2018 INSURANCE CODE – BAR SYLLABUS

BASED
A. CONCEPT OF INSURANCE

Under section 2 of ICP, insurance is a type of contract whereby one undertakes for a
consideration to indemnify another against loss, damage or liability arising from an unknown or
contingent event. This includes a contract upon condition rather than to indemnify for no recovery
fully repay a beneficiary for loss of life which is beyond pecuniary value.

Its purpose is to AID ANOTHER from a loss caused by an unfortunate event.

What is so important about the Civil Code Provisions?

If the ICP does not specifically provide for a particular matter in question, the
provisions in NCC shall govern. These are articles 2011-2012, 2021-2027 and 2166.

CASE: Constantino v. Asia Life, 87 PHIL 248

When the life insurance policy provides that non-payment of premiums will cause its forfeiture, war
does NOT excuse non-payment and does not avoid forfeiture. Essentially, the reason why punctual payments
are important is that the insurer calculates on the basis of the prompt payments.

B. ELEMENTS OF AN INSURANCE CONTRACT

(a) SUBJECT MATTER- refers to the thing insured.

Fire and Marine Insurance- the thing insured is the property;
Life or Accident Insurance- the thing insured is the life and health of the person;
Casualty Insurance- the thing insured is the insured’s risk loss or liability

(b) CONSIDERATION- refers to the premium paid by the insured principally based on the
probability of loss and extent of liability of the insurer. (sec.77,ICP)

(c) OBJECT AND PURPOSE – refers to the transfer and distribution of risk of loss, damage
and liability arising from unknown or contingent event. This is legally binding contract
with the insurer to reimburse the insured for losses suffered.

DISTINGUISHING ELEMENTS OF THE CONTRACT OF INSURANCE [CODE: IRASP]

The contract of insurance made between the parties is distinguished by the five (5)
elements, namely:

(a) Insurable Interest possessed by the INSURED;

(b) Risk of Loss by which the INSURED is subjected thereof;
(c) Assumption of Risk of Loss by the INSURER;
(d) Scheme to Distribute Actual Losses of such assumption of risk; and
(e) Payment of Premium by the INSURED to the INSURER.

All elements must be present, otherwise there can be no contract of insurance, and even if
the contract contains all the elements, it is not an insurance contract within the context of ICP if the
primary purpose of the parties is rendering of service and not the indemnification of a party for loss,
damage, or liability incurred.
 A contract possessing only the first 3 elements above is a RISK-SHIFTING DEVICE.
If all the elements, it is a RISK-DISTRIBUTING DEVICE.

CASE : Philippine Health Care Providers, Inc. (HMO) v. CIR, GR.167330, Sept. 18, 2009

It will not qualify as an insurance contract because the HMO’s objective is to provide
medical services at reduced cost, not to distribute risk like an insurer.

C. CHARACTERISTICS/NATURE OF INSURANCE CONTRACT [CODE: C-VAU-CIP]

(1) Consensual because it is perfected by meetings of mind;

(2) Voluntary in the sense that it is not compulsory and the parties may incorporate terms and
conditions in their convenient, provided that it does not contravene any provisions;
(3) Aleatory because it depends upon some contingent event. But it is not a contract of chance as
prohibited under sec.4, ICP. Each party must take a risk;
(4) Unilateral because it imposes legal duties only on the insurer who promises to indemnify in case
of loss;
(5) Conditional because it is subject to conditions the principal one of which is the happening of the
event insured against;
(6) Indemnity contract because the insurer promises to make good only the loss of the insured,
except for life and accident insurance; and
(7) Personal contract in the sense that each party in the contract have in view the character, credit
and conduct of the other.

D. CLASSES OF INSURANCE

1. MARINE INSURANCE- the principal and older form of insurance. Insurance against risks connected
with navigation, to which a ship, cargo, freightage, profits or other insurable interest in movable property, may
be exposed during a certain voyage or a fixed period of time.
Under Sec.101 of ICP, its coverage includes:
1. Vessels, goods, freight, cargo, merchandise, profits, money, valuable papers, bottomry and
respondentia, and interest in respect to all risks or perils of navigation;
2.Persons or property in connection with marine insurance;
3. Precious stones, jewels, jewelry and precious metals whether in the course of transportation or
otherwise; and
4. Bridges, tunnels, piers, docks and other aids to navigation and transportation. (Sec. 101)
5. Marine Protection and Indemnity Insurance

CASE: Roque v. IAC, 139 SCRA 596

Cargo can be the subject of marine insurance, and once it is entered into, the implied warranty of
seaworthiness immediately attaches to whoever is insuring the cargo, whether he be the shipowner or not.

