made to a person who has
no insurable interest and you cannot stipulate in the
policy that it is payable regardless of whether or not the
person has insurable interest.
That stipulation is void or the fact that the policy is
received there is already a proof that there is insurable
interest.
*Waiver or doctrine of ESTOPPEL is NOT APPLICABLE.
Other forms of policy executed by way of gaming or
wagering contract is void because there is no insurable
interest.
INSULAR LIFE V EBRADO
QF: A was issued life plan with a rider for Accidental
Death Benefits. He designated, W, as his beneficiary
whom he referred to as his wife. A died when he was
accidentally hit by a falling branch. W filed her claim but
S also filed her claim as widow of deceased.
ISSUE: W.O.N. W can claim the proceeds of the policy.
HELD: 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. A beneficiary is like a donee,
because from the premiums of the policy which the
insured pays out of liberality, the beneficiary will receive
the proceeds or profits of said insurance. As a
consequence, the proscription in Article 739 of the new
Civil Code should equally operate in life insurance
By: RJ MARTINEZ
14 III LLB, EH404, USC College of Law
contracts. The mandate of Article 2012 cannot be laid
aside: any person who cannot receive a donation
cannot be named as beneficiary in the life insurance
policy of the person who cannot make the donation.
xxx xxx xxx
Policy considerations and dictates of morality rightly justify
the institution of a barrier between common law spouses
in record to Property relations since such hip ultimately
encroaches upon the nuptial and filial rights of the
legitimate family There is every reason to hold that the
bar in donations between legitimate spouses and those
between illegitimate ones should be enforced in life
insurance policies since the same are based on similar
consideration As above pointed out, a beneficiary in a
fife insurance policy is no different from a donee. Both
are recipients of pure beneficence. So long as manage
remains the threshold of family laws, reason and morality
dictate that the impediments imposed upon married
couple should likewise be imposed upon extra-marital
relationship. If legitimate relationship is circumscribed by
these legal disabilities, with more reason should an illicit
relationship be restricted by these disabilities.
xxx xxx xxx
No criminal conviction for the offense is a condition
precedent. In fact, it cannot even be from the
aforequoted provision that a prosecution is needed. On
the contrary, the law plainly states that the guilt of the
party may be proved "in the same acting for declaration
of nullity of donation. And, it would be sufficient if
evidence preponderates upon the guilt of the consort for
the offense indicated. The quantum of proof in criminal
cases is not demanded.
SSS V DAVAC
QF: A, was an SSS member. He had designated, B, his
wife as beneficiary. When he died, C, who also claims
to be the wife of A, filed her claim with the SSS. C was
married to C on 1946 while his marriage to B was on 1949.
ISSUE: W.O.N. the 2nd wife of A has the right to claim for
the proceeds as As beneficiary.
HELD: Without deciding whether the naming of a
beneficiary of the benefits accruing from membership in
the Social Security System is a donation, or that it creates
a situation analogous to the relation of an insured and
the beneficiary under a life insurance policy, it is enough,
for the purpose of the instant case, to state that the
disqualification mentioned in Article 739 is not applicable
to herein appellee Candelaria Davac because she was
not guilty of concubinage, there being no proof that she
had knowledge of the previous marriage of her husband
Petronilo.
IN RE: MARIO B. CHANLIONGCO
QF: Atty. Chanliongco was a GSIS member. He died as
intestate. He failed to designate beneficiaries of his
retirement benefits before his death.
ISSUE: W.O.N. the proceeds of his benefits under GSIS will
go to his estate.
Based on Syllabus AY2011-12; De Leons Book; and Transcribed Notes
 INSURANCE
Midterm Reviewer
HELD: Aside from his widow, Dra. Fidel B. Chanliongco
and an only Intimate Mario it appears that there are
other deceased to namely, Mrs. Angelina C. , Jr., both
born out of wedlock to Angelina R Crespo, and duly
recognized by the deceased. Except Mario, Jr., who is
only 17 years of age, all the claimants are of legal age.
According to law, the benefits accruing to the deceased
consist of: (1) retirement benefits; (2) money value of
terminal leave; (3) life insurance and (4) refund of
retirement premium.
From the records now before US, it appears that the GSIS
had already the release the life insurance proceeds; and
the refund of rent to the claimants.
What, therefore, to be settled are the retirement benefits
and the money value of leave, both of which are to be
paid by this court as the deceased's last employer.
The record also shows that the late Atty. Chanliongco
died ab intestato and that he filed or over to state in his
application for membership with the GSIS the beneficiary
or benefits of his retirement benefits, should he die before
retirement. Hence, the retirement benefits shall accrue to
his estate and will be distributed among his Legal heirs in
with the benefits on intestate s , as in the caw of a fife if
no benefit is named in the policy (dili na typo, naa jud
sayop sa lawphil, sorry).
EL ORIENTE V POSADAS
QF: X Company, obtained an insurance for the life of its
manager, A, who has been with the company for 35
years and whose death would be a serious loss to X Co.
with itself as beneficiary.
**There was no question as to the validity of obtaining life
insurance on the life of manager.
HELD: It will be recalled that El Oriente, Fabrica de
Tabacos, Inc., took out the insurance on the life of its
manager, who had had more than thirty-five years'
experience in the manufacture of cigars in the
Philippines, to protect itself against the loss it might suffer
by reason of the death of its manager. We do not believe
that this fact signifies that when the plaintiff received
P104,957.88 from the insurance on the life of its manager,
it thereby realized a net profit in this amount. It is true that
the Income Tax Law, in exempting individual
beneficiaries, speaks of the proceeds of life insurance
policies as income, but this is a very slight indication of
legislative intention. In reality, what the plaintiff received
was in the nature of an indemnity for the loss which it
actually suffered because of the death of its manager.
TRADERS INSURANCE V GOLANGCO
QF: Before policy was issued, A made full and clear
exposal of his interests in the property. All of his interests in
the property were covered by fire insurance especially his
right to collect rentals.
