INSURANCE NOTES
SESSION 1
• Is RA 10607 the complete source of insurance law?
o No - Civil code and Special law also
o Principal source – P.D. 612 (enacted by Marcos when he had
legislative powers)
o But generally, the Insurance Code prevails. Civil Code applies
only suppletorily.
• Does R.A. 10607 (2012) replace P.D. 612?
o No. It restates and adds some amendments to P.D. 612.
• What is the structure of Insurance code?
o Chapter 1 - general provisions on insurance
o Chapter 2 - classes of insurance (if providing a different rule to
Chapter 1, these will apply)
o Chapter 3 - business of insurance
• In relation with each other, when there is a conflict between RA 10607 and
for example, a special law regarding insurance for government employees,
which will be followed?
o If the special law is more specific, follow the special law; general
law < special law
• What are some provisions in the Civil Code relate to insurance?
o Provisions on contracts in the civil code are relevant to insurance
contracts
o Examples:
! Art. 2207 - subrogation of an insured for liability
! Law on contracts (enforceability, validity, rescission, etc.)
• Suppose you insured my life with the insurance company and I am killed so
the insurer paid out the beneficiaries; can you sue the perpetrators?
o No - Art. 2207 is the general rule (property), the exception being
life insurance; the insurer cannot sue the perpetrators
o Art. 2207 applies only with property and only if there is a
wrongdoer; subrogation applies only if you have rights you can
sue for; it only applies if a payment to indemnify the insured from
what was insured against.
! Payment must be in accordance with the contract. Not
just any form of payment will give rise to subrogation
rights.
• Suppose the insured motor vehicle was destroyed by flash flood, will there
be subrogation?
o It depends - there will be subrogation only if there is a person you
can sue
• Suppose I insured my condominium unit for fire and one day, somebody
who doesn’t like me smashes and destroys my unit and the insurance
company paid the claim (even if it wasn't fire), in this case, would the insurer
be subrogated with the rights of the insured?
o No - Under Art. 2207, there is no subrogation since he was insured
for fire, not physical damage
• Let's say the property was worth 1M and the insurance policy covers 800K
and the insurer paid the full amount of 800K to the insured, how much can he
(insured) go after the wrongdoer for?
o Up to the full amount of 1M (so additional 200K)
• The insured was able to collect 800K from the insurer, can he go against the
wrongdoer for the remainder?
o Yes - the deficiency of 200K from the value of the home of 1M
• As a general rule, after this, can the insured go after the wrongdoer for 500K
instead of 200K?
o No - he can only go after up to the extent of the deficiency
• A contract of insurance is a contract of indemnity, what do you mean by
that?
o It would only be up to the damage or loss caused, it is only for
restitution
• Does indemnification clash with the concept of making a profit?
o Yes - you cannot make a profit from a contract of indemnity
• Why would one seek to insure his property?
o To be restored to his status prior to the loss in case of loss " in
terms of monetary value
• Can people enter into insurance as a profit venture?
o No, well, you can, but you will only be restored the value of the
car; there is a hard limit as to how much you can collect, such is
 the essence of insurance law as a contract of indemnity; you
cannot make money from an insurance contract
• Do contracts of insurance have to expressly provide for subrogation rights?
o No - Subrogation right is granted by law (Art. 2207) - it is read into
the contract
• Is Article 2207 legal or conventional subrogation?
o Art. 2207 is an equitable assignment and not subject to consent; it
is a legal subrogation and occurs by operation of law, consent of
the wrongdoer is not necessary
o Conventional subrogation is by contract
• What is a contract of insurance?
o Sec. 2 - 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
• What does the definition above fail in (according to De Leon)?
o The concept of indemnity for death (no value of life)
• When does a surety become an insurance contract?
o It has to be that the Surety is engaged in the insurance business
• What is a contract of suretyship and how would you distinguish it from a
contract of insurance?
o Surety - Contract where one person undertakes to guarantee an
obligation of another; there is privity of contract with 3rd party
o Insurance contract - cannot sue the insurer directly; there is no
privity of contract with 3rd party (exception: there is a stipulation
pour atrui)
• How does the code define doing an insurance business?
o Sec. 2(b)
• What does it mean when an insurance contract is "consensual"?
o It requires the meeting of the minds of the parties
• What does it mean when an insurance contract is "voluntary"?
o Parties may incorporate terms as they please
• What does it mean when an insurance contract is "aleatory"?
o It is dependent on a future event
• What does it mean when an insurance contract is "executed and
executory"?
o It is already executed as to the insured
o As to the insurer, it is premised on the happening of an event
• What are the elements of an insurance contract?
o Insurable interest
o Insured is subject to a risk of loss
o Insurer assumes risk of loss or a portion of it
o General scheme to distribute risk among a group of persons
bearing a similar risk
o Payment of premium
• What must he have an "insurable interest" in?
o It must be an interest in the property insured; there must be a
relation (not limited to ownership)
• To what is the thing exposed to?
o It is exposed to risk
• What about the assumption of the risk?
o It is assumed by the insurer from the person who had the interest
• What should the insurer do if you are asking them to insure the risk?
o Pay consideration - the premium
• What is the element not traceable to the definition?
o General scheme to distribute risk among a group of persons
bearing a similar risk
• What does it mean?
o Sharing among the insured and insurer/other insured (by way of
volume; e.g. 10 people pay 10K each to insure 100K houses,
hence the risk is distributed, at least on the part of the insurer)
o Hence why there is a public policy aspect to it; other people's
money will be used to finance the assumption of risk
• What are the three main classifications of insurance?
o Property interest
o Death (loss of earning power)
 o Contingent liability (to make payment to another)
• What about 1st and 3rd party liability? What's the difference?
o 1st party - claim is by the insured
o 3rd party - 3rd party has a claim as to your insurance contract
• What about all-risk and specified risk? What's the difference?
o All-risk - all risks except exceptions
o Specified risk - only the specific insured risks
• What is a contract of adhesion?
o Generally, it is a "take-it or leave-it" contract
o It is usually construed strictly against the person who made it
(insurer)
Cases:
1. Pan Malayan v. CA - subrogation by law had occurred (Art. 2207); Pan
Malayan had stepped into the shoes of the insured upon payment; since
the insured party had a case against Fabie, Pan Malayan can already
pursue a case against Fabie; "own damage" should be construed as to
include accident by third party; also "accident" is anything that
happened, not willfully damaged by the insured, there is no question as to
agreement between Pan Malayan and the insured; Pan Malayan has a
cause of action against Fabie, even if there is a privity of contract
between Pan Malayan and the insured
2. FedEx v. American Home Assurance - American Home Assurance insured
a shipment which was damaged due to fault of the receiver in Manila
(non-refrigerated); AHA paid Smithkline (shipper) and attempted to sue
FedEx; they had personality to sue upon subrogation into the rights of
Smithkline when they paid; FedEx not liable since a condition precedent
to liability is to inform the carrier and give them an opportunity to examine
(as per contract, requirement to submit written notice to FedEx within 120
days since total loss); Art. 2207 only entitles you to the remedies available
to the insured
3. Fireman's Fund Insurance Co. v. Jamila & Company, Inc. – (P12,000 paid
by insurer; Fireman’s Fund is asking for payment from Jamilia’s surety (First
Quezon City Insurance). Argument of surety is that consent of Jamila is
needed)
Firestone (insured) is only a nominal party, the real party in interest is not
Fireman's Fund Insurance Co. (insurer) after paying the insured the value
of the damage caused by Jamila, whose guards caused damage to
company property; Jamila does not have to consent to subrogation, this is
not conventional subrogation, the subrogation of Art. 2207 does not need
consent; the right of subrogation is of the highest equity in favor of the
insurer
4. F.F. Cruz and Co. v. CA - Insured had already collected 35K from their
insurer for destruction of their house for negligence, so the 70K damages
awarded by the court should be reduced to 35K since the insurer had
already subrogated the rights up to the 35K it paid and it is not a party to
the suit
5. Rizal Surety & Insurance Co. v. Manila Railroad Co. - Insurer paid P16,500,
but the management contract limited the insurance to P500, the insurer
can then not go after the consignee for the P16,500, they can only go
after for the amount insured
6. Pioneer Insurance & Surety Corp v. CA - No double recovery to prevent
unjust enrichment; reinsurer had already paid Pioneer, hence, it cannot
recover from Lim by foreclosing the airplanes (no double recovery); there
is no proof Pioneer represented the reinsurer, it is not a real party in
interest; payment cannot be reimbursed if a solidary debtor paid a debt
when it has prescribed (JDA did not inform Pioneer within 10 days, as per
contract, yet Pioneer still paid)
7. CCC Insurance v. CA - Driver could not read or write, but it is still not an
unqualified driver; he had a license at a time that exams and
reading/writing were not requisites for a license; construed liberally for the
insured
8. Assoc. of Baptists for the World Evangelism v. Fieldmen's Insurance -
Joyriding is theft, hence the insurer is liable; criminal conviction is not
necessary to be held liable to pay for the damage caused by the joyride,
there is a preponderance of evidence that theft had occurred
SESSION 2
• Can you put in the policy that a criminal conviction is required for theft to
apply?
o Yes - contractual obligation of parties
• What is your understanding from an all-risk insurance?
 o Comprehensive - any reason for loss or damage unless specifically
excluded
• If we change the facts in Mayer, so that the consignee is paid by insurer
for loss and damage; then the damage is determined to be the cause of
the shipper, does he get a subrogation right?
o Yes - he would have subrogation, it was an insurance on property,
he can pursue the shipper. But in this case, since the carriage of
the sea act would mean it has prescribed, with regard to the
insurer, he will be barred
• What sort of problems appeared in American Home Assurance to the
case of the insurer that indicate that the new mill was covered?
o Amount for the insurance doubled (newer oil mill)
o Description on "new" oil mill
o Owner called manager
• How did the SC resolve the above?