Major Division of Marine Insurance:

1. Ocean Marine Insurance- is one of the oldest written forms of insurance and has to do
primarily with the insurance of sea perils.

2. Inland Marine Insurance- covers primarily the land or over the land transportation perils
of property shipped by railroads, motor trucks, airplanes and other means of
 transportation. This also covers risks to inland waterways transportation and other
waterborne perils.

“Perils of the sea”, meaning:

-also known as “perils of navigation”, it includes only those casualties due to the unusual
violence or extraordinary action of the wind and waves, or to other extraordinary causes
connected with navigation. It does not include losses resulting from ordinary wear and tear
or other damage usually incident to the voyage (perils of the ship).

The perils of the sea must be the proximate cause of loss. To illustrate:
1. Where the perishable cargo is greatly damaged by the perils of the sea, and it should, in
consequence thereof long afterwards, and before the arrival at the port of destination
become gradually so putrescent as to be required to be thrown overboard for the safety of
the crew; the immediate cause of the loss would be the act of the master or crew; but there
is no doubt that the insurer would be liable for the total loss upon the ground that the
operative cause was the perils of the sea.

“ALL RISK” Marine Insurance Policy – insures against all causes of conceivable loss or damage,
except as otherwise excluded in the policy or due to fraud, or intentional conduct on the part of the
insured. The burden of proof on part of the insurer to establish damage or loss that has incurred is
excluded from coverage. (2017 bar)

INSURABLE INTEREST:

1. Owner of the Vessel- to the extent of its value, even if he has mortgage or chartered
the same. However in the latter case, the insurer is liable only for that part
of the loss which the insured cannot recover from the charterer. Sec.102

2. Charterer of the Ship- to the extent that he is liable to be damnified by its loss.
Sec. 108, ICP.

3. Owner of the Ship hypothecated by Bottomry- only the excess of its value over the
amount secured by Bottomry. Sec. 103,ICP.

CONCEALMENT:

Concealment in marine insurance is the failure to disclose any material fact or

circumstance which in fact or law is within, or which ought to be within the knowledge of one
party and of which the other has no actual or presumptive knowledge. This rule applies to
both the assured and the underwriter, and the rests upon the doctrine of good faith as well
as the prevention of fraud. Under Section 109, to constitute concealment, it is sufficient that
the insured is in possession of the material fact concealed although he may not be aware of
it. Thus, if the agent failed to notify his principal of the loss of a cargo and the latter, after the
loss but ignorant thereof, secured insurance "lost or not" on the venture, such insurance will
be void on the ground of concealment. Except in cases mentioned in Sec. 30, ICP.

As a rule, the concealment of a material fact entitles the injured party to rescind the
entire contract of insurance. However, concealment of any of the matters indicated from
paragraphs (a) to (e) of Sec. 112 does not avoid the policy ab initio. If the vessel be lost due
to any of the causes mentioned in Section 110, which was concealed, the insurer is not
liable; but if the vessel be lost due to other perils of the sea, like a storm, the insurer is not
exonerated from liability.
OPINIONS OR EXPECTATIONS OF THIRD PERSONS:

In marine insurance, however, the rule is quite strict because the insured is bound to
communicate to the insurer not only facts but also (1) beliefs or opinions of third persons or
(2) expectations of third persons. The only requirement is that the information be in
reference to a material fact. (Sec. 110.) Thus, there is concealment where the insured at the
time of application for insurance did not disclose the opinion of marine experts who
inspected the vessel insured that it was unseaworthy.

WARRANTIES: Sec.115

In marine insurance, a warranty has been defined as a stipulation, either

expressed or implied, forming part of the policy as to some fact, condition or
circumstance relating to the risk.

IMPLIED: the insurer will not be liable for any loss under his policy in case the vessel:
(1) is unseaworthy at the inception of the insurance (Sec. 117.); or
(2) deviates from the agreed voyage (Secs. 123,124,125.); or
(3) engages in an illegal venture; or
(4) the ship will carry the requisite documents of nationality or neutrality of the ship or
cargo where such nationality or neutrality is expressly warranted. (Sec.122.)
Of course, it is also impliedly warranted that the insured has an insurable interest
in the subject matter insured.

SEAWORTHINESS:

Under Sec. 116, a ship is seaworthy, when reasonably it to perform the service, and
to encounter the ordinary perils of the voyage, contemplated by the parties to the policy. The
general rule is that the warranty of seaworthiness is complied with if the ship be seaworthy
at the time of the commencement of the risk. Prior or subsequent unseaworthiness is not a
breach of the warranty; nor is it material that the vessel arrives in safety at the end of her
voyage. There is no implied warranty that the vessel will remain in seaworthy condition
throughout the life of the policy.