ISSUE: W.O.N. A had an insurable interest.
HELD: Both at the time of the issuance and at the time of
the fire, A was in legal possession of the premises,
collecting rentals from its occupants. It seems plain that if
the premises were destroyed as they were by fire, A
By: RJ MARTINEZ
15 III LLB, EH404, USC College of Law
would be, as he was, directly affected thereby, and
hence he has an insurable interest therein.
FILIPINO MERCHANTS INSURANCE V CA
QF: A, was consignee of the goods in transit under an
invoice containing the terms under C & F Manila.
ISSUE: W.O.N. A, as consignee, already has insurable
interest in the goods when it has not yet been delivered
to him.
HELD:
TAI TONG CHUACHE & CO V INSURANCE COMMISSION
QF: Spouses A & B obtained a loan from B (Tai Tong). To
secure payment, a mortgage was execute over land
and building ifo B. Then, C, representative of B, insured Bs
interest with X insurance company. The building and the
contents were totally razed by fire.
ISSUE: W.O.N. Tai Tong had insurable interest over the
property at the time of the fire.
HELD: The record of the case shows that the petitioner to
support its claim for the insurance proceeds offered as
evidence the contract of mortgage which has not been
cancelled nor released. It has been held in a long line of
cases that when the creditor is in possession of the
document of credit, he need not prove non-payment for
it is presumed. 8 The validity of the insurance policy taken
b petitioner was not assailed by private respondent.
Moreover, petitioner's claim that the loan extended to
the Palomos has not yet been paid was corroborated by
Azucena Palomo who testified that they are still indebted
to herein petitioner.
Public respondent argues however, that if the civil case
really stemmed from the loan granted to Azucena
Palomo by petitioner the same should have been
brought by Tai Tong Chuache or by its representative in its
own behalf. From the above premise respondent
concluded that the obligation secured by the insured
property must have been paid.
xxx xxx xxx
The respondent insurance company having issued a
policy in favor of herein petitioner which policy was of
legal force and effect at the time of the fire, it is bound
by its terms and conditions. Upon its failure to prove the
allegation of lack of insurable interest on the part of the
petitioner, respondent insurance company is and must
be held liable.
CHA V CA
QF: Spouses A & B, as lessees, entered into a lease
contract with X Corp. as lessor. The contract provided
that if ever the spouses will get an insurance policy, they
must obtain the consent the lessor otherwise the
proceeds of the insurance policy shall go to the lessor for
its own benefit. Despite this, the spouses insured their
merchandise without the required consent. On the day
the lease was to expire, fire broke out.
ISSUE: W.O.N. the lessor may receive the proceeds of the
policy.
Based on Syllabus AY2011-12; De Leons Book; and Transcribed Notes
 INSURANCE
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HELD: It is, of course, basic in the law on contracts that
the stipulations contained in a contract cannot be
contrary to law, morals, good customs, public order or
public policy. 3
Sec. 18 of the Insurance Code provides:
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.
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 at the time the insurance
takes effect and at the time the loss occurs. 4 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 xxx.
In the present case, it cannot be denied that CKS has no
insurable interest in the goods and merchandise inside
the leased premises under the provisions of Section 17
xxx.
Therefore, respondent CKS cannot, under the Insurance
Code a special law be validly a beneficiary of the
fire insurance policy taken by the petitioner-spouses over
their merchandise. This insurable interest over said
merchandise remains with the insured, the Cha spouses.
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
proceeds of the fire insurance policy thus rightfully belong
to the spouses Nilo Cha and Stella Uy-Cha (herein co-
petitioners). The insurer (United) cannot be compelled to
pay the proceeds of the fire insurance policy to a person
(CKS) who has no insurable interest in the property
insured.
Title 4
CONCEALMENT
Sec. 26. A neglect to communicate that which a party knows
and ought to communicate, is called a concealment.
CONCEALMENT when there is neglect to communicate
such information to the other party.
ELEMENTS OF CONCEALMENT
1. Knowledge of the fact of concealed (Refer to ++)
2. Duty to communicate/ disclose
3. Fact concealed must be material to the contract
4. Other party has no means of ascertaining the
information concealed
5. The party concealing makes no warranty
++Because if you dont have knowledge there is nothing
to conceal.
By: RJ MARTINEZ
16 III LLB, EH404, USC College of Law
Reckoning Point (of duty to disclose) at the time of the
effectivity of the policy. If AFTER the issuance of the policy
there is no concealment (information can no longer
influence the insurers decision).
EXC: if there is modification or amendment of the
policy (example: include exceptions, etc).
Information acquired AFTER EFFECTIVITY of the
policy MUST be DISCLOSED because the
information is important for the insurer to consider
accepting/rejecting the amendment or
modification.
OTHERWISE, the entire contract is VOID (the
insurer can raise the defense of
concealment).
Sec. 27. A concealment whether intentional or unintentional
entitles the injured party to rescind a contract of
insurance. (As amended by Batasang Pambansa Blg. 874)
INTENT is not necessary it is hard to prove intent to
conceal it is a state of mind.
i.e. a person cannot raise the defense of mistake,
forgetfulness.
Injured party is entitled to RESCIND there is no meeting
of minds, or consent is vitiated, because insurer was
misled to entering the contract on circumstances not
entirely true/existent (i.e. insurer could have charged a
higher premium had it known of the facts concealed).
EFFECT return of the premiums paid (rescission
requires mutual restitution).
Section applies both to the insured and insurer.
Insured can also rescind the contract on the basis
of concealment by the insurer (i.e. regarding the
extent of coverage or benefits).
GREAT PACIFIC LIFE V CA
QF: B, financial institution, insured the life of A, physician
and its debtor with X insurance company. In the
application form A answered that he has not consulted a
physician for hypertension, heart condition, cancer, etc.
and that he was in good health to the best of his
knowledge. Almost a year later A died of massive
cerebral hemorrhage. X insurance company denied
claim by B alleging that A did not disclose he had been
suffering from hypertension which caused his death.