o Contract of adhesion - doubts construed against the insurer
• What is a contract of adhesion?
o Generally, it is a "take-it or leave-it" contract
o It is usually construed strictly against the person who made it
(insurer)
• If in my hypothetical ideal world where contracts of adhesion don't exist,
there is an insurance company, would the ruling in the Oil Mill case be
different?
o Possibly, without the contract of adhesion doctrine, the case
might have been different
• Is it just because the insurance company prepares the contract, it will
always pay?
o Not necessarily
• What did the court in Zenith say about the deductibles?
o Deductibles were not mentioned in the insurance, hence the
insurer's claim is without merit
• What is it that may be insured?
o Property
o Life/health/accident
o Casualty
• What can you insure against?
o Contingent events - to occur in the future
! May or may not happen
! You can insure those that are certain to happen; ex. life
insurance
o Unknown events - may be past or future, but must be unknown
• What are some examples of contingent event?
o Fire
o Accident
• What are some examples of past unknown event?
o Marine insurance while it is in transit
• Can I take an insurance on your house?
o Generally no - I don't have an insurable interest in your house
o Exception – mortgagee
• If we can insure against a contingent or unknown event, what is it that the
law does not allow us to insure?
o Sec. 4 - Lottery or chance or ticket in a lottery drawing a prize
• What are the requisites to an insurance contract?
o Subject matter in which the insured has an insurable interest
o Event of peril insured against which may be any contingent or
unknown event and a duration for the risk thereof
o Promise to pay or indemnify in a fixed or ascertainable amount
o Consideration for the promise, known as the premium
o Meeting of the minds
• What happens if you insured your car for fire and sold the car to me, what
happens?
o You cease to have an interest in the car
o Insurance contract is suspended - can be revived by the car
being sold back
• What is the special rule regarded by the Insurance Code regarding Life
insurance taken by a spouse?
o No need for consent of spouse if insuring:
! Wife
 ! Child
! Separate property
• What's the difference between indemnity and liability?
o Indemnity - indemnifies the insured
o Liability - indemnifies a 3rd party (3rd party has cause of action
against insurer)
• Why did the court not say in Malayan that there is an issue, when the
code provides for a past event being insurable?
o The loss in this case was known, not unknown, hence it cannot be
insured
• Who bears the burden if the insurer excepts a specific risk?
o If an insurer denies a claim based on an excepted risk, the insurer
has the burden of proving that something is an exception
Notes:
• Hofi - in my view, a contract of adhesion should be based on the facts; i.e.
no participation in drafting it, no opportunity to help drafting; the doctrine is
one of equity
o E.g. insurance company enters into insurance contract with MVP - it
should be a matter of circumstance
• Deductibles are portions of the insured amount shouldered by the insured
• Emotional damage, can you insure it? NO. It is not quantifiable
• If these perils are what you can insure against, what is it that you protect, to
indemnify yourself?
o You interest over:
! Property
! Health, life
! Casualty
• Is there a particular loss or event that the Code says you’re not allowed to
insure?
o Yes. Lottery; gambling – wager
! Insurance contracts cannot be used for gambling,
because lotteries are a game of chance
! It does not damnify you beyond what you paid for the
lottery ticket
Cases:
1. Assoc. of Baptists for the World Evangelism v. Fieldmen's Insurance -
Joyriding is theft, hence the insurer is liable; criminal conviction is not
necessary to be held liable to pay for the damage caused by the joyride,
there is a preponderance of evidence that theft had occurred; contract
did not say that a conviction is necessary for it to be considered theft (it
could be)
# What standard of “theft” was used? – RPC; looked at the definition of
theft under the law
# The policy was silent on whether a conviction for theft was necessary
– but in order to prove theft to claim from the insured, preponderance
of evidence is the standard of proof needed
2. Mayer Steel Pipe v. CA - All-risk insurance policy controls, hence the
carriage of the sea act (1 year prescription) does not apply in this case;
all-risk insurance includes damage during shipping
# Prescription under an insurance contract – 10 years (because based
on contract)
# All-risk insurance – everything is covered, except those specifically
excluded (insurer has to prove if an occurrence falls within the
specified exceptions)
# Will an all-risk insurance policy cover those risks voluntarily inflicted by
the insured? – No, because that would involve malice and bad faith;
insurance is not a wager
3. Grepalife v. CA - Ngo Hing applied for endowment policy for his child;
they made applications and fulfilled an application form to a branch
manager who took it and issued a binding deposit receipt and he paid a
premium; when his child died, he could not claim because GREPALIFE said
they never issued a policy for the child; SC held that the binding deposit
receipt that set out conditions to be fulfilled before the policy could take
effect, hence the terms of the contract are what they are and no policy
was issued
# Consent is necessary, in this case there is no meeting of the minds
o In this case, Ngo Hing made an application and paid
premiums (offer). Shouldn’t have that become a perfected
contract? Generally yes, but in this case, there are conditions
to be met before the contract becomes perfected
# Just like any contract, you can impose conditions on insurance
policies
# Contract of Insurance – contract of utmost good faith
o Parties must be clean when entering into the contract, and
agree on what their obligations are
4. American Home Assurance Co. v. Tantuco Enterprises - Liberal
 interpretation to give life to the intent of the parties to make an insurance
contract; 2 oil mills, the taking of a second insurance would make no
sense if he insured the same mill twice; additionally, the lack of firefighting
equipment (specific) should not be construed so strictly as to kill the
contract, the maintenance of efficient firefighting equipment in the
general area should be construed as enough; insurance valid; reasonably
interpret a contract to give it life; interpretation strict against insurer as a
contract of adhesion
# Words in the policy seem to contradict; but the intention was to cover
the new oil mill – SC gave prevalence to the intent of the parties
# If the policy REQUIRES the warranties, would the insurer be in the right?
– Yes, if it is clear that it is set in the contract, then it must be followed;
Interpretation of contracts: If the words are clear, apply the words in
the contract, no need for interpretation
5. Rizal Surety and Insurance v. CA - Fire gutted the "annex" and destroyed
stocks; SC held that even if the "annex" was not part of the insurance
contract, it did not limit it to any building, hence, it should be construed
generally to the whole compound; contract of adhesion is strict against
the insurer and the one who causes the ambiguity
# In the event of ambiguities, the contract shall be resolved against the
one who caused the ambiguity (the insurance company)
# Insurance contracts – contracts of adhesion (there is a superior and a
disadvantaged party)
# Are all insurance contracts, contracts of adhesion? No, because in
some cases, the insurer can all negotiate;
o If they were in equal footing when drafting the contract, then
it is not a contract of adhesion
# Be cautious when applying the contract of adhesion doctrine – shows
laziness; in any case, you can negotiate in the making of the
contract, like when the insured is a sophisticated party
6. Perla Compania De Seguros, Inc. v. CA - Bus accident; owner went into a
compromise with passengers without receiving approval from insurance
company, so the insurance company cannot be held liable for what was
paid (12K each) to passengers, it can only be held for the accident in
general (44K proven damages); if there is a consent requirement, this has
to be complied with as a rule, before the insurance company can be
held liable
# In terms of the liability of the insurer, it was only liable for 12K (only for
one of those injured) – consent of the insurer was necessary before
the insurer could settle (terms of the contract)
# Why would an insurance company ask for prior notice before
settlement? Because the insured and the third party may be colluding
7. Zenith Insurance Co. v. CA - Zenith did not pay; gave Fernandez the run
around for accident liability (2 months); damages awarded (moral) for
unreasonable delay (Sec. 244); not wanton though, since there was just
no agreement to the price/value, so reduced exemplary damages
# Insurance policy – can be liable even for moral damages if there is
delay
# In terms of the deductibles – could have been written in the policy;
deductibles – you have a share in it as well
8. White Gold Marine Services v. Pioneer - Mutual insurance (non-profit) is still
doing insurance; the nature of the fact of the business governs; Pioneer
must secure a separate license for being the agent of Steamship Mutual;
insurance has public interest, and hence, is regulated by the State
# Code provides a definition of doing an insurance business. Last
sentence is a catch all – in this case, what the company was doing
was substantially similar to doing an insurance business
o Look at the substance, rather than the form or name given to
the company/organization
9. Guingon v. Capital Insurance - Jeepney hit a third person; "no action"
clause wherein no suit will be allowed (condition precedent) unless
damage is awarded by a court is invalid for going against the Rules of
Court on the Rules on multiplicity of suits; anyone can sue upon
subrogation (joinder)
# Can the insurance company be joined as a party? Yes, the Rules of
Court prevails over the provisions of a contract (no action clause)
# No action clause – requires judicial determination of how much the
liability of the insured is
o Has to happen before third party can go after the insurance
company
# What is the subject matter of the insurance policy in this case? Liability
against third persons (or casualty insurance) – you are trying to
protect yourself from possible liability
o First Party insurance – payment to the insured
o Third Party insurance – payment to a third person
! Required for cars
10. Eternal Gardens v. Philam Life - When the contract states the person is
insured as soon as he contracts a loan with Eternal, it cannot be then
 shown that Philam would first need to approve his application for it to be
valid; group life insurance covers all those who contracted with Eternal,
with or without the approval; contract of adhesion doctrine; an example
when a creditor (Eternal) has an interest in the life of another
# What was insured in this case? Group life insurance (risk of death)
# Who was insured? The life of the clients (in this case, Mr. John)
o In the event that Mr. John passes away, Eternal would get the
proceeds – Eternal is the assured in this case
11. Blue Cross v. Olivares - The burden is on the insurer to prove that the
ailment existed prior to the execution of the insurance contract; insurer
never presented any evidence to prove the pre-existence of the
contract, hence, Blue Cross is liable to pay for the stroke medical bills and
moral and exemplary damages (bad faith for unreasonable delay);
healthcare programs are in essence, insurance contracts; doctor-patient
privilege prevented the issuance of a certificate of not being a pre-
existing condition; insurance company could not overturn the burden
# While the insured has the burden of proof in proving her claim, if it is
contested that it falls within the exceptions, the burden of proof shifts
to the insurer
# In this case, her health was insured. In terms of classification, the SC
held that a health plan takes the nature of a non-life insurance
12. Malayan v. Regis - Petitioner knew of the loss 2 weeks before he insured it
and never presented policy; no evidence, invalid insurance, Malayan
cannot be reimbursed based only on a risk note referring to a "policy"; the
policy must be presented
# Past events can be insured, but it must be unknown
# In this case, assuming the event was unknown – still not relevant
because according to the SC, the marine note was not an insurance
policy (did not show proof of the insurance policy)
13. Eastern Shipping v. PGA - Only risk note presented; the policy is needed as
the date is doubtful (arrived in port as the same day the insurance was
procured); they cannot collect without the policy in a case where the
date is doubtful
# Dates are important because you can insure past or contingent
events
# You need to establish that there is a valid policy
# Under what circumstance would the courts not require that the policy
be presented? If the existence of the policy is admitted, and the
parties have agreed
14. Paramount Insurance v. Remondeulaz - Remondeulaz should be
reimbursed for theft even if they had loaned their car to someone who
then refused to return it; the theft is clear; taking without returning is theft
# Specify under the policy to properly know what is contemplated
15. United Merchants Corp. v. Country Bankers Insurance - Insurer could not
prove arson; but they were able to prove fraud when it was found that
the accountants and every witness presented had no basis except the
boss' order to fabricate the existence of the burnt Christmas lights and the
existence of the purchases (even if both were deemed false)