There are three exceptions to the rule, namely:

(a) In the case of time policy, the ship must be seaworthy at the commencement of every
voyage she may undertake (Sec.117[a].);
(b) In the case of cargo policy, each vessel upon which the cargo is shipped or
transhipped, must be seaworthy at the commencement of each particular
voyage (Sec.117[b].) ; and
(c) In the case of a voyage policy contemplating a voyage in different stages, the ship
must be seaworthy at the commencement of each portion. (Sec.119.)

DEVIATION:

Sec.126.A deviation is proper: (a) When caused by circumstances over which neither
the master nor the owner of the ship has any control; (b) When necessary to comply with
 a warranty, or to avoid a peril, whether or not the peril is insured against; (c) When made in
good faith, and upon reasonable grounds of belief in its necessity to avoid a peril; or
(d) When made in good faith, for the purpose of saving human life or relieving another
vessel in distress.

Sec.127. Every deviation not specified in the last section is IMPROPER.

LOSS:

Sec.132. An actual total loss is caused by: (a) A total destruction of the thing insured;
(b) The irretrievable loss of the thing by sinking, or by being broken up; (c) Any damage to
the thing which renders it valueless to the owner for the purpose for which he held it; or
(d) Any other event which effectively deprives the owner of the possession, at the port of
destination, of the thing insured.

LIMITED LIABILITY RULE:

The shipowner's or ship agent's liability is usually co-extensive with his interest in
the vessel such that a total loss thereof results in its extinction. In our jurisdiction, the limited
liability rule is embodied in Arts. 587, 590 and 837 under Book 3 of the Code of Commerce.

Sec. 133. A constructive total loss is one which gives to a person insured a right to
abandon, under sec. 141.

ABANDONMENT: Sec. 140. Abandonment, in marine insurance, is the act of the insured by
which, after a constructive total loss, he declared the relinquishment to the insurer of his interest in
the thing insured.

It is equivalent to a transfer by the insured of his interest, to the insurer, with all the
chances of recovery and indemnity, sec. 148. Upon an abandonment, acts done in good faith
by those who were agents of the insured in respect to the thing insured, subsequent to the loss, are
at the risk of the insurer, and for his benefit, sec.150. The acceptance of an abandonment
may either express or implied from the conduct of the insurer. The mere silence of the insurer for an
unreasonable length of time after notice shall be construed as an acceptance, sec.152.

2. FIRE INSURANCE- A contract by which the insurer for a consideration agrees to indemnify the
insured against loss of, or damage to, property by hostile fire, including loss by lightning, windstorm, tornado or
earthquake and other allied risks, when such risks are covered by extension to fire insurance policies or under
separate policies. (Sec. 169, ICP)

CONCEPT OF FIRE: is a spontaneous combustion, usually a rapid oxidation which produces either
a flame or a glow.

As a general rule, the standard fire contract is an agreement to repay the insured for
DIRECT loss, except in INDIRECT LOSS or also known as consequences of direct loss.

DISTINGUISH: MARINE INSURANCE and FIRE INSURANCE:

1. In marine insurance, the rules on constructive total loss (Secs. 133,141) and
abandonment (Sec. 140.) APPLY but NOT in fire insurance; and
 2. In case of partial loss of a thing insured for less than its actual value, the insured in a
marine policy is a co-insurer of the uninsured portion (Sec. 159.), while the insured may
only become a co-insurer in fire insurance if expressly agreed upon by the parties,
(Sec. 174.)

ALTERATION:

Sec. 170. An alteration in the use or condition of a thing insured from that to which it
is limited by the policy made without the consent of the insurer, by means within the control
of the insured, and increasing the risks, entitles an insurer to RESCIND a contract of fire
insurance. BUT, the contract of insurance is NOT AFFECTED when there is an alteration in
the use or condition of a thing insured from that to which it is limited by the policy, which
does not increase the risk (sec 171), or by any act of the insured subsequent to the
execution of the policy, which does not violate its provisions, even though it increases the
risk and is the cause of a loss (sec. 172).

Section 175 is the prohibition against the transfer of a policy of fire insurance to any person or
company who acts as agent or otherwise represents the insurer. Any such pledge, etc. shall be void and of no
effect insofar as it may affect other creditors of the insured.

3. CASUALTY INSURANCE- Under Sec. 176, casualty insurance is insurance covering loss or liability
arising from accident or mishap, excluding certain types of loss which by law or custom are considered as
falling exclusively within the scope of other types of insurance such as fire or marine. It includes, but is not
limited to, employer’s liability insurance, workmen’s compensation insurance, public liability insurance, motor
vehicle liability insurance, plate glass insurance, burglary and theft insurance, personal accident and health
insurance as written by non-life insurance companies, and other substantially similar kinds of insurance.