ISSUE: W.O.N. non-disclosure by A amounted to
concealment.
HELD: The question of whether there was concealment
was aptly answered by the appellate court, thus:
The insured, Dr. Leuterio, had answered in his insurance
application that he was in good health and that he had
not consulted a doctor or any of the enumerated
ailments, including hypertension; when he died the
attending physician had certified in the death certificate
that the former died of cerebral hemorrhage, probably
secondary to hypertension. From this report, the
appellant insurance company refused to pay the
Based on Syllabus AY2011-12; De Leons Book; and Transcribed Notes
 INSURANCE
Midterm Reviewer
insurance claim. Appellant alleged that the insured had
concealed the fact that he had hypertension.
Contrary to appellants allegations, there was no
sufficient proof that the insured had suffered from
hypertension. Aside from the statement of the insureds
widow who was not even sure if the medicines taken by
Dr. Leuterio were for hypertension, the appellant had not
proven nor produced any witness who could attest to Dr.
Leuterios medical history...
xxx
Appellant insurance company had failed to establish that
there was concealment made by the insured, hence, it
cannot refuse payment of the claim. The fraudulent
intent on the part of the insured must be established to
entitle the insurer to rescind the contract.
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. In the case at bar, the petitioner
failed to clearly and satisfactorily establish its defense,
and is therefore liable to pay the proceeds of the
insurance.
Sec. 28. Each party to a contract of insurance must
communicated to the other, in good faith, all facts within his
knowledge which are material to the contract and as to which
he makes no warranty, and which the other has not the
means of ascertaining.
Materiality when it has a probable and reasonable
influence or would affect the insurers decision to accept
the risk or the rate of premium imposed.
- Matters of specific inquiry (those asked in
application) are presumed material.
Especially in non-medical insurance, where
requirement of medical examination is
waived it renders more material the
information you supply the insurer.
- Fact concealed may not be related to death or
cause of loss (i.e. fact concealed is about your
health and cause of death was an accident).
- A question may be personal but still material (i.e.
sexually active/ have STD)
Illustrations (W.O.N. Material):
Negative X-ray results (clear lungs)? No, because results
are negative.
ECG with OK results? Not material.
In application for life or accident insurance, do you need
to disclose that into extreme sports? Yes, material.
Previous company was cement factory? Yes.
Fire insurance, need to disclose that obtained an
insurance for the same risk? Yes, it is material.
MUSNGI V WEST COAST LIFE INSURANCE
QF: Upon application of A, two life insurance policies
were issued by X insurance company. In each of the
applications for both policies, A answered none and no
respectively to a question in both applications regarding
By: RJ MARTINEZ
17 III LLB, EH404, USC College of Law
practitioners/doctors whom he had consulted for any
illness or ailment.
ISSUE: W.O.N. As act can be considered concealment
and bar his beneficiarys claim.
HELD: The question here is not whether the physicians'
reports or the answers which the insured gave to them
relative to his health were correct or not. It is admitted
that such information was substantially correct, in the
sense that the physicians of the defendant who
examined the insured, for failure to make a detailed
examination, did not discover the ailments suffered by
the insured. However, the question raised for our
determination is whether the two answers given by the
insured in his applications are false, and if they were the
cause, or one of the causes, which induced the
defendant to issue the policies. On the first point, the
facts above set out leave no room for doubt. The insured
knew that he had suffered from a number of ailments,
including incipient pulmonary tuberculosis, before
subscribing the applications, yet he concealed them and
omitted the hospital where he was confined as well as
the name of the lady physician who treated him. That this
concealment and the false statements constituted fraud,
is likewise clear, because the defendant by reason
thereof accepted the risk which it would otherwise have
flatly refused. When not otherwise specially provided for
by the Insurance Law, the contract of life insurance is
governed by the general rules of the civil law regarding
contracts. Article 1261 of the Civil Code provides that
there is no contract unless there should be, in addition to
consent and a definite object, a consideration for the
obligation established. And article 1276 provides that the
statement of a false consideration shall render the
contract void. The two answers being one of the
considerations of the policies, and it appearing that they
are false and fraudulent, it is evident that the insurance
contracts were null and void and did not give rise to any
right to recover their value or amount.
SUN LIFE V CA
QF: A procured a life insurance for himself with double
indemnity in case of accidental death from X insurance
company. The designated beneficiary was his mother, B.
A died in a plane crash which prompted B to file claim for
the proceeds. X insurance company conducted
investigations and its finding that A failed to disclose prior
confinement in the Lung Center and that he was
diagnosed with renal failure.
ISSUE: W.O.N. the information withheld was material and
can constitute concealment.
HELD:
Materiality is to be determined not by the event, but
solely by the probable and reasonable influence of the
facts upon the party to whom communication is due, in
forming his estimate of the disadvantages of the
proposed contract or in making his inquiries (The
Insurance Code, Sec. 31).
Based on Syllabus AY2011-12; De Leons Book; and Transcribed Notes
 INSURANCE
Midterm Reviewer
The terms of the contract are clear. The insured is
specifically required to disclose to the insurer matters
relating to his health.
The information which the insured failed to disclose were
material and relevant to the approval and issuance of
the insurance policy. The matters concealed would have
definitely affected petitioner's action on his application,
either by approving it with the corresponding adjustment
for a higher premium or rejecting the same. Moreover, a
disclosure may have warranted a medical examination
of the insured by petitioner in order for it to reasonably
assess the risk involved in accepting the application.
xxx xxx xxx
Thus, "goad faith" is no defense in concealment. The
insured's failure to disclose the fact that he was
hospitalized for two weeks prior to filing his application for
insurance, raises grave doubts about his bonafides. It
appears that such concealment was deliberate on his
part.
Sec. 29. An intentional and fraudulent omission, on the part
of one insured, to communicate information of matters
proving or tending to prove the falsity of a warranty, entitles
the insurer to rescind.
GR: whether intentional or unintentional, there is
concealment and injured party is entitled to rescind.