# Make sure that the subject matter and the risks are properly laid out.
SESSION 3
• Who are the parties to an insurance contract?
o Insurer and insured
• As contemplated by the insurance code, who can be an insurer?
o Corporation, partnership or association; as long as they are
authorized
o Not a natural person " before they were qualified, now they are
not authorized anymore (changed in new code)
• Juridical persons, is it limited to corporations?
o No - includes partnerships and associations
• Foreign insurers are allowed to be insurers?
o Yes - Foreign or domestic insurance company (with license and
authority from Insurance Commission)
o Foreign corporations " must have license to conduct business
here in the Philippines
• Who can be an insured?
o Any person with an insurable interest
o Natural or juridical persons
• Is there an exception to the law?
o Yes - except public enemy
• Who is a public enemy?
o Someone who is a citizen of a state of a country the Philippines is
at war with

• Would the members of the Abu Sayaff be considered public enemies?
o No - the public enemy contemplated in the law pertains to
citizens of a foreign country
o The existence of a state of war is essential " There must be a
declaration of some hostilities against another state
• Let's assume a person takes out insurance with a company, then
subsequently, the Philippines declares hostility against his country, what
happens to the policy at that point?
o It is abrogated " the insurance contract is deemed illegal and
void
• What happens if we subsequently declare peace?
o Nothing - it was already abrogated, hence the policy is void
(cannot be revived)
• Can an insurance be sold through an agent?
o Yes
• If the insurer will pay the proceeds of said procured policy, who will pay?
o Insurer will pay
o Although a principal can be insured through an agent, the policy
must clearly set this out
o Can the principal directly sue the insurance company (if the
policy was procured by the principal’s agent?
! YES. But if it is not mentioned that the agent was the
representative of the principal, then the principal cannot
claim.
! If you insure through an agent, you must specifically
provide that the agent is signing in that capacity.
• In the case of co-owners, if only one co-owner takes an insurance, may
the other co-owners claim from the insurer?
o For the other co-owners to benefit from the insurance, the
language of the insurance policy must also state that the
insurance is for the benefit of all the co-owners
• Can an insurance policy make “all students” the insured? Can you
designate a class?
o Yes, if the class is properly described.
o The heirs of the member of the class, in order to claim, must prove
that the deceased is a member of the class.
• Who can claim?
o Person directly named
o Agent of the principal
o Member of a designated class
• Can a partner take out an insurance?
o Yes - but it must be specifically indicated that the certain partner
is acting as an agent of the other two for them all to be
considered beneficiaries
• What happens if a policy fails to state a person by name, but it is describes
a class of person?
o The description must be specifically indicate so they can be
identified
o The policy is not void
• Is the "owner" the same as the "insured"?
o No - they are different, ownership is not required to insure
something, all that is needed is an insurable interest
o Assured - if the owner is also the insured
• In terms of contractual rights, when there is an owner of the policy, who is
the party of the contract?
o Only the one who entered into the contract with the insurer
o Owner and insured may be different people
• Who can then exercise the rights to cash surrender value, dividends or
assignment, etc.?
o The person whose name appears in the policy
o The insured is generally a reference point - death or injury triggers
the obligation of the proceeds
• Can a minor be an owner?
o No - rule of capacity will apply
o But they are voidable insurance contracts
• If the owner (of the policy) takes out a life insurance on a person, but the
owner dies before the insured, what happens?
o Insurer still has no obligation to pay the proceeds
o The policy will go to the insured
 ! If the owner dies before the insured " the insurance
policy vests automatically to the insured
• Who is the 3rd important party to an insurance contract?
o Beneficiary
! Not necessarily a party to the contract, because he does
not sign in the contract
! Still, he has enforceable rights under the contract
• If an insurer assents to the transfer of an insurance from a mortgagor to a
mortgagee, and upon assent, imposes further obligations, what happens?
o There is a new contract made, wherein the mortgagee is the party
to that contract
o The mortgagor cannot affect the right of the assignee
• Mortgagor takes out an insurance payable to the mortgagee, for how
much can the mortgagee claim?
o Up to the extent of his unpaid obligation
! In this case, the parties to the contract are still the
mortgagor and the insurer, even if the beneficiary is the
mortgagee (called OPEN OR LOSS PAYABLE CLAUSE)
! As far as the mortgagee is concerned, he is still not a
party to the contract.
• If the loss is not made payable to the mortgagee, but it is to the
mortgagor, how much can the mortgagor claim?
o Up to the extent of his loss
• Payable insurance policy for 750K loan, payable to mortgagee, how
much is the insurer liable to pay?
o Only up to the loan of 750K
• If mortgagor has paid 500K, how much is the insurer liable to pay?
o 250K
• What is an insurable interest?
o You have a pecuniary interest on the subject matter to be insured
that may be lost
o Something you benefit from its continued existence (or suffer a
loss in case of its destruction or damage)
o Without insurable interest, the insurance policy would seem like a
gambling/wagering contract " thus, void
• Is that concept of insurable interest all-encompassing?
o No - it only applies to property insurance
o In life insurance " commentaries say insurable interest is not
required because the life of a person is not measured by
pecuniary interest
! BUT technically, life insurance still needs insurable interest
(but the insurable interest is determined by law, which is
Section 10 of the Insurance Code)
• Why does insurance require insurable interest as a public policy?
o Lack of insurable interest would mean that the contract will be
void for being a wagering contract
• On what does a person have an insurable interest in the life and health on
whom? (REMEMBER SECTION 10)
o On his own life
o On the life of his spouse, children
o If a person receives pecuniary interest from a person (like support)
o Persons who have a legal obligation for payment (you, the
creditor, will suffer the possibility of not being paid back, if the
debtor dies)
o Any person who relies on the estate of another
• Where do you look for the list of persons who will give you support?
o Family Code
• Can a corporation take out insurance on the life of its star employee?
o Yes - as far as the corporation is concerned, it could have a
pecuniary interest in that person
• An insurance contract is said to be a contract of indemnity, what does
that mean?
o You cannot get more than what you’ve lost
o This definition is not applicable to life insurances because you
cannot measure in pecuniary terms the life of a person
! Except if the insurance is on the life of the debtor "
insurance is only to the extent of the debt, thus able
measure the amount
• In life insurance, when should the insurable interest be present?
o When the insurance contract is to take effect
• Can you take out an insurance policy on the life of your fiancé?
o No - it should be the spouse
• In life insurance, should the insurable interest exist during the entirety of the
policy?
o No - only at the time it took effect
• In property insurance, when should the insurable interest be present?
o When the insurance contract is to take effect; AND
o When the loss occurs
• In property insurance, should the interest exist during the entirety of the
policy?
o Not necessarily, it will be suspended until reacquisition
• When you take out life insurance on your own life and designate a
beneficiary, is there any requirement that the beneficiary have an
insurable interest in your life?
o No - it is the exception, good faith is the only reason why that is a
rule when taking out insurance on another's life, it doesn’t apply
to its own life
• What are the exceptions?
o Disqualified if disqualified from receiving donations
o A beneficiary's receipt of proceeds are equivalent to a donation
• In a life insurance policy, a beneficiary is named; can the person who took
out the insurance on his own life change the beneficiary?
o G.R. - yes, it is revocable
o Exception - unless stipulated that it is irrevocable, then the
consent of the beneficiary is needed
• What happens if he adds someone else as a beneficiary?
o Same rule since the original beneficiary's proceeds would be
diminished
• Does the beneficiary acquire an interest?
o Yes - but it is not a property that can be transferred to someone
else, it cannot be transferred (it offends the very notion of
liberality)
• If I stopped paying premiums and you are the beneficiary, can you pay
for the premiums knowing that I will fail to pay the premium?
o Yes - oblicon allows 3rd person to pay the obligation with or
without the consent of the obligee to protect his interest
• When can a beneficiary be disqualified from receiving proceeds?
o An example is when the beneficiary takes part in willfully taking
part in bringing about the death of the insured
• In that case, to whom will the proceeds go?
o Other beneficiaries
o If none, stipulated in policy
o If none, estate of the deceased
• If we get into a car accident and your driving and I die, will you receive
the proceeds?