4. SURETYSHIP- Section 177 defines the contract of suretyship. It is an agreement whereby one
(usually an insurance company) undertakes to answer, under specified terms and conditions, for the debt,
default or miscarriage of another (principal or obligor), such as failure to perform a contract or certain duties, or
for breach of trust, negligence and the like, in favor of a third party (obligee). A contract of suretyship shall be
deemed to be an insurance contract, within the meaning of ICP, only if made by a surety who or which, as
such, is doing an insurance business (Sec.2[1,2].)

SCOPE:

A contract of suretyhip includes official recognizance, stipulations, bonds, or

undertakings issued by any company by virtue of and under the provisions of Act No. 536, as
amended by Act No. 2206.

LIABILITY:

Under Sec. 178, the liability of the surety or sureties shall be joint and several with the
obligor and shall be limited to the amount of the bond. It is determined strictly by the terms of the contract of
suretyship in relation to the principal contract between the obligor and the obligee.

CASE PROBLEM:

Bond makes surety liable to obligee for failure of obligor to collect from a third party.

Facts: S (surety company) issued in favor of C (obligee) a surety bond to secure the faithful compliance by P (obligor) of his
obligations to C as C's distributor. The bond provides that it shall be liable in case of nonpayment of any De Luxe Products Marketing
(DLPM) account in favor of C and the non-remittance of any collections due from any account booked by DLPM. C failed to collect
from P for purchases made by DLPM which the latter failed to pay. S alleged as a defense that the bond of DLPM was issued in favor
of P and not in favor of DLPM.

Issue: Is the surety bond liable?

Held: Yes. The condition of the bond explicitly provides for S's liability in case of non-payment of any DLPM account.
(EdwardKeller,Ltd.vs.Workmen's InsuranceCo., Inc.,I.C.Case No. 378,Aug.9,1977.)

DISTINCTIONS BETWEEN SURETYSHIP AND PROPERTY INSURANCE:

(1) Suretyship is an accessory contract because it is dependent for its existence on a

principal contract, while a contract of insurance is a principal contract in itself;

(2) In the first, there are always three parties: the surety; the principal debtor or obligor; and the
creditor or obligee, while in the second, there are only two parties, the insurer and the insured;

(3) The first is more of a credit accommodation with the surety assuming primary liability,while the
second is generally a contract of indemnity; and

(4) The first is a risk-shifting device, the premium paid being in the nature of a service fee, while the
second is a risk-distributing.

5. LIFE INSURANCE- Under sec. 182, ICP, it is an insurance upon life may be made payable on the death of
the person, or on his surviving a specified period, or otherwise contingently on the continuance or cessation of life.

PARTIES INVOLVED:

(1) The owner of the policy, who has the power to name or change the beneficiary, to
assign the policy (under certain conditions), cash it in for its surrender value, or use it as collateral in
obtaining a loan; and the obligation to pay the premiums;

(2) The person whose life is the subject of the policy, also known as the cestui que vie;

(3) The beneficiary to whom the proceeds are paid; and

(4) The insurer.

NATURE OF LIFE INSURANCE:

(1) Liability absolutely certain. — The ordinary life insurance contemplates the certain
payment of a specified sum at an uncertain time; and the premiums are so calculated that
in accordance with the insured's expectancy of life under a specified mortality table, there will
be paid to the insurer in premiums and interest thereon, a sum equal to an amount to
become due on the death of the insured plus the expenses of administration.

(2) Amount of insurance generally without limit. — Another reason why life insurance may
not be regarded as a contract of indemnity exists in the difficulty to be encountered in fixing
any sort of pecuniary value upon life. When the insured dies, the insurer must pay face the
amount of the policy (or more) to the named beneficiary.

(3) Life policy is a valued policy. — A policy of life insurance is treated substantially as a
valued policy (Sec. 186.) it being regarded a misnomer to speak of death as a "loss" in the sense in
which the burning of a building is spoken of as a "loss" because there is no way to measure the
value of a human life.
 (4) Direct pecuniary loss not required. — When settlement is made, the beneficiaries are
under no obligation to demonstrate, as a condition precedent to recovery, a direct pecuniary
loss as a result of the death of the insured.

LIFE INSURANCE DISTINGUISHED FROM FIRE AND MARINE INSURANCE:

(1) The former is not a contract of indemnity but a contract of investment, while the latter are
contracts of indemnity;

(2) The former is always regarded as a valued policy (Sec. 186.), while the latter may be open or
valued; and

(3) A life policy may be transferred or assigned to any person even if he has no insurable interest
(Sec. 184.), while in the case of a fire or marine policy, the transferee or assignee must have an
insurable interest in the thing insured.