EXC: act of concealing must be intentional or
fraudulent if the fact concealed tends to prove the
falsity of the warranty.
GR: If you make a warranty there is no need to disclose.
EXC: If the fact tends to prove the falsity of that
warranty then must be disclosed.
If you fail to disclose and it was intentional --- then it
entitles the insurer to rescind (FAILURE to DISCLOSE +
INTENT = RESCISSION).
i.e. an intentional concealment re: the
seaworthiness of a vessel (implied warranty)
entitle the insurer to rescind (must be disclosed).
Sec. 30. Neither party to a contract of insurance is bound to
communicate information of the matters following, except in
answer to the inquiries of the other:
(a) Those which the other knows;
(b) Those which, in the exercise of ordinary care, the other
ought to know, and of which the former has no reason to
suppose him ignorant;
(c) Those of which the other waives communication;
(d) Those which prove or tend to prove the existence of a risk
excluded by a warranty, and which are not otherwise
material; and
(e) Those which relate to a risk excepted from the policy and
which are not otherwise material.
Sec. 31. Materiality is to be determined not by the event, but
solely by the probable and reasonable influence of the facts
upon the party to whom the communication is due, in
forming his estimate of the disadvantages of the proposed
contract, or in making his inquiries.
Sec. 32. Each party to a contract of insurance is bound to
know all the general causes which are open to his inquiry,
By: RJ MARTINEZ
18 III LLB, EH404, USC College of Law
equally with that of the other, and which may affect the
political or material perils contemplated; and all general
usages of trade.
Sec. 33. The right to information of material facts may be
waived, either by the terms of the insurance or by neglect to
make inquiry as to such facts, where they are distinctly
implied in other facts of which information is
communicated.
Sec. 34. Information of the nature or amount of the interest
of one insured need not be communicated unless in answer
to an inquiry, except as prescribed by section fifty-one.
Sec. 35. Neither party to a contract of insurance is bound to
communicate, even upon inquiry, information of his own
judgment upon the matters in question.
INFO WITH NO DUTY TO DISCLOSE
A. THOSE WHICH THE OTHER KNOWS;
NOT LIMITED to those known to the insurer
personally also those known by the agent
under the principle of principal-agent.
**Provided there is no conspiracy between the
insured and agent
i.e. the insurer sent the agent to inspect the
house that was insured. Later on, the insurer
cannot allege that behind his house there is a
gasoline station or near squatters there is no
concealment because there is no duty to
disclose what the other party knows.
B. THOSE WHICH, IN THE EXERCISE OF ORDINARY CARE,
THE OTHER OUGHT TO KNOW, AND OF WHICH THE
FORMER HAS NO REASON TO SUPPOSE HIM
IGNORANT;
Information which is of PUBLIC KNOWLEDGE
(relate to Sec. 32) each person is bound to
know about general causes which are within his
inquiry or is of custom of trade.
i.e. nation is at war, peace and order situation
C. THOSE OF WHICH THE OTHER WAIVES
COMMUNICATION;
Waiver could either be express or implied.
Express --- when it is provided for.
Implied --- when there is neglect by insurer to
make further inquiry based on the facts
already communicated.
Illustration:
In the APPLICATION FORM, there is a question: Is your
property encumbered? If yes for what amount?
Answer: Yes, to Mr. A. 500K.
If insurer did not make further inquiry and later on
it turned out the property was mortgaged to Mr.
B.
Insurer can raise the defense of concealment
(there was no implied waiver so there is
concealment).
Based on Syllabus AY2011-12; De Leons Book; and Transcribed Notes
 INSURANCE
Midterm Reviewer
**IMPLIED WAIVER if there is a question
that was left unanswered or incomplete
answer and there was no further inquiry.
If the answer was apparently complete NO
IMPLIED WAIVER.
*In the above example, the answer was
apparently complete = there was no
implied waiver. The insurer has reason to
believe that the property was mortgaged to
someone else.
But if the answer was just YES and the insurer
issued the policy WITHOUT FURTHER INQUIRY.
Concealment not a defense the insurer
waived further information.
i.e. Have you ever been confined in the hospital?
Answer: Yes, CDU hospital, june 1 2010 for dengue.
On the basis of the answer the insurer issued a policy but
you were also confined in Chong Hua for high blood.
There is concealment and no implied waiver.
This is an apparently complete answer, so the
insurer has a right to rely to the information.
If the answer was Yes, without further inquiry
There is an implied waiver and no
concealment.
From the question alone, as if there is implied
waiver, because the question was not
phrased to be specific.
If the answers were:
Yes, CDU hospital = implied waiver and no
concealment
Yes, dengue = implied waiver and no
concealment.
D. THOSE WHICH PROVE OR TEND TO PROVE THE
EXISTENCE OF A RISK EXCLUDED BY A WARRANTY,
AND WHICH ARE NOT OTHERWISE MATERIAL; AND
E. THOSE WHICH RELATE TO A RISK EXCEPTED FROM THE
POLICY AND WHICH ARE NOT OTHERWISE MATERIAL.
Risk excluded from an accident policy need not
be disclosed.
D and E can be taken together.
Illustration:
ACCIDENT INSURANCE except accidents arising
from extreme sports. Applicant did not disclose
he is into motocross racing.
No, duty to disclose information because it
relates to a risk exempted from the policy.
PROPERTY INSURANCE does not cover fire due to
flammable materials stored in the premises.
No need to disclose that you store gasoline
and other flammable gases inside because
whether you store or not the insurer will not be
liable.
By: RJ MARTINEZ
19 III LLB, EH404, USC College of Law
SEC. 34
If you did not disclose you are the owner, is there
concealment?
GR: No need to disclose your insurable interest.
Exc: If there is an inquiry and if you are not the absolute
owner (i.e. mortagee, usufructuary, etc.).
**So if you are an absolute owner, there is no need to
disclose unless there is an inquiry.