o Yes - the death contemplated must be willful
• If I ask you to kill me and you do, will you be entitled to the proceeds?
o Maybe yes (hypothetical)
o The extent is willful, if assisted suicide would not be punishable
anymore in the RPC, it may allow the beneficiary to receive the
payment
• What constitutes insurable interest in property?
o Interest in a particular subject matter which may cause a loss
contingent upon an event (directly damnifies the insured)
• Is it always the case that the particular subject matter must exist?
o G.R. - Yes - it must exist
o Exception: It can be insured for something that there is an
expectancy, coupled with an existing interest from that of which
the expectancy arises (e.g. farmer crops about to be harvested)
• Can I insure the offspring of my pigs?
o Yes - there is an expectancy, coupled with an existing interest
• Creditor lent money to a debtor; can the creditor take out property
insurance on the house of the debtor?
o No - there is no link to the house of the debtor (absent a
mortgage)
• Can a stockholder insure corporate assets?
 o Yes - he has an inchoate interest founded upon an existing
interest (shares of stock)
• Can a soon-to-be stockholder insure corporate assets?
o No - he has no existing interest at the moment
• What is the measure of the interest in property insurance?
o Not necessarily the value of the property
Notes:
• Art. 2127 (Civil Code) - Mortgage rights extend to include insurance
proceeds over the thing that it mortgaged (mortgagee has the
preferential right that includes insurance proceeds)
• Insurable interest can be the upper limit of collection
• There has to be a legal interest (lessor, contract to sell, etc.) for there to be
an insurable interest
• If the beneficiary dies before the insured – (two views): proceeds may go
the heirs of the beneficiary, or the estate of the insured
• In terms of the beneficiary in property insurance, he must also have an
insurable interest in the property insured
Cases:
1. Valenzuela v. CA - PhilAm cannot make the policy void as to the
commissions yet valid as to the premiums; Valenzuela is not a party to the
contract (merely an agent), he cannot be required to pay the insurance
premium
# The proper remedy was to terminate the insurance policy when
premiums were not paid
# Valenzeula is not an agent of the insured so he is not liable to pay the
premiums
2. RCBC v. CA - Mortgagor taking out insurance on his property, even if not
expressly stated, the intent was to make the loss payable to the mortgagee;
upon occurrence of the loss, the insurer must pay the mortgagee; insurance
proceeds should be applied exclusively to the beneficiary (even with writs of
garnishments by other creditors)
# Insurance company claimed that the premiums were not paid, thus,
they are not liable to pay the proceeds " because there are other
creditors who attached on the proceeds.
# BUT SC held that notwithstanding the claims of other creditors, RCBC
must be paid " proceeds must be applied exclusively to the named
beneficiary, which in this case, is RCBC
3. Palileo v. Cosio - If the sale was a sale with a right of repurchase, the
proceeds would only inure to the amount of the loss (entire property), but if
the sale was really an equitable mortgage, the limit is only up to the amount
of the loan; the sale was in the form of an equitable mortgage; the creditor
took out an insurance policy on the property subject to the mortgage; there
can be no set-off between insurance proceeds and the loan; the insurance
was taken out in the creditor's name as a separate contract; the mortgage
contract is separate from the insurance contract; the debt still stands
# Why is it important to determine if the transaction is a conditional sale
or an equitable mortgage?
o Because if it was a sale, then ownership transfers
o This would determine how much can be claimed from the
insurance company
! If owner " up to the extent of the loss; the entire
amount of the property insured
! If mortgagee " up to the extent of the outstanding
debt
4. GREPALIFE v. CA - Widow has standing to sue as a real party-in-interest; she
can sue as the beneficiary of the doctor who died, there being no proof he
falsified or concealed his hypertension
# In cases when the beneficiary is another party, the “owner” or the
insured is still a party to the contract
o This is why Dr. Leuterio was still party to the contract, and thus,
his wife still has a right to proceeds (after payment to DBP)
# Since the mortgagor is still party to the contract, his acts may still
affect the mortgagee
5. El Oriente Fabrica De Tabacos v. Posadas - El Oriente can purchase a life
insurance policy on a star employee; they can be the sole beneficiary and it
will not be taxable since it is an indemnity
SESSION FOUR
• How does the law describe the measure of insurable interest in property?
o The measure is the extent which he is damnified
• In property insurance, when is the insurable interest needed to be in
existence?
1. At the time when the insurance policy takes effect (not just the
execution thereof); and
2. When the loss occurs

• If the insurable interest is lost in the meantime (i.e. transfer of the property
without transferring the policy), what happens?
o Suspension of the policy until such person becomes the owner of
both the policy and the thing insured
o It is not voided
• What happens if you transfer the property and the policy?
o Insurance will continue as normal
• To whom can the proceeds be assigned in property insurance?
o Usually to himself
• Can he assign it? Are there requirements?
o The beneficiary must himself have an insurable interest
• Is that the same rule as life insurance?
o No - for life insurance, anyone can be a beneficiary (form of a
donation)
• In life insurance, when is insurable interest required to exist?
o When the insurance takes effect (not required to exist upon the
loss)
• There are certain exceptions to a transfer of a thing insured without an
express transfer of a policy and it will not suspend the insurance, what are
they?
o When a partner insures a partnership's property jointly for the
benefit of all the partners
o Change of interest in one or more several distinct things,
separately insured by one policy
o Transfer of property after the loss occurs
o Succession, insurance is a transferable property vested on the
heirs and will be part of the estate
• Code gives us an instance where a property insurance contract is declared
void in connection with a person who will receive the proceeds?
o Since in property insurance, a person can designate someone, if
that someone has no insurable interest, the insurance contract will
be void
• With respect to the measure of insurable interest, how does property and
life insurance compare?
o Property - indemnification only (value of the thing or extent of the
damage)
o Life - unlimited because there is no pecuniary interest per se of a
person
• In terms of insurable interest, summarize
o Property:
! Insured and the beneficiary must have an insurable
interest
! When does the insurable interest need to exist
• When it takes effect
• Upon the occasion of the loss
o Life - insurable interest need not exist on the part of the
beneficiary
• We entered into a loan, can I take out an insurance on your car?
o No - just because you owe me money doesn't mean I have an
insurable interest in everything you own
Notes:
• (Hofi) In property insurance, insurable interest is necessary; while in
terms of life insurance, it is also needed as set out in Sec. 10 (although
it is not capable of pecuniary estimation, it still is an interest)
• Default rule in life insurance " revocable (if not specified as being
irrevocable)
Cases:
1. Insular Life v. Ebrado - Void donations apply to void beneficiaries; donation
is void as to the concubine " means she cannot be named a beneficiary
since life insurance is in the form of a donation; only a preponderance of
evidence for concubinage/adultery is needed (does not need
conviction); it does not void the insurance, but merely disqualifies the
beneficiary
# If the law contemplates that the proceeds shall be exclusively applied
to the beneficiary, this is an occasion where the disqualification did
not avoid the policy (policy still valid), but it will not go to the
designated beneficiary (because disqualified by law)
# Application of the civil code to a life insurance contract " a life
insurance contract is like a civil donation
# Situation: Insurance taken and the proceeds are to go to the “wife”;
then the wife dies and the husband remarries, can the second wife
 get the proceeds?
o Yes. The insurance policy says “wife” " second wife can
establish that she is referred to in the insurance policy
2. Philam v. Pineda - Irrevocability of an insurance contract cannot be
unilaterally changed (it was waived already) without the consent of the
beneficiary since the beneficiary has a vested right; it was a valid
contract, the law between the parties; even the courts cannot order the
change
# Seems to run against the concept of changing an act of liberality; the
lesson here is be really sure when designating an irrevocable
beneficiary; also that the rights of a beneficiary are considered
property rights, the beneficiary can invoke the irrevocability even if he
is not a party to the contract
3. Maramag v. Maramag - Legal heirs are not parties to the insurance
contract naming the beneficiaries as the 2nd family's children; they have
no cause of action since the illegitimate wife was already disqualified
from being a beneficiary in one policy (pretended to be legal wife) and
she was not even a party in the other contract; only the illegitimate
children are qualified beneficiaries
4. Lampano v. Jose - Barretto built the house and insured it with the consent of
the owner; owner sold the house, then it was burned; no proof of verbal
agreement of the turnover of the policy; there was an insurable interest
since there was an amount yet due to Barretto for the building of the
house; insurance was between him and the insurance company; there
was no stipulation pour autrui and the buyer was not parties to the
contract
# Why does Barretto still have insurable interest? What was his link to the
house?
o He was not yet paid in full
o The Civil Code provides that he still has a lien on the property
if he is not fully paid
5. Tai Tong v. Insurance Comm. - Failure to show no insurable interest means
that the insurance must be paid; Tai Tong had a mortgage on a loan on
the property; Tai Tong was the party to the insurance contract; insurance
on property is in the nature of indemnity, only a pro-rata share is available
for the beneficiaries
# The contract of Tai Tong was a separate insurance contract (as
mortgagee)
# Since it is a contract of indemnity, even though you have several
insurance policies, you can only claim to the extent of the loss, and
the insurance companies will pay pro-rata
6. Cha v. CA - A contract of lease saying that the person leasing cannot insure
the property without the consent of the CKS is void for being against
public policy; it cannot be assigned to them based on a void contract
stipulation
# No insurable interest on the merchandise inside the building, thus the
stipulation is void.