EXEMPTION OF LIFE INSURANCE POLICIES FROM EXECUTION:

Under the Rules of Court, all moneys, benefits, privileges or annuities accruing or in any
manner growing out of any life insurance are exempt from execution (Rule 39, Sec. 12[k] thereof.)
REGARDLESS of the amount of the annual premiums paid.

It should be construed liberally and in the light of, and to give effect to, their purpose of enabling
an individual to provide a fund after his death for his family which will be free from the claims of creditors.

LIABILITY OF INSURER IN CASE OF SUICIDE: Sec.183

1) When LIABLE. Sec.183— In a life insurance contract, the insurer is liable in case
of suicide in the following cases:
(a) The suicide is committed after the policy has been in force for a period of two (2)
years from the date of its issue or of its last reinstatement;
(b) The suicide is committed after a shorter period (e.g., one year) provided in the
policy although within the two-year period; and
(c) The suicide is committed in the state of insanity regardless of the date of
commission, unless suicide is an excepted risk.

Note that the policy cannot provide a period longer than two (2) years. Thus, if the
policy provides for a three-year period and the suicide is committed within said period but
after two (2) years, the insurer is liable.

(2) When NOT LIABLE. — In fine, the insurer shall not be liable in three cases:
(a) The suicide is not by reason of insanity and is committed within the two-year
period;
(b) The suicide is by reason of insanity but is not among the risks assumed by the
insurer regardless of the date of commission; and
(c) The insurer can show that the policy was obtained with the intention to commit
suicide even in the absence of any suicide exclusion in the policy.

A provision in a contract of life insurance denying the insured his right to assign without the
consent of the insurer will be void.

NECESSITY OF CONSENT OF BENEFICIARY TO ASSIGNMENT:

 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. Notwithstanding the foregoing, in the event the insured does not
change the beneficiary during his lifetime, the designation shall be deemed irrevocable (sec.11).
On the other hand, where the policy contains no such waiver, the insured may assign the policy without the
consent of the beneficiary. The beneficiary, in the latter case, has a mere expectancy and he cannot make an
assignment of the policy until his interest in the proceeds thereof becomes absolutely fixed by the death of the
insured

NOTICE TO INSURER OF TRANSFER:

Notice to an insurer of a transfer or bequest thereof is not necessary to preserve the validity of a
policy of insurance upon life or health, unless thereby expressly required (sec. 85).

The interest of a beneficiary in a life insurance policy shall be forfeited when the beneficiary is the
principal, accomplice, or accessory in willfully bringing about the death of the insured. In such a case, the
share forfeited shall pass on to the other beneficiaries, unless otherwise disqualified. In the absence of other
beneficiaries, the proceeds shall be paid in accordance with the policy contract. If the policy contract is silent,
the proceeds shall be paid to the estate of the insured (sec.12).

CASE PROBLEM:
A takes an insurance policy on his life and names his friend X as beneficiary, and another insurance on the life of Y in
consideration of “love and affection” with A as a beneficiary. Which of the two insurances, if any, is valid and which, if any, is void?

The Insurance taken on A on his life is VALID, because the beneficiary need not have an insurable interest in the life of the
insured. It must be the one insuring who has an insurable interest in the life of the person he is insuring, and of course, it goes without
saying that one has an insurable interest in his own life and health.

ON the other hand, the insurance taken by A on the life of Y is VOID because “love and affection for the insured” n the part of
the person insuring is NOT sufficient ground to qualify as insurable interest.

6. COMPULSORY MOTOR VEHICLE LIABILITY INSURANCE- A species of compulsory insurance that

provides for protection coverage that will answer for legal liability for losses and damages for bodily injuries or
property damage that may be sustained by another arising from the use and operation of motor vehicle by its
owner.

Under sec. 387, ICP, it shall be unlawful for any land transportation operator or owner of a motor
vehicle to operate the same in the public highways unless there is in force in relation thereto a policy of
insurance or guaranty in cash or surety bond issued in accordance with the provisions of this chapter to
indemnify the death, bodily injury, and/or damage to property of a third-party or passenger, as the case may
be, arising from the use thereof.

The insurer's liability to any party attaches during the effectivity of the policy in the absence of any
showing that the same has been cancelled with proper notice to all parties concerned. The primary purpose of
compulsory third party liability insurance is to afford protection to third persons who are not parties to the
contract and who might suffer loss or injury on account of the accident. To allow, therefore, the insurer to
escape liability by interposing the defense that the owner of the insured motor vehicle has violated the contract
would be to defeat the very purpose of the law. (Bonifacio Bus vs. Towers Assurance Corp.,I.C.
CaseNo.451,Dec.9,1977.)