SEC. 35
Inquiry based on your own judgment or opinion--- Either
party to an insurance contract is not required to answer
even if asked, or even if asked and answer is incorrect,
you will not be liable.
i.e. Do you think you are a good driver?
Answer: Yes (and you know how to drive) mere
OPINION.
Answer: Yes (and you do not know how to drive)
liable for misrepresentation.
VDA. DE CANILANG V CA
QF: A consulted D, a physician. He was diagnosed as
suffering from tachychardia. During the next consultation
he was diagnosed for acute bronchitis. The next day, he
applied for a non-medical insurance policy with X
insurance company naming his wife as beneficiary. He
later died of congestive heart failure, anemia, and
chronic anemia.
ISSUE: W.O.N. A was guilty of concealment.
HELD: xxx the information which Jaime Canilang failed to
disclose was material to the ability of Great Pacific to
estimate the probable risk he presented as a subject of
life insurance. Had Canilang disclosed his visits to his
doctor, the diagnosis made and medicines prescribed by
such doctor, in the insurance application, it may be
reasonably assumed that Great Pacific would have
made further inquiries and would have probably refused
to issue a non-medical insurance policy or, at the very
least, required a higher premium for the same
coverage. The materiality of the information withheld by
Great Pacific did not depend upon the state of mind of
Jaime Canilang. A man's state of mind or subjective
belief is not capable of proof in our judicial process,
except through proof of external acts or failure to act
from which inferences as to his subjective belief may be
reasonably drawn. Neither does materiality depend upon
the actual or physical events which ensue. Materiality
relates rather to the "probable and reasonable influence
of the facts" upon the party to whom the communication
should have been made, in assessing the risk involved in
making or omitting to make further inquiries and in
accepting the application for insurance; that "probable
and reasonable influence of the facts" concealed must,
of course, be determined objectively, by the judge
ultimately.
xxx xxx xxx
In any case, in the case at bar, the nature of the facts not
conveyed to the insurer was such that the failure to
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 INSURANCE
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communicate must have been intentional rather than
merely inadvertent. For Jaime Canilang could not have
been unaware that his heart beat would at times rise to
high and alarming levels and that he had consulted a
doctor twice in the two (2) months before applying for
non-medical insurance. Indeed, the last medical
consultation took place just the day before the insurance
application was filed. In all probability, Jaime Canilang
went to visit his doctor precisely because of the
discomfort and concern brought about by his
experiencing "sinus tachycardia."
ARGENTE V WEST COAST LIFE
QF: A joint life insurance was issued to Spouses A & B.
During the effectivity of the policy, B died of cerebral
apoplexy, A claimed for the proceeds but was denied. It
is admitted that A, when asked by the medical examiner
denied that he consulted any physician for any ailment
of the brain/nervous system when in fact was confined
for cerebral congestion and Bells Palsy. Additionally, his
wife, B, also denied having neuro abnormalities and
answered that she only drinks occasionally/in small
quantities when she had already been diagnosed for
alcoholism.
ISSUE: W.O.N. there was concealment.
HELD: One ground for the rescission of a contract of
insurance under the Insurance Act is "a concealment,"
which in section 25 is defined as "A neglect to
communicate that which a party knows and ought to
communicate." Appellant argues that the alleged
concealment was immaterial and insufficient to avoid
the policy. We cannot agree. In an action on a life
insurance policy where the evidence conclusively shows
that the answers to questions concerning diseases were
untrue, the truth of falsity of the answers become the
determining factor. In the policy was procured by
fraudulent representations, the contract of insurance
apparently set forth therein was never legally existent. It
can fairly be assumed that had the true facts been
disclosed by the assured, the insurance would never
have been granted.
SATURNINO V PHILIPPINE AMERICAN LIFE
QF: A was operated for cancer involving complete
removal of the right breast. She did not make a disclosure
thereof in her application stating that she has not had
cancer/other tumors and that she has not been treated
for illness peculiar to her sex.
ISSUE: W.O.N. A made such false representations of
material facts
HELD: The question at issue is whether or not the insured
made such false representations of material facts as to
avoid the policy. There can be no dispute that the
information given by her in her application for insurance
was false, namely, that she had never had cancer or
tumors, or consulted any physician or undergone any
operation within the preceding period of five years. Are
the facts then falsely represented material? The Insurance
By: RJ MARTINEZ
20 III LLB, EH404, USC College of Law
Law (Section 30) provides that "materiality is to be
determined not by the event, but solely by the probable
and reasonable influence of the facts upon the party to
whom the communication is due, in forming his estimate
of the proposed contract, or in making his inquiries." It
seems to be the contention of appellants that the facts
subject of the representation were not material in view of
the "non-medical" nature of the insurance applied for,
which does away with the usual requirement of medical
examination before the policy is issued. The contention is
without merit. If anything, the waiver of medical
examination renders even more material the information
required of the applicant concerning previous condition
of health and diseases suffered, for such information
necessarily constitutes an important factor which the
insurer takes into consideration in deciding whether to
issue the policy or not. It is logical to assume that if
appellee had been properly apprised of the insured's
medical history she would at least have been made to
undergo medical examination in order to determine her
insurability.
Note:
The Court also added that the waiver of a medical
examination [in a non-medical insurance contract]
renders even more material the information required of
the applicant concerning previous condition of health
and diseases suffered, for such information necessarily
constitutes an important factor which the insurer takes
into consideration in deciding whether to issue the policy
or not.
Title 5
REPRESENTATION
Sec. 36. A representation may be oral or written.
Sec. 37. A representation may be made at the time of, or
before, issuance of the policy.
Sec. 38. The language of a representation is to be interpreted
by the same rules as the language of contracts in general.
REPRESENTATION a statement made by the insured at
the time, or prior to, the issuance of the policy, as to an
existing or past fact or state of facts, or concerning future
happening, to give information to the insurer and
otherwise induce him to enter into the insurance
contract.
- May be ORAL or WRITTEN.
- PRECEDES the execution of the contract
(misrepresentation made after could not be said
to have influenced the insurer).