7. Delsan Transport v. CA - No proof that the seas were rough on sinking of the
ship; Delsan transport is liable as a common carrier; negligence is
presumed for the loss; dry-dock evidence of seaworthiness is not enough,
cannot explain the sinking; payment by the insurance company to Caltex
for the insured value does not admit to the seaworthiness of the ship;
presentation of marine insurance is not needed for subrogation;
subrogation receipt is enough
# Parties can specify the maximum amount wherein the insurer will be
liable (even if the value of the insured property is higher), after which,
the insurer can only go after the common carrier up to the extent
what was paid to the beneficiary
8. Gaisano v. Insurance Co. of N.A. - Book debts for ready made clothing
insured (still on books 45 days after loss); fire destroyed the goods, Gaisano
refused to pay, saying it was a fortuitous event; If seller retains ownership
only to insure buyer pays, the risk of loss is borne by the buyer; have
insurable interest until full payment; anyone can have an interest in
property if he derives benefit, apply the civil code - seller retains a lien
over unpaid purchase price; failure of book debt is a payment of sum of
money (not property), hence cannot be exempted by a fortuitous event;
Gaisano is liable
# The interest was in the book debts, not the property (jeans)
o Because there is a link in so far as the outstanding debts are
concerned " valid insurable interest
SESSION 5
• What is Sec. 77?
o No premium - insurance policy cannot be valid or binding
• What are the exceptions in the law?
o Life or industrial life insurance - whenever there is a grace period
 o When there is a 90-day credit extension ! Insured - insurer cannot then resist paying
! Insurer - allows easier collection of premiums from the
• What are the other exemptions? insured (which will be deducted from the pay out)
o Acknowledgment receipt by insurer
o Installment with partial payment • If an insured pays premium already, the representation was "pay the
o Estoppel premium, once premium is received, then the policy will be delivered so
o Waiver by insurer you can sign it"; premium was paid, but contract was never given, can
you as insured ask for return of the premium?
• Why this importance for premiums? o Yes - all of it, since there is no exposure to the risk as there was not
o Public policy - very essence of the insurance contract is the contract
pooling of funds (premiums) to compensate and divide the risk;
no premium, no pay out • How about if there is exposure to the contract? Say, undertaking to pay for
any loss is a period of one year from one week from now, can you ask for
• What does Sec. 78 say? premium to be returned before the week ends?
o Government employees - premium payments can be deducted o Yes - all of it, still no exposure
from their salaries
o New addition to the law • How about insuring for cargo for its voyage from Manila to Cebu, but your
cargo trucks failed to deliver it to the ferry, can you ask for a return of the
• Can the insurer make an agreement (in general) to insure and collect later? premium?
o No o Yes - all of it, still no exposure
o Fact that there is a contract does not prevent return of premium if
• What is the exception? the thing is not exposed to peril
o When there is an acknowledgment of receipt of payment,
notwithstanding actual payment • What if the period already started (say fire insurance for one year); premium
o Basis for this is estoppel is paid (12K), 2 months after the insurance period, you decide to surrender
the policy; can you surrender? And if so, how much can you get back?
• What if there really was not payment? o Yes - you can surrender; it will be pro-rated, 10K will be returned
o Doesn't matter - under the law, even no payment, as long as o Parties can agree contractually to a different scheme - short
acknowledgment receipt exists, insurer is liable period rates

• Does this run afoul of public policy?
o Not necessarily
o Provision on acknowledgment is for protection of insured
• What happens with the above situation and insurer tries to stop payment?
o No - it cannot, law provides that acknowledgment receipt binds
them
o Legal fiction of payment
o But insurer can still recover the unpaid premium payment
• So for who's benefit is Sec. 79?
o Benefits both:
• If there is a stipulation, what happens?
o Pro-rata basis will only apply after stipulations
• According to the law, this return pro-rata, does it apply in life insurance
policies?
o The code says pro-rata doesn't apply since life is immeasurable,
without sufficient cause provided by law
o Risk of a life being exposed, even a day is exposure in full
o (Hofi) - Agreement of definite period? Keep in check, life
insurance will be covered later in the subject
• If an insurance contract is entered into by a minor, what happens?
 o It is voidable
• If premium has been paid on such voidable insurance contract, but
subsequently, the insurance is annulled later on, how much is the insured
entitled to receive?
o Entire premium can be returned
• If there is fraud on the insured?
o No return of premium
• If there is fraud on the insurer?
o Return of all premiums
• What's over insurance?
o If the value of the insurance pay out is over the value of the thing
• In the case of over insurance with full payment of premiums, what is your
entitlement for premium returns?
o Pro-rata amount in the ratio of the excess of the pay out
• Does that apply to life? (over insurance)
o No - there is no over insurance in life
• So you can get 10 different life insurance over your life?
o Yes - you can, and collect from all of them
• If the insurance is silent as to whether the premium payment can be done in
installments and you pay in installments, what happens?
o Installments have to be stipulated/agreed upon
o Insurer will not be liable since installment payments were not
agreed upon by the insurer
• If installments are stipulated (or allowed by insurer), and the loss occurred
before full payment, what happens to the remaining installments of the
premium?
o Deductibles - it will be offset
• What are the options for the insurer if only partial payment is made and
insured refuses to pay the rest?
o Demand payment of premium; or
o Rescind the contract
Notes:
• When is the insurer entitled to payment of premium?
o As soon as the thing is exposed to risk/peril
• Civil code - rights may be waived (Sec. 79)
Cases:
1. Glaraga v. Sun Life
• Sun life " life insurance on the life of Juares " payment of P5000 to
legal representatives if Juares dies when the policy is still in effect "
died on Jan. 1925
• Glaraga demanded payment, but Sun life refused to pay
o Policy " premium to be paid twice (June 1 and Dec. 1 + 30
days grace period); Juares paid premium in June, but for
December, Hanson (agent) undertook to pay the premium
subject to reimbursement
o Sun Life’s defenses:
! Juares did not pay second premium " According to
the policy, failure to make the second payment will
render the policy without effect " It lapsed and was
not in effect upon Juares’ death
! Did not authorize Hanson to modify the terms of the
policy; Hanson is not an official of Sun life
! No knowledge of Hanson’s promise to pay second
premium; Never received payment from Hanson
• W/N the policy was in effect during the death – NO
o Policy expressly states that if any premium is not paid within
the 30 day grace period, the policy will be terminated and
will be rendered void " Relieves Sun life from any liability
o Policy " only president, managing director, or secretary has
the power to modify the terms of the contract; payment
should be in exchange for official receipt " should’ve been
known by Juares
o Hanson’s representations " does not bind the company;
never ratified by Sun life
o In this case, there was a written agreement which laid down
the manner (when/to whom) of payment, the duties of the
agent (delivery of official receipt upon payment)
• Sun life not liable; Hanson liable because of his misrepresentations
2. Arce v. Capital
• Tondo house (owned by Arce) was insured (fire insurance) " renewal
was due Nov. 27 but was extended to Jan. 4 " premium still unpaid "
 house burned on Jan. 8;
• Wife of Arce claimed from Capital " Capital did not pay because
the premium on the policy was not paid; Still, Capital gave financial
assistance worth 300 pesos (not as an obligation but as a concession)
" Arces encashed the check, but still filed a case against Capital
• W/N Capital is liable under the fire insurance policy – NO
o Capital is not liable, they granted an extension and it was still
unpaid
o Sec. 72 (unless premium is paid there is no insurance) -->
before Sec. 72 was amended, an insurance contract is
effective even if premium is not paid
o Policy stipulation " insurance not binding until full payment of
premiums
3. Makati Tuscany Corp. v. CA –
• Tuscany insured condo building with American Home for 1 year
(March 1, 1982-1983) " total premium is P466,103.05 " paid in
installments " policy was renewed three times
• 3rd installment due " Tuscany refused to pay; Tuscany wanted a
return of all the premiums, claiming that since there was no full
payment, then there is no valid insurance (also because contrary to
Sec. 77)
• W/N the insurance policies are valid – YES
o Intention of the parties is to make the policies valid
notwithstanding the staggered payment (Insurance
company accepted the installment payments in 3 years "
intention to honor the policy)
o Although Sec. 77 imports that full payment is required to
validate an insurance policy, installment payments when
approved by the insurer, are valid
! Sec. 78 allows a waiver by the insurer of the condition
of prepayment by making an acknowledgment of
receipt of premium as conclusive proof of payment
to make the policy binding (despite the fact that the
premiums are not yet fully paid)
! Sec. 77 " precludes parties to stipulate that the
policy is valid even without payment of premiums "
but does not prohibit agreements granting credit
extensions
o Tuscany is liable to pay the balance of the installments "
where the risk is entire and the contract is indivisible, the
insured is not entitled to a refund of the premiums paid if the
insurer was exposed to the risk insured for any period,
however brief or momentary.