NO-FAULT INDEMNITYCLAIM:

The term "no-fault" connotes that the victim of a tort can recover for his loss from his
insurer without regard to his own contributory fault or the fault of the tortfeasor. The fundamental
 purpose of the "no-fault" provision is to guarantee compensation or indemnity to persons suffering
loss in motor vehicle accidents.

WHAT ARE THE BRIEF FEATURES OF CTPL? It is a compulsory insurance cover for death and/or
bodily injury. It is a pre-requisite for the registration of one’s motor vehicle. The overriding consideration in
compelling motor vehicle owners or operators to have a third party liability insurance is to assure victims or
their dependents, especially when they are poor, immediate financial assistance or indemnity, regardless of the
financial capacity of the motor vehicle owners or operators responsible for the accident. The insurer’s liability is
primary and accrues immediately upon the occurrence of the injury or event upon which the liability depends,
and does not depend on the recovery of judgment by the injured party against the insured.

NOTES:

a. Per Insurance Commission Memorandum Circular 04-2006, the total sum insured for CTPL was
increased to Php100,000.00 from Php50,000.00. An additional Php100,000.00 for passenger liability if the
motor vehicle is used as a public utility vehicle.

b. No cancellation of the CTPL shall be valid, unless the following are complied with:

i. Written notice thereof is given to the land transportation operator or owner of the vehicle
and to the Land Transportation Commission at least fifteen (15) days prior to the intended effective
date thereof.

ii. Upon receipt of such notice, the Land Transportation Commission, shall order the
immediate confiscation of the plates of the motor vehicle covered by such cancelled policy unless it
receives submits a new insurance or guaranty in cash or Surety bond, or an endorsement of revival
of the cancelled one.

WILL THE CTPL RESPOND IF THE VEHICLE INVOLVED IS THE ACCIDENT IS NOT OWNED BY
THE INSURED?

It depends. If is it is a private car, the claim will be paid. Under the Private Car Motor Insurance Policy,
the policy shall indemnify the insured while "personally driving a private car not belonging to him and not hired
to him under a hire purchase agreement."

DEFINE AUTHORIZED DRIVER’S CLAUSE

An authorized driver is defined as the insured; or any person driving on the insured’s order or
with his permission. Now, it appears that whether the driver at the time of the accident is the insured himself or
his authorized driver, he must be in possession of a valid driver's license, otherwise, the claim will be denied.

E. INSURABLE INTEREST

Insurable interest is one the most basic of all requirements in insurance. In general, a person is
deemed to have insurable interest in the subject matter insured where he has a relation or connection with or
concern in it that he will derive pecuniary benefit or advantage from its preservation and will suffer pecuniary
loss or damage from its destruction, termination or injury by the happening of the event insured against. It is
essential for validity and enforceability of the contract or policy. A policy issued to a person without interest in
the subject matter is a mere wager policy or contract.
 1. IN LIFE/HEALTH – under sec.10, ICP, every person has an insurable interest in the life and health:
(a) Of himself, of his spouse and of his children;
(b) Of any person on whom he depends wholly or in part for education or support, or
in whom he has a pecuniary interest;
(c) Of any person under a legal obligation to him for the payment of money, or
respecting property or services, of which death or illness might delay or
prevent the performance; and
(d) Of any person upon whose life any estate or interest vested in him depends.

TWO GENERAL CLASSES OF LIFE POLICIES:

(1) Insurance upon one's life. — In one class are those taken out by the insured upon his
own life (Sec. 10[a].) for the benefit of himself, or of his estate, in case it matures only at his death,
or for the benefit of a third person who may be designated as beneficiary. An application for
insurance on one's own life does not usually present an insurable interest question.

(2) Insurance upon life of another. — In the other class belong policies taken out by the
insured upon the life of another. When one applies for insurance on the life of another for the
former's benefit, he must have an insurable interest in the life of that person.

CASE: Insular Life v. Ebrado, 80 SCRA 181

Facts: Buenaventura Ebrado was issued by Insular Life Assurance Co. a whole life plan for P5,882.00 with
a rider for Accidental Death Benefits for the same amount. Ebrado designated Carponia Ebrado as the
revocable beneficiary in his policy, referring to her as his wife. Ebrado died when he was accidentally hit by a
falling branch of tree. Insurer by virtue of the contract was liable for 11,745.73, and Carponia filed her claim,
although she admitted that she and the insured were merely living as husband and wife without the benefit of
marriage. Pascuala Ebrado also filed her claim as the widow of the deceased insured. Insular life filed an
interpleader case and the lower court found in favor of Pascuala.