- Intended as COLLATERAL inducements not
part of the contract.
*the insurer must be induced by the
misrepresentation of the insured to issue the
policy at a specified premium.
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Interpretation
Construed liberally IFO the insured and required to be
only substantially true.
Sec. 39. A representation as to the future is to be deemed a
promise, unless it appears that it was merely a statement of
belief or expectation.
AFFIRMATIVE REPRESENTATION any allegation as to the
existence or non-existence of a fact when the contract
begins.
PROMISSORY REPRESENTATION any promise to be fulfilled
after the contract has come into existence or any
statement concerning what is to happen during the
exercise of the insurance.
- Proof that promise was made with fraudulent
intent will serve to defeat the insurance.
- Oral representation as to a future event or
condition over which the insured has no control
will be deemed a mere expression of opinion
which will avoid a contract only when made in
bad faith.
Sec. 40. A representation cannot qualify an express provision
in a contract of insurance, but it may qualify an implied
warranty.
A representation is not part of the contract.
EXPRESS PROVISION in a CONTRACT cannot Qualify.
IMPLIED WARRANTY can Qualify.
Sec. 41. A representation may be altered or withdrawn before
the insurance is effected, but not afterwards.
Sec. 42. A representation must be presumed to refer to the
date on which the contract goes into effect.
Representations refer only to the time of the making of
the contract.
Crucial Moment: the time the policy takes effect.
If true before effectivity and false upon effectivity =
FALSE representation.
If false before effectivity and true upon effectivity =
NOT false.
Sec. 43. When a person insured has no personal knowledge
of a fact, he may nevertheless repeat information which he
has upon the subject, and which he believes to be true, with
the explanation that he does so on the information of others;
or he may submit the information, in its whole extent, to the
insurer; and in neither case is he responsible for its truth,
unless it proceeds from an agent of the insured, whose duty
it is to give the information.
If person has no personal knowledge discretion is given
(you may or may not disclose).
*if he does, he must explain that he does so on the
information of others.
GR: insured is not liable when later found to be untrue.++
EXC: when made by agent of the insured/insurer.
By: RJ MARTINEZ
21 III LLB, EH404, USC College of Law
++insured is obligated to disclose/communicate
information received after execution which are material
to the risk.
Sec. 44. A representation is to be deemed false when the facts
fail to correspond with its assertions or stipulations.
MISREPRESENTATION when the fact fails to correspond
with its assertions or stipulations.
- Required to be only SUBSTANTIALLY TRUE true in
every particular material to the risk, or is so far
true that the conduct of the insurer would not
have been different if the exact truth had been
alleged.
*does not apply to marine insurance where
exact and whole truth needs to be disclosed.
They are statements. . .
a. As a fact of something which is untrue
b. Which the insured stated with knowledge that it is
untrue and with an intent to deceive, or which he
states positively as true without knowing it to be
true and which has a tendency to mislead
c. Where such fact in either case is material to the risk.
INSULAR LIFE V PINEDA
QF: A, insured, was a fisherman. In his application, he
answered no to the question of w.o.n. he drank
intoxicants, suffered from lung ailments, he has spat
blood.
Subsequently, he signed and submitted a statement
saying he drank but very seldom and that he had a
chronic cough for years and a few sputums, slightly
bloody
ISSUE: W.O.N. the policy is valid.
HELD: Valid. The conflicting statements made by A are
not of material facts. Very seldom is almost similar to
not at all, a person with a chronic cough is not
automatically uninsurable, and few sputums, slightly
bloody is not inconsistent with not having spat blood as
the sputums could be due to temporary and unimportant
ailments like a bloody tooth.
Sec. 45. If a representation is false in a material point,
whether affirmative or promissory, the injured party is
entitled to rescind the contract from the time when the
representation becomes false. The right to rescind granted
by this Code to the insurer is waived by the acceptance of
premium payments despite knowledge of the ground for
rescission. (As amended by Batasang Pambansa Blg. 874).
Fraud/Intention misrepresent facts is not essential to
entitle the injured party to rescind a contract of insurance
on the ground of false representation.
Collusion with Insured
Collusion between the agent and the insured in
misrepresenting the facts will vitiate the policy even
though the agent is acting within the apparent scope of
his authority.
Based on Syllabus AY2011-12; De Leons Book; and Transcribed Notes
 INSURANCE
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Where insured made agent of insurer fill out the form for
him insured made the agent of the insurer his own
agent.
Insurer is liable when its agent writes a false answer into
the application without knowledge of the insured.
EGUARAS V GREAT EASTERN LIFE
QF: With connivance of insurance companys agent, B, A
got the former to insure his life. During the physical
examination (prior to approval) A was already an invalid,
was substituted by C, a very healthy person. A month
after approval of policy, A died of intestinal occlusion.
ISSUE: W.O.N. the insurance was valid.
HELD: It is essential to the nature of the deceit, to which
the foregoing article refers, that said deceit be prior to or
contemporaneous with the consent that is a necessary
requisite for perfecting the contract, but not that it may
have occurred or happened thereafter. A contract is
therefore deceitful, for the execution whereof the
consent of one of the parties has been secured by
means of fraud, because he was persuaded by words or
insidious machinations, statements or false promises, and
a defective consent wrung from him, even though such
do not constitute estafa or any other criminal subject to
the penal law.
The defendant company accepted the application for
insurance made by Dominador Albay and executed the
contract comprised under articles 416 of the Code of
Commerce, although for the perfecting thereof the
insured, Albay, as he was not in good health, by
connivance with the insurance company's agent,
presented Castor Garcia to the physician Vidal, who was
commissioned by the company to examine applicants
for life insurance and in view of the favorable report of
the said physician, who reported and certified that the
person examined by him under the name of Dominador
Albay was in good health and possessed the
qualifications required by said insurance company for
perfecting the contract, so the company freely and
willingly consented to the execution thereof, effectively
induced thereto by the result of the medical examination
and of the favorable professional report issued in view of
the appearance of an individual who was in good
health, but different from the individual who was seeking
to be insured and who died one month and twenty-three
days after the insurance had been granted.