4. Arreola v. CA –
• Areola – personal accident insurance; after 7 months, insurance
company unilaterally cancelled the policy for non-payment of
premiums
o Areola received a provisional receipt (provisional receipt not
enough, must receive official receipt within 7 days " never
received the OR)
• 2 months after, insurance company offered to reinstate and extend
the policy after discovering that Areola fully paid the premiums, and
that the branch manager, Malapit, did not remit the same " Areola
filed a case for breach of contract and damages against insurance
company
• Issues: W/N the cancellation entitled Areola to damages & W/N the
reinstatement of the policy obliterate the liability of the company
o RTC " Ruled in favor of Areola; Insurance company was in
bad faith when it cancelled the policy
o CA " Reversed RTC ruling; No bad faith " Cancellation was
based on the records that no OR was issued
! Investigation was conducted to see if full payment
was made
! Reinstatement of the policy with a proposal to extend
it
! Apologies for the inconvenience caused
o SC " Malapit’s act of misappropriation is imputable to the
insurance company; a corporation acts through its
employees; His acts of accepting the premium payments was
within his authority
! Art. 1910 of Civil Code " Principal bound by agent’s
acts if within authority; if excess of authority, not
bound unless there was ratification
! Insurance company liable for damages because of
fraudulent scheme of Malapit; Reinstatement of the
policy does not absolve company from liability "
contracts entail reciprocal obligations for both insurer
and insured
• Reciprocal obligations: both debtor and
creditor of each other, the obligation arising
from the same cause " agreement to enter
into an insurance contract
 ! Company will only be liable for NOMINAL damages
" took steps to rectify the situation within a
reasonable time
• Nominal damages " recoverable where a
legal right is technically violated and must be
vindicated against an invasion that has
produced no actual present loss of any kind
or where there has been a breach of
contract and no substantial injury or actual
damages whatsoever have been or can be
shown
5. Sps. Tibay v. CA –
• Fortune " fire insurance in favor of Sps. Tibay for their 2 storey
residential bldg. in Makati City (worth 600K) " premium paid was only
600 out of the 2,983.50)
• Building was destroyed " 2 days after the fire, Tibay paid the balance
of the premium " filed a claim on the fire insurance policy " Fortune
did not pay
• W/N Fortune is liable to pay under the fire insurance policy – NO
o Stipulation in the contract: Policy will have no effect until full
payment of the premiums " if only partial payment, and the
balance was only paid after the peril occurred, the contract
did not take effect and insured cannot collect on the policy
(Sec. 77)
o Phoenix case (partial payment " partially performed
contract; binding) not applicable in this case
! In Phoenix, company sued the insured for payment of
balance, thus admitting the existence of the policy;
no stipulation in that policy that full payment is
required before the policy becomes binding
o Makati Tuscany case also not applicable because in that
case, the parties mutually agreed that the policy can be paid
in installments
o Both Phoenix and Makati Tuscany demonstrate the that
payment in full to make policy binding may be waived
(Phoenix " impliedly by suing for balance; Makati Tuscany "
expressly by agreeing on installment payments)
o In this case, there is no waiver; policy stipulated that full
payment is required before the policy becomes binding "
partial payments are deposits in trust by the insurer until full
payment is made " no vinculum juris to indemnify
o South Sea Surety case: 2 statutory exceptions to requirement
of full payment
! Life or health insurance when the grace period
applies
! Written acknowledgment of the receipt of premium
which is conclusive evidence of the premium
payment
6. American Home Assurance v. Chua –
• AHA " fire insurance in favor of Chua covering his stock-in-trade
business in Bukidnon " insurance to expire on March 25, 1990
• April 5, 1990 " Chua issued PCI Bank check to Uy (agent of
company) as payment for renewal of the policy " OR received, new
policy was issued
• April 6 " business was razed by fire " Chua filed for an insurance
claim " AHA did not pay
o AHA claims that there was no existing contract when the fire
occurred because premium was not paid; assuming there
was payment, Chua violated several conditions of the policy
(submission of fraudulent ITRs; failure to establish actual loss;
failure to notify AHA that building was already insured by
other companies)
o AHA also claims that when the fire broke, the insurance was
not yet effective because a check can only effect payment
once it has been cashed (Art. 1249) " OR dated April 10
• W/N AHA is liable under the fire insurance poicy – YES
o G.R. " full payment required to make policy valid (Exception:
life/health insurance)
o Both RTC & CA found that full payment was made " renewal
of the policy contained an acknowledgement that premiums
had been paid; an OR was given also
o Sec. 78 " acknowledgment of receipt of premium is
conclusive evidence of its payment " legal fiction of
payment; exception to Sec. 77
7. UCPB v. Telamart (1999) –
• April 1991 " UCPB issued 5 fire insurance policies covering Telemart’s
properties (May 22, 1991 – 1992)
• March 1992 " Telamart decided not to renew the policies upon
expiration
o April 6, 1992 " written notice by UCPB to Telamart of the non-
renewal of the policies
 • June 3, 1992 " fire broke out in Telamarts property covered by 3 of
the insurance policies issued by UCPB
o Same day " Telamart presented to UCPB 5 manager’s
checks representing the premiums for the renewal of the
policies " No notice of loss filed until July 14, 1992
• W/N the fire insurance policies had been renewed by an implied
credit arrangement though actual payment was tendered on a later
date after the occurrence of the risk (fire) insured against - NO
o G.R. " full payment
o Both RTC and CA " in favor of Masagana
o In this case, payment only after fire; no notice of loss within
reasonable time after occurrence of the fire
8. UCPB v. Telamart (2001) –
• Resolution - by MR, SC reversed itself
• UCPB has been granting Telamart 60-90 day credit term within which
to pay the premiums on the renewal policies
o The premiums (worth 225,753.95) were paid within the 60 – 90
day credit term
• No valid notice of non-renewal as there is no proof at all that the
notice sent by ordinary mail was received by UCPB
• NOW, FIVE EXCEPTIONS TO SEC. 77
o Life/health insurance
o Acknowledgment receipt " legal fiction
o Stipulated by the parties " installment payments
o If the insurer grants a credit extension for the payment of the
premium
o Estoppel
• May 22 end of insurance coverage " June 13, burned building, on
the same day of the fire, MC was paid to insurance company
• SC held that by contract stipulation, there was a credit term, hence
UCPB is liable to pay since the MC was paid within the stipulated 90
day period for renewal; parties can agree to credit extensions
9. South Sea Surety v. CA –
• Jan. 16 " Hardwood entered into an shipping agreement with Seven
Brothers that the latter will ship 940 logs from Isabela to Manila
o Jan. 20 " Hardwood insured the logs against loss or damage
with South Sea Surety and Insurance Co.
o Jan. 24 " check payment of the premiums to Chua (agent of
insurance company)
o Jan. 25 " ship sank resulting to the loss of the insured logs
o Jan. 30 " check was tendered to the company, but was not
accepted; instead, the policy was cancelled for non-
payment of the premiums
• W/N the insurance company is liable – YES
o Chua delivered the insurance policy on Jan. 21
! Insurance company, in delivering the policy to Chua,
is deemed to have authorized Chua to receive
premiums on its behalf (Sec. 301 & 306)
10. Philippine Phoenix v. Woodworks –
• Phoenix filed a case against Woodworks for the sum of 3,522.09
(unpaid balance of the premiums of a fire insurance policy)
• Insurance policy issued on April 1, 1960; Paid 3k of 6k premium on
Sept. 22 with OR
• W/N there was a valid insurance contract – YES
o There was a perfected contract; also partially performed as
far as the payment of the agreed premium
o As the contract had become perfected, the parties could
demand from each other the performance of the obligations
they had assumed
o Phoenix had the right to demand payment or sue for
rescission " chose to demand payment
11. Western Guaranty Corp v. CA –
• Rodriguez, hit by a bus; bus driver disregarded the stop signal by
traffic policeman " Rodriguez’ face was permanently disfigured,
causing her serious anxiety and moral distress
• Bus company was insured by Western " protection against third party
liability
• Rodriguez filed for damages " both RTC and CA ruled in her favor
• Western appealing because award was beyond the limits of the
schedule of indemnities contained in the insurance policy
• W/N Western is liable to pay (despite the fact it is beyond the limits of
the schedule) – YES
o The schedule of indemnities does not restrict the kinds of
damages that may be awarded " policy limits the claim to
50K per accident (any kind of accident)
o Schedule of Indemnities " not intended to be an
enumeration of specific kinds of damages which may be
awarded " Third party liability stated that insurer would be
liable to pay "all sums necessary to discharge injured party”
o Insurance contract " contract of adhesion
 o (Hofi) - oops wrong case - magical linking to the topic at
hand - payment of premiums is part of the contract; terms of
the contract is an obligation of the insurer to be liable; this
was an example of a contract of adhesion; schedule did not
exclude liability to pay for other types of injuries
12. Capital Insurance v. Plastic Era –
• Dec. 17, 1960 " Capital insured (fire insurance) Plastic Era’s property
in Mandaluyong
o Stipulated that if the property would be destroyed by fire
after payment of premiums, at any time between Dec. 15,
1960 and 1 pm of Dec. 15, 1961, Capital will pay an amount
not exceeding 100K
• Plastic Era failed to pay the premiums but issued a promissory note
that it will pay within 30 days
o Jan. 1961, Plastic Era delivered a post-dated check for partial
payment " check dishonored for lack of funds
• Two days after, the property burned; Capital was notified of the loss "
Capital did not pay because of non-payment of premiums
• W/N the insurance policy was perfected – YES
• Contract stipulated that no valid contract until full payment of
premiums are paid
• BUT Capital accepted Plastic Era’s promise to pay within 30 days "
implied waiver
o Rendered the policy immediately operative
o Extension of credit to Plastic Era
o Payment of the premium became an independent
obligation, the non-fulfillment of which would entitle Capital
to recover
o Capital held the check for 35 days " unreasonable period of
time; estopped from claiming forfeiture of the policy, even
though the check was dishonored later
# Not the check itself, but the acknowledgment
# Policy was modified by the issuance " gave a period to pay
13. Makati Tuscany v. CA - repeated case (skipped)
14. Sps. Tibay v. CA - repeated case (skipped)
15. Paulino v. Capital –
• Feb 8 " fire insurance
• May 10 " Paulino wrote a letter to cancel his policy; did not return the
policy and did not demand for return of premium " Capital did not
return the premium
• Aug. 16 " fire " Capital did not want to pay because the policy was
cancelled
• Stipulation in the policy " it can be terminated at any time upon the
unilateral act of either party " the termination does not need the
consent or concurrence of the other party
• W/N the policy is still valid – NO
o Pursuant to the stipulation, Paulino is not entitled to recover
o Paulino unilaterally terminated the contract; upon the receipt
of Capital of the letter, the policy became ineffective
o Termination of the contract is not dependent on the return of
premium payments
# Requirement to make insurance binding " full payment
# Is a return of premium required to terminate? NO " the policy governs
as to the return of premiums paid
SESSION 6
• What are the formal requirements for an insurance policy?
o It must be written (in printed or electronic form only)
• Must there be a particular form or are companies required to follow a
specific form?