Issue: Between Carponia and Pascuala, who is entitled to the proceeds?

Held: Pascuala. It is quite unfortunate that the Insurance Act or our own Insurance Code does not contain
a specific provision grossly resolutory of the prime question at hand. Rather, the general rules of civil law
should be applied to resolve this void in the insurance law. Art. 2011 of the NCC states: The contract of
insurance is governed by special laws. Matters not expressly provided for in such special laws shall be
regulated by this Code. When not otherwise specifically provided for in the insurance law, the contract of life
insurance is governed by the general rules of civil law regulating contracts. Under Art. 2012, NCC: Any person
who is forbidden from receiving any donation under Art. 739 cannot be named beneficiary of a life insurance
policy by a person who cannot make any donation to him, according to said article. Under Art. 739, donations
between persons who were guilty of adultery or concubinage at the time of the donation shall be void.

In essence, a life insurance policy is no different from civil donations insofar as the beneficiary is
concerned. Both are founded on the same consideration of liberality. A beneficiary is like a donee because
from the premiums of the policy which the insured pays, the beneficiary will receive the proceeds or profits of
said insurance. As a consequence, the proscription in Art. 739 should equally operate in life insurance
contracts.

Therefore, since common-law spouses are barred from receiving donations, they are likewise barred from
receiving proceeds of a life insurance contract. PASCUALA IS THE RIGHTFUL BENEFICIARY OF
BUENAVENTURA EBRADO.
 2. PROPERTY- under sec. 13, ICP, every interest in property, whether real or personal, or any relation
thereto, or liability in respect thereof, of such nature that a contemplated peril might directly damnify the
insured, is an insurable interest. Further, under sec.14, An insurable interest in property may consist in:
(a) An existing interest; (b) An inchoate interest founded on an existing interest; or (c) An expectancy,
coupled with an existing interest in that out of which the expectancy arises.

CASE: Harvardian Colleges v. Country Bankers Insurance Corp., 1 CARA 2

Facts: Harvardian is a family corporation, the stockholders of which are Ildefonso Yap, Virginia King Yap
and their children. Prior to Aug. 9, 1979, an agent of Country Bankers proposed to Harvardian to insure its
school building. Although at first reluctant, Harvardian agreed. Country Banks sent an inspector to inspect the
school building and agreed to insure the same for P500,000 for which Harvardian paid an annual premium of
P2,500. On Aug. 9, 1979, Country Bankers issued to Harvardian a fire insurance policy. On March 12, 1980,
during the effectivity of said insurance policy, the insured property was totally burned rendering it a total loss. A
claim was made by plaintiff upon defendant but defendant denied it contending that plaintiff had no insurable
interest over the building constructed on the piece of land in the name of the late Ildefonso Yap as owner. It
was contended that both the lot and the building were owned by Ildefonso Yap and NOT by the Harvardian
Colleges.

Issue: WON Harvardian colleges has a right to the proceeds.

Held: Harvardian has a right to the proceeds. Regardless of the nature of the title of the insured or even if
he did not have title to the property insured, the contract of fire insurance should still be upheld if his interest in
or his relation to the property is such that he will be benefited in its continued existence or suffer a direct
pecuniary loss from its destruction or injury. The test in determining insurable interest in property is whether
one will derive pecuniary benefit or advantage from its preservation, or will suffer pecuniary loss or damage
from its destruction, termination or injury by the happening of the event insured against.

Here, Harvardian was not only in possession of the building but was in fact using the same for several
years with the knowledge and consent of Ildefonso Yap. It is reasonably fair to assume that had the building
not been burned, Harvardian would have been allowed the continued use of the same as the site of its
operation as an educational institution. Harvardian, therefore, would have been directly benefited by the
preservation of the property, and certainly suffered a pecuniary loss by its being burned.

HOW IS INSURABLE INTEREST MEASURED?

In Property Insurance, the measure of insurable interest in a property is the extent to

which the insured may be damnified by loss or injury thereof. (Sec.17)

In Life Insurance, insurable interest cannot be measured on account of the fact that
the value of one’s life cannot be estimated or even valued for that matter. According to some
financial planners, the rule of thumb is determining the maximum total sum insured is 5 times
of the annual salary of the insurance applicant. The rationale behind this is that it is assumed
that a family of the decedent will take at least five (5) years to adjust to the financial loss
brought about by the death of breadwinner.