The fraud which gave rise to the mistaken consent, given
by the defendant company to the application for
insurance made by Albay and to the execution of the
contract through deceit, is plain and unquestionable. This
fraud consisted in the substitution at the examination of
Castor Garcia in place of the insured Dominador Albay,
and as the deceit practiced in the said contract is of a
serious nature, the same is ipso facto void and
ineffective, in accordance with the provisions of article
1270 of the Civil Code.
INSULAR LIFE V FELICIANO
By: RJ MARTINEZ
22 III LLB, EH404, USC College of Law
QF: A died. At the time of his death, he was suffering from
advanced pulmonary tuberculosis even at the time he
signed his application for insurance. A appears to have
answered no to the question asking him if he has ever
suffered aliments/diseases of the lungs (agent answered
for him). Above the signature of A in the application,
there was a statement saying, inter alia, that the answers
given therein were full, complete, and true and that to
the best of his knowledge and belief he is a proper
subject for life insurance.
ISSUE: W.O.N. the insurance is valid.
HELD: NO. When Evaristo Feliciano, the applicant for
insurance, signed the application in blank and authorized
the soliciting agent and/or medical examiner of the
Company to write the answers for him, he made them his
own agents for that purpose, and he was responsible for
their acts in that connection. If they falsified the answers
for him, he could not evade the responsibility for he
falsification. He was not supposed to sign the application
in blank. He knew that the answers to the questions
therein contained would be "the basis of the policy," and
for that every reason he was required with his signature to
vouch for truth thereof.
Moreover, from the facts of the case we cannot escape
the conclusion that the insured acted in connivance with
the soliciting agent and the medical examiner of the
Company in accepting the policies in question. Above
the signature of the applicant is the printed statement or
representation: " . . . I am a proper subject for life
insurance." In another sheet of the same application and
above another signature of the applicant was also
printed this statement: "That the said policy shall not take
effect until he first premium has been paid and the policy
as been delivered to and accepted by me, while I am in
good health." When the applicant signed the application
he was "having difficulty in breathing, . . . with a very high
fever." He had gone three times to the Santol Sanatorium
and had X-ray pictures taken of his lungs. He therefore
knew that he was not "a proper subject for life insurance."
When he accepted the policy, he knew that he was not
in good health. Nevertheless, he not only accepted the
first policy of P20,000 but then and there applied for and
later accepted another policy of P5,000.
We cannot bring ourselves to believe that the insured did
not take the trouble to read the answers contained in the
photostatic copy of the application attached to and
made a part of the policy before he accepted it and
paid the premium thereon. He must have notice that the
answers to the questions therein asked concerning his
clinical history were false, and yet he accepted the first
policy and applied for another. In any event, he
obligated himself to read the policy when he subscribed
to this statement: "My acceptance of any policy issued
on this application will constitute a ratification by me of
any corrections in or additions to this application made
by the Company . . ." By accepting the policy he
became charged with knowledge of its contents,
whether he actually read it or not. He could not ostrich-
Based on Syllabus AY2011-12; De Leons Book; and Transcribed Notes
 INSURANCE
Midterm Reviewer
like hide his head from it in order to avoid his part of the
bargain and at the same time claim the benefit thereof.
He knew, or was chargeable with knowledge, from the
very terms of the two policies sued upon (one of which is
printed in English and the other in Spanish) that the
soliciting agent and the medical examiner had no power
to bind the Company by any verbal promise or oral
representation. The insured, therefore, had no right to rely
and we cannot believe he relied in good faith upon
the oral representation. The insured, therefore, had no
right to rely and we cannot believe he relied in good
faith upon the oral representation of said agent and
medical examiner that he (the applicant) was a fit
subject for insurance notwithstanding that he had been
and was still suffering with advanced pulmonary
tuberculosis.
SATURNINO V PHILIPPINE AMERICAN LIFE
QF: See Concealment.
ISSUE: W.O.N. insurance still valid.
HELD:
In this jurisdiction a concealment, whether intentional or
unintentional, entitles the insurer to rescind the contract
of insurance, concealment being defined as "negligence
to communicate that which a party knows and ought to
communicate" (Sections 24 & 26, Act No. 2427). In the
case of Argente v. West Coast Life Insurance Co., 51 Phil.
725, 732, this Court said, quoting from Joyce, The Law of
Insurance, 2nd ed., Vol. 3:
"The basis of the rule vitiating the contract in cases of
concealment is that it misleads or deceives the insurer
into accepting the risk, or accepting it at the rate of
premium agreed upon. The insurer, relying upon the
belief that the assured will disclose every material fact
within his actual or presumed knowledge, is misled into a
belief that the circumstance withheld does not exist, and
he is thereby induced to estimate the risk upon a false
basis that it does not exist."
Sec. 46. The materiality of a representation is determined by
the same rules as the materiality of a concealment.
See Section 31.
Sec. 47. The provisions of this chapter apply as well to a
modification of a contract of insurance as to its original
formation.
See Section 26 to 48.
Sec. 48. Whenever a right to rescind a contract of insurance
is given to the insurer by any provision of this chapter, such
right must be exercised previous to the commencement of an
action on the contract.
After a policy of life insurance made payable on the death of
the insured shall have been in force during the lifetime of the
insured for a period of two years from the date of its issue or
of its last reinstatement, the insurer cannot prove that the
policy is void ab initio or is rescindible by reason of the
fraudulent concealment or misrepresentation of the insured
or his agent.
By: RJ MARTINEZ
23 III LLB, EH404, USC College of Law
NON-LIFE
Must be exercised prior to the commencement of an
action on the contract.
Insurers tender of the premiums and notice that the
policy is cancelled before commencement of the suit
operates to rescind the insurance.
LIFE INSURANCE
Defenses can only be raised during the first 2 years of a
life insurance policy.