o Must first be approved by the insurance commission
• Is the policy something that is susceptible to amendment or modification?
o Yes - the law provides for modification by riders, clauses,
warranties or endorsements
! Entered into or issued after the policy is issued
! Attached to the policy
! Must be approved by the Commissioner (as to form)
• Are these riders, etc. contracts also?
o Yes
o Must be signed by the insured " to be able to show as easy proof
that he is bound by the agreement
! Signature is not needed if the insured was the one
applied for it
• In order for these attachments to be valid, what are the formal
requirements?
o G.R. - descriptive title or name of the attachment is mentioned
 and written on blank spaces in the policy (valid even if not signed
by insured)
o Exception: Countersigned if not applied for by insured
• Does the insurer need to countersign the rider?
o No need
• Should the insured sign the policy itself?
o No need
• If the form of policies must be pre-approved by the insurance commission, is
that the same rule for riders?
o YES. Sec. 232 - Riders should be approved by the insurance
commission
• How about contents, what are the required contents of a policy? (Sec. 51)
o Parties between whom contract is made
! Insured
! Insurer
! Beneficiary (if there is one)
o Amount to be insured (except if open or running)
o Premium paid " amount must be specified
o Property or life insured
o Interest of the insured in the property (if he is not the absolute
owner thereof)
o Risks insured against
o Period during which the insurance is to continue
• There are 3 variants of amounts to be paid, these are?
o Open - no set amount, but subject to a maximum liability
o Valued - on its face sets value of the amount of the insurable risk
(predetermined)
o Running - frequent change in location and quantity (e.g. floater
insurance)
! It really is an open policy
! Contemplates successive insurance policies
• Ex. Merchandise; after selling all the stocks, he gets more to sell again. Every
time he buys new stock, does he get new insurance?
o No " example of running insurance " can be agreed upon by
the parties
o Can be covered just by one running insurance " successive "
the property keeps on being changed up front
• Let's say your car is an old car (so the value is ex. 300K), can the insured and
insurer agree on insuring it in a valued policy for 1M?
o G.R. - Yes, they can rely on an agreed value, it is the agreement
of the parties as to the value of the car that will control
o Exception: fraud or bad faith
• Does the premium in the policy need to be a definitive amount?
o No - can be "to be determined"
• What is the cover note?
o Preliminary contract of insurance
o Function - protection for the insured prior to the insurance policy's
issuance
o Binding
• Can they last for extended periods of time?
o No - G.R. - 60 days, policy must issue
o Exception: if insurance commissioner may allow extension up to
another 60 days
• I am shipping logs from Manila to Cebu, order came in very late, so no time
to work with insurance company; insurer agrees to give me a cover note
before the policy can issue; before policy is issued, while logs are in transit,
the vessel sinks, can you collect the amount of the insurance
o Yes - that's the function of a cover note
• Reconcile cover notes with requisite for premium payment
o Weird - cover note has the function as being an insurance
contract (there is a meeting of the minds already and gives rise to
rights and obligations) but there is no requirement for premium to
be paid in case of use of a cover note (jurisprudence in De Leon)
o If cover note acts however as the acknowledgment receipt (by its
language); Sec. 79 shall apply, it is the legal fiction of payment
• Is there a form approved for cover notes?
o Yes - (Hofi) it should be (everything re: form is controlled by
insurance commission)
• How does the insurance code define concealment?
o A neglect to communicate that which a party knows and ought to
 communicated
• What do you need?
o A party who knows a fact - must be a fact that he "knows"
o That it ought to be communicated
• Why the reason for the need to know?
o Insurer does not know it
o It would affect the insurer's decision to insure the life/property
• Is it there an obligation to communicate a fact or piece of information that
the insurer already knows?
o No
o If the other party brings up concealment, an affirmative defense
is the fact that the insurer already knew or should have known
• What is it among the many things you "know", what should be
communicated to the insurer?
o Must be material to the risk
• If the insurer asks questions, 1-5, but something that wasn't asked, is there
going to be an issue with regard to concealment?
o No - you don't need to tell the insurer things he was not asking
• What are the standards of concealment?
o Knowledge of the fact
o Must be material to the risk
• If you apply for fire insurance and a fire occurs, the insurer says that the
investigator says "you never told us you had another house in Cubao, you
split your time in Makati and Cubao, hence you were not able to take
care of your property full time"; concealment?
o No - not material fact
o No relation to risk of damage to house in Makati
• How about opinions?
o No - it is specifically provided that the facts (not opinions) are
needed to become facts
• At the end of the day, materiality, according to the code is?
o Not the event itself
o Effect of the presence of facts that would influence the persons
(insurer and insured) to enter into the contract, the risk entailed
subject to the test of reasonableness
• How about situations where an insurer confronts an insured and says that
"you didn't tell me this fact"; and insured claims neglect or unintentional, is
this concealment?
o Sec. 27 - it is still concealment (intentional or unintentional) - fairly
new provision
• Is bad faith necessary in cases of concealment?
o No - it is not necessary
• If in an application for health insurance, insurer asks your monthly income
and you misrepresent your income, is this concealment?
o Would be material because of the way "material" standard is set
out in the law
o Decision to insure the person can include whether or not the
insured can pay the premium
Notes:
• Riders, clause, warranty - many terms, but basically anything you
attach to a policy is covered by the law
• If it’s asked in the policy, just answer " may constitute concealment
" what is asked is considered material
• Important since four years ago (added only four years ago):
unintentional concealment
◦ Before, it was required that it should be intentional
Cases:
1. Gulf Resorts Inc. v. PhilCharter –
• Gulf resorts " owner of plaza resort in La Union " 4 insurance policies
with AHA " risk of loss from earth quake limited to 2 swimming pools "
only paid P393 premium for earth quake shock (for the 2 pools) " In
1990, earth quake " club house and pools extensively damaged
• Claim for damages " AHA did not pay because only pools are
covered by the earth quake shock coverage
• W/N the whole property was insured for earth quake or only the pools
" only the pools
• Clear intent of the policy is to cover only the pools
o All the provisions and riders, taken and interpreted together,
indubitably show the intention of the parties to extend
earthquake shock coverage to the two swimming pools only
 • SC also held that there is no ambiguity in the terms of the contract
and its riders " Petitioners cannot rely on the general rule that
insurance contracts are contracts of adhesion, which should be
liberally construed in favor of the insured and strictly against the
insurer company, which usually prepares it. Petitioner cannot claim
that it did not know the provisions of the policy.
• Riders must be read in conjunction with the policy since it is part of the
policy in itself
# If there is an inconsistency between rider and policy, rider will prevail
" riders are deemed modifications to the policy
# The riders/endorsements cannot be read in isolation to the policy
2. Luz Pineda v. CA
• PMSI " group policy with Insular " life insurance for their sea-based
employees
• Effectivity of the policy " 6 covered employees died when the ship
sank " beneficiaries (heirs of deceased) executed SPA to authorize
Capt. Nuval, president and GM of PMSI to follow up and sign
documents for the indemnity " received death benefits (not life
insurance)
• Unknown to the heirs, PMSI (holder of policies) filed claims against
Insular " Insular paid Capt. Nuval " Capt. Nuval deposited the checks
to his own account (only talked on the phone with the accountant)
• When heirs discovered they were entitled to these benefits, the filed a
claim against Insular, but Insular did not pay claiming that the liability
has been extinguished (because they paid Capt. Nuval already)
• W/N Insular is bound by the misconduct of Capt. Nuval " YES
o Nuval, as president and GM of PMSI acted as the agent of
Insular " Insular is bound by the misconduct of Nuval
o SPAs did not authorize Capt. Nuval to receive payment " SPAs
are strictly construed
o Although the group life insurance may be under the name of
the employer, it is related to the life and health of the
employee " employee is the real part in interest
o Insular was negligent " should not have allowed a person
without an SPA (accountant) to receive and encash the
money
3. Grepalife v. CA - Ngo Hing tried to get insurance for his 1 year old
mongoloid daughter (hidden fact) for a 20 year endowment plan, he
paid a premium; Grepalife denied it, but denial was never
communicated by Mondragon (insurance agent) to Ngo Hing; deposit
and binding receipt is conditional, since it was disapproved, there was no
perfected contract; Ngo Hing was an underwriter, he should have known
that his daughter was not insurable (under 20 year endowment plan);
concealment of child's condition also shows bad faith
4. Sindayen v. Insular Life –
• Sindayen " employee in the Bureau of Printing (Manila) " went to
Tarlac for Christmas (vacation with aunt)
• Applied for life insurance (worth P1K) " paid agent P15 as first premium
o Policy should be delivered to the aunt " left P26 with aunt to
complete payment of first premium
o Insurance company accepted the risk and issued the policy
o Agent delivered the policy to the aunt " asked about the
health of Sindayen " aunt said he was in good health
• Sindayen died (policy was still being processed)" wife claimed under
the policy " Insurance company refused to pay because when it was
delivered, Sindayen was not in good health
• W/N the insurance policy took effect – YES
• Delivery of the policy consummated the contract " Agent authorized
to make the delivery of the policy when the premium was paid, and
the agent was satisfied that he was in good health
o Aunt paid and aunt told him that "she thought he was in good
health", hence, him being authorized and the 2 conditions
fulfilled, it was binding on the insurance company (by agency)
• The delivery of the policy to the insured by an agent is the final act
which binds the company and insured in the absence of fraud or other
legal ground for rescission. The fact that the agent to whom it has
entrusted this duty is derelict or negligent or even dishonest in the
performance of the duty which has been entrusted to him would
create a liability of the agent to the company but does not resolve the
company’s obligation based upon the authorized acts of the agent
toward a third party who was not in collusion with the agent.