CASE PROBLEM:

Madugas is the lessee of Makunat Corporation (Makunat). Under the lease agreement, Madugas cannot insure the properties
stored in the leased property without first obtaining the consent of Makunat. If consent is not obtained, the policy is deemed assigned
and transferred to the lessor for its own benefit. Madugas insured the merchandize in the leased property without obtaining the consent
of the lessor. A fire broke out which destroyed the merchandize stored. Is the lessor entitled to the proceeds of the policy?
 No. Makunat is not entitled to the proceeds of insurance. It has no insurable interest over the merchandize insured because i t is
owned by Madugas. The automatic assignment of the policy is void for being contrary to law and public policy. (Spouses Nilo Cha vs.
Court of Appeals, G.R. No. 124520. [August 18, 1997])(2000)

DIFFERENTIATE THE INTEREST OF A MORTGAGEE AND THE MORTGAGOR:

Both the mortgagee and the mortgagor have each as separate and distinct insurable
interest in the mortgaged property. They may procure separate policies with the same or different
insurance companies.

1. The basis of insurable interest of the former is the loan by the debtor which is supported by its
property, whereas, the latter’s interest is based upon his ownership over the property.

2. The extent of insurable interest of the former’s insurable interest is the value of the property
mortgage, whereas, the latter’s extent of insurable interest is the extent of debt secured.

However, in the case of creditor-debtor relationship where the creditor insures the life
of the debtor, the limit of insurable interest by the creditor is equal to the amount of debt.

3. DOUBLE INSURANCE AND OVER INSURANCE

Under sec. 95 ICP, a double insurance exists where the same person is insured by several
insurers separately in respect to the same subject and interest.

REQUISITES OF DOUBLE INSURANCE:

(1) The person insured is the same;

(2) Two or more insurers insuring separately;
(3) The subject matter is the same;
(4) The interest insured is also the same; and
(5) The risk or peril insured against is likewise the same.

EXAMPLES:

(1) X insures his house against fire with Y company and Z company. Double insurance
exists in this case because all the requisites are present. The subject matter insured is the house.
The interest insured is X's interest in the house.

(2) X mortgages his house to B. Insurance taken by X and another taken by B on the same
house is not double insurance because it is not on the same interest, (see Sec. 8.)

(3) X insures his automobile against fire with Y company and against theft with Z company.
There is no double insurance because the automobile is not insured against the same risk or peril.

DOUBLE INSURANCE DISTINGUISHED FROM OVER-INSURANCE:

(1) There is over-insurance when the amount of the insurance is beyond the value of the
insured's insurable interest. In double insurance, there may be no over-insurance as when the sum total
of the amounts of the policies issued does not exceed the insurable interest of the insured;

(2) While in double insurance there are always several insurers, in over-insurance there
may be only one insurer involved.
 From the above explanation, double insurance and over-insurance may exist at the same time
or neither may exist at all. Double insurance is the term used instead of "co-insurance" when the sums insured
exceed the insurable interest. In such case, there is "over-insurance" by "double insurance."

EXAMPLE:

If X's insurable interest in a house is PI,000,000.00 and he insured it with Y company for PI,100,000.00,
there is over-insurance but there is no double insurance. On the other hand, if he insures the same house with
Y company for P600,000 and Z company for P400,000.00, there is double insurance but there is no over-
insurance. If the amount of insurance with Y company is P450,000.00, there is not only double insurance but
also over-insurance. Now if X procures only one policy for the amount of PI,000,000.00 or a lesser amount,
there is neither double insurance nor over-insurance.

Under Section 96, where the insured in a policy other than life is over insured by double insurance:

(a) The insured, unless the policy otherwise provides, may claim payment from the insurers in such order as he
may select, up to the amount for which the insurers are severally liable under their respective contracts;
(b) Where the policy under which the insured claims is a valued policy, any sum received by him under any
other policy shall be deducted from the value of the policy without regard to the actual value of the subject
matter insured;
(c) Where the policy under which the insured claims is an unvalued policy, any sum received by him under any
policy shall be deducted against the full insurable value, for any sum received by him under any policy;

(d) Where the insured receives any sum in excess of the valuation in the case of valued policies, or of the
insurable value in the case of unvalued policies, he must hold such sum in trust for the insurers, according to
their right of contribution among themselves;
(e) Each insurer is bound, as between himself and the other insurers, to contribute ratably to the loss in
proportion to the amount for which he is liable under his contract.

PRINCIPLE OF CONTRIBUTION- this doctrine which requires each insurer to contribute ratably to the
loss or damage considering that the several insurances cover the same subject matter and interest against the
same peril. They apply only where there is over-insurance by double insurance, that is, the insurance is
contained in several policies the total amount of which is in excess of the insurable interest of the insured.