INCONTESTABLE CLAUSES
After the requisites are shown to exist, the insurer shall be
estopped from contesting the policy or setting up any
defense, except as is allowed on the ground of public
policy.
REQUISITES:
1. The policy is a life insurance policy
2. Payable on the death of the insured
3. In force during the lifetime of the insured for at
least 2 years from its date of issue or of its last
reinstatement.
*can be shortened but cannot be extended by
stipulation.
WHEN INCONTESTABLE INSURER CANNOT RAISE THE
FOLLOWING
a. Policy is void ab initio
b. Policy is rescissible by reason of the fraudulent
concealment of the isnured or his agent, no
matter how patent or well-founded
c. Policy is rescissible by reason of the fraudulent
misrepresentation of the insured or his agent.
*incontestability only deprives thhe insurer of those
defenses which arise in connection with the
formation and operation of the policy prior to loss.
FOLLOWING MAY STILL BE RAISED:
a. Lack of insurable interest
b. Cause of death of the insured is an excepted
risk
c. Premiums have not been paid
d. Conditions of the policy relating to military or
naval service have been violated
e. That the fraud is of a particularly vicious type
(i.e. insured was substituted during medical
examination)
f. Beneficiary failed to furnish proof of death or
to comply with any condition imposed by the
policy after the loss has happened
g. Action was not brought within the time
specified.
TAN CHAY HENG V WEST COAST INSURANCE
QF: A applied and was issued life insurance with B as
beneficiary. Upon the death of A, B filed a claim with
insurance company but was denied. Insurance company
claimed in its Answer that A fraudulently misrepresented
Based on Syllabus AY2011-12; De Leons Book; and Transcribed Notes
 INSURANCE
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his state of health because he was seriously and incurably
ill of tuberculosis at the time of the insurance contract.
Insurer also alleged that the permanent policy was never
delivered to A because it discovered the fraud before its
delivery.
ISSUE: W.O.N. the insurance contract can be rescinded.
HELD: It will be noted that even in its prayer, the
defendant does not seek to have the alleged insurance
contract rescinded. It denies that it ever made any
contract of insurance on the life of Tan Ceang or that
any such a contract ever existed, and that is the question
which it seeks to have litigated by its special defense. In
the very nature of things, if the defendant never made or
entered into the contract in question, there is no contract
to rescind, and, hence, section 47 upon which the lower
based its decision in sustaining the demurrer does not
apply. As stated, an action to rescind a contract is
founded upon and presupposes the existence of the
contract which is sought to be rescinded. If all of the
material matters set forth and alleged in the defendant's
special plea are true, there was no valid contract of
insurance, for the simple reason that the minds of the
parties never met and never agreed upon the terms and
conditions of the contract. We are clearly of the opinion
that, if such matters are known to exist by a
preponderance of the evidence, they would constitute a
valid defense to plaintiff's cause of action.
ARGENTE V WEST COAST
QF: See Concealment
ISSUE: W.O.N. insurance company can rescind.
HELD: Appellant contends that even if the insurance
company had a right to rescind the contract, such right
cannot now be enforced in view of the provisions of
section 47 of the Insurance Act providing "Whenever a
right to rescind a contract of insurance is given to their
insurer by provision of this chapter, such right must be
exercised previous to the commencement of an action
on the contract." This section was derived from section
2583 of the California Civil Code, but in contrast thereto,
makes use of the imperative "must" instead of the
permissive "may." Nevertheless, there are two answers to
the problem as propounded. The first is that the California
law as construed by the code examiners, at whose
recommendation it was adopted, conceded that "A
failure to exercise the right (of rescission), cannot, of
course, prejudice any defense to the action which the
concealment may furnish." The second answer is that the
insurance company more than one month previous to
the commencement of the present action wrote the
plaintiff and informed him that the insurance contract
was void because it had been procured through
fraudulent representations, and offered to refund to the
plaintiff the premium which the latter had paid upon the
return of the policy for cancellation. As held in California
as to a fire insurance policy, where any of the material
representations are false, the insurer's tender of the
premium and notice that the policy is canceled, before
By: RJ MARTINEZ
24 III LLB, EH404, USC College of Law
the commencement of suit thereon, operate to rescind
the contract of insurance.
TAN V CA
QF: A, father of petitioners (the beneficiaries), applied for
and was issued life insurance with insurance company
herein. A died of hepatoma so the beneficiaries filed their
claim. However, their claim was denied and the policy
was rescinded because of alleged misrepresentation and
concealment of material facts by A. The premiums were
refunded.
ISSUE: W.O.N. insurance company can only rescind
during the lifetime of insured within 2 years and prior to
the commencement of action.
HELD: Contention is without merit. The policy was issued
on November 6,1973 and the insured died on April
26,1975. The policy was thus in force for a period of only
one year and five months. Considering that the insured
died before the two-year period had lapsed, respondent
company is not, therefore, barred from proving that the
policy is void ab initio by reason of the insured's
fraudulent concealment or misrepresentation. Moreover,
respondent company rescinded the contract of
insurance and refunded the premiums paid on
September 11, 1975, previous to the commencement of
this action on November 27,1975.
xxx xxx xxx
The legislative answer to the arguments posed by the
petitioners is the "incontestability clause" added by the
second paragraph of Section 48.
The insurer has two years from the date of issuance of the
insurance contract or of its last reinstatement within which
to contest the policy, whether or not, the insured still lives
within such period. After two years, the defenses of
concealment or misrepresentation, no matter how
patent or well founded, no longer lie. Congress felt this
was a sufficient answer to the various tactics employed
by insurance companies to avoid liability. The petitioners'
interpretation would give rise to the incongruous situation
where the beneficiaries of an insured who dies right after
taking out and paying for a life insurance policy, would
be allowed to collect on the policy even if the insured
fraudulently concealed material facts.
xx xxx xxx END xxx xxx xxx
They can because they think they can.
- Virgil
Goodspeed
&
Enjoy!
Based on Syllabus AY2011-12; De Leons Book; and Transcribed Notes