# Delivery is necessary " because contracts need to be executed and
then delivered " contract of insurance is required to be delivered
# Can an insurance company impose on when delivery is to be
effected? Yes. You can put conditions
# The agent is required to ensure that the 2 conditions were met "
asking about the health is enough " the agent had the
authority/discretion and he was satisfied that the conditions were met
5. Argente v. West Coast Insurance –
 • Joint life insurance policy by West Coast " Sps. Aregente " paid
premium
• Wife died of cerebral apoplexy during effectivity of the insurance policy
" Husband claimed under the policy
• Medical examiner’s report " wife said she drinks beer in small qualities;
did not consult with a doctor in the last 5 years " but in 1924 she was
diagnosed with alcoholism, and later with manic depressive psychosis,
and then psychoneurosis
• W/N the wife’s misrepresentations (hid medical history) bars husband to
recover from policy – YES
• The court found that the representations made by Vicenta in the
application for life insurance were false with respect to her state of
health and that she knew and was aware that the representations so
made by her were false.
• In an action on a life insurance policy where the evidence conclusively
shows that the answers to questions concerning diseases were untrue,
the truth or falsity of the answer becomes the determining factor.
• If the policy was procured by fraudulent misrepresentations, " contract
of insurance was never legally existent " had the true facts been
disclosed by the insured, the insurance would never have been
granted.
• (Hofi) - a case where the representative of the insurer was the one filing
it up; no showing of collusion between insurer's agent and medical
practitioner
6. Edillon v. Manila Bankers –
• Lapuz " applied for insurance with Manila Bankers (accident and
injuries) " insurance effective for 90 days
• She wrote that she was 65 years old
• During the effectivity of the policy " died in a vehicular accident " Her
sister claimed under the policy but insurance company denied her
claim " The policy was only for 16-60 years old and she was over 60
when she applied for the insurance policy, thus policy is void
• W/N the insurance company is still liable (considering that premiums
were paid) – YES
• The issuance of the certificate and the acceptance of the premium is
deemed a waiver on the part of the insurance company
• There was no misrepresentation as to her age because she clearly
indicated it " despite this information, the insurance company still
received premiums and issued the certificate of insurance " estoppel
• Inaction to revoke policy despite a departure from the exclusionary
condition contained in the said policy " waiver " policy binding
7. Thelma Canilang v. CA –
• Canilang " diagnosed with sinus trachyderia and acute bronchitis "
applied for non-medical insurance (there is no medical examination
before issuance of policy; all the more important that disclosure is done
upon application) with Grepalife and named his wife as beneficiary "
policy was issued
• A year after, he died of heart failure " wife filed a claim but was
denied on the ground of concealment of material information
• W/N Canilang was guilty of concealment – YES
• The information concealed was material to the ability of Grepalife to
estimate the probable risk he presented " Had he disclosed such
information (visits to the doctor; diagnosis; medicine prescribed)
Grepalife would have made further inquiries and would have probably
refused to issue the policy
• 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. Materiality
of the information withheld does not depend on the state of mind of
the insured. Neither does it depend on the actual or physical events,
which ensue
• Section 27 of the Insurance Code of is properly read as referring to “any
concealment” without regard to whether such concealment is
intentional or unintentional
# If it’s a question of whether or not you knew a fact " and you didn’t "
no concealment
# But if it’s a question of whether a fact was material or not " may be
unintentional concealment
8. Sunlife Assurance of Canada v. CA –
• Bacani " life insurance with Sunlife (worth 100K) " double indemnity in
case of accidental death " mother was named beneficiary
• 1987 " died in a plane crash " mother claimed under the policy "
Sunlife denied the claim
o Sunlife discovered that Bacani concealed that he was
confined in Lung Center because of kidney problems
• W/N Sunlife is liable – NO
• Section 26 of the Code is explicit in requiring a party to a contract of
insurance to communicate 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 no means of ascertaining.
o 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 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.
• Good faith " NOT A DEFENSE in concealment " failure to disclose
hospitalization (for 2 weeks) " concealment is deliberate
• Cause of death need not be connected to the concealment (just
whether insurer would have changed mind as to insuring him) " no
requirement that they be related
9. Qua Chee Gan v. Law Union and Rock Insurance –
• Gan " merchant; owned warehouses in Albay " insured " fire
• Insurance company did not want to pay " Gan violated the conditions
of the policy (because instead of 11 hydrants, Gan only had 2)
• W/N Gan may recover – YES
• Insurance company was negligent " continued to issued policies over
the years despite knowing that there were only 2 fire hydrants "
estoppel
• Where the insurer, at the time of the issuance of a policy of insurance,
has knowledge of existing facts which, if insisted on, would invalidate
the contract from its very inception, such knowledge constitutes a
waiver of conditions in the contract inconsistent with the facts, and the
insurer is stopped thereafter from asserting the breach of such
conditions.
• (Hofi) - it was essentially a warranty on the insurance, there is leeway to
be excused for not strictly complying with a warranty (estoppel, good
faith or other defenses might excuse you)
i. Compare to previous case wherein good faith is not a defense in
concealment
10. Fieldmen's Insurance v. CA –
• Songco (only finished Grade 1) " owner of jeepney " induced by
Fieldmen’s agent to apply for a common carrier’s liability insurance
policy (such insurance is only for government owned vehicles)
• Payment of premium " common carrier’s accident insurance policy
was issued " effective for 1 year; renewed for another year
• Songco (son) was driving the jeep when it collided with a car " both
father and son died
• One of the sons of Songco said that the agent of the company
induced his father to get such policy saying that it is valid even if theirs is
a private jeep)
• W/N the Songcos can claim despite the fact that the vehicle
concerned is a private jeep and not a common carrier – YES
• Insurer cannot then resist payment on the ground that he is disqualified
since it was a private jeep " they led Songco to believe he was
qualified
i. After 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.
# You must describe the property or life insured (in the policy) " the
very property insured was the jeepney (privately owned jeep) "
obviously there was a discrepancy " estoppel can be used; but
strictly speaking, estoppel does not apply in concealment cases
11. Saturnino v. Philam Life –
• 20 year endowment (endowment " when you take out a policy which
is like an investment; there’s a savings component) non-medical
insurance " no medical examination needed " died of pneumonia "
husband and heirs filed a claim " denied
o APPARENTLY, 2 months before the policy was issued, insured
had her right breast removed for being cancerous; doctor told
her that she was not definitely cured
• She did not disclose such information in the application for the policy "
expressly stated she never had cancer/tumors
• W/N such misrepresentation avoids the insurance policy – YES
• The waiver of medical exam (in non-insurance) renders even more
material the information required of the applicant regarding previous
medical conditions
 • Concealment whether intentional or not entitles the insurer to rescind
the contract, concealment being defined as negligence to
communicate that which a party knows and ought to communicate "
it misleads the insurer into accepting the risk, or accepting it at the rate
of the premium agreed on
o Concealing does not need bad faith; non-medical insurance
has no check up prior to issuance of policy, hence insurer relied
on her declaration she was free from cancer (even if she
wasn't)
12. (Skipped; taken up before) Grepalife v. CA - Ngo Hing tried to get
insurance for his 1 year old mongoloid daughter (hidden fact) for a 20
year endowment plan, he paid a premium; Grepalife denied it, but denial
was never communicated by Mondragon (insurance agent) to Ngo Hing;
deposit and binding receipt is conditional, since it was disapproved, there
was no perfected contract; Ngo Hing was an underwriter, he should have
known that his daughter was not insurable (under 20 year endowment
plan); concealment of child's condition also shows bad faith
13. Florendo v. Philam –
• Comprehensive pension plan (with life insurance) with Philam " pre-
need price of almost 1M payable in 10 years " Part of the policy
regarding medical history is left blank " wife as beneficiary
• Florendo died of blood poisoning " wife filed a claim " claim denied
because Florendo was on maintenance medicine for his heart and had
a pace maker; also suffered from diabetes
• W/N Philam is liable to pay the wife – NO
• Florendo concealed his medical state when he left it in blank " Philam
had the right to assume that he was of good health " pursuant to the
Insurance Code, Philam has the right to rescind such contract
• SC held that his signing made the answers his (adopted as his own); 5
year period includes the diabetes medicine he is still taking and
pacemaker still in his body; incontestability clause for concealment was
1 year, but he died on the 11th month
14. (Skipped taken up before) Sunlife Assurance of Canada v. CA - Life
insurance issued, wherein insured lied about kidney problems (renal
failure); died in plane crash; no good faith defense can apply; cause of
death need not be connected to the concealment (just whether insurer
would have changed mind as to insuring him); insurer not liable to pay
15. Ng Gan zee v. Asian Crusader - Insured was asked if he was ever denied
insurance coverage; he said no, he was insured, then died; later, insurer
found out that he was denied reinsurance due to his peptic ulcers, but
granted upon payment of higher premiums; he did not mislead insurer;
need fraudulent intent of a material fact; he told medical examiner that
he was cured; he should not be expected to know the difference
between peptic ulcer and tumor; statement made in good faith; insurer
liable
# No longer applicable under current law
SESSION 7
MISREPRESENTATION
• What is a representation?
o Material fact with regard to the truth which would make the
insurance company decide if w/n they would give you
insurance
o Statements made by the insured which the insurer takes into
account
• Is it required that it be reduced to writing?
o No, oral or written
•
• If it’s in writing, does it mean that it is part of the contract itself?
o No
• Ex. representation that a person is in good health; if you set that out in
the policy itself, what does that mean with respect to the insurer if it
turns out that it was not correct?
o Insurance company may rescind the contract *
• When is the business of representation relevant to the life cycle of
insurance contracts?
o Before the insurance policy is issued
• Can parties to a contract agree to change/modify after the issuance
of the policy?
o Yes; example: riders, endorsements, etc. " attached to the
policy
• Can representations be relevant not only in issuance, but in any
modifications?
 o Yes " although they are inducements to enter into a
contract, they can also be inducements to modifications
• What is the distinction between an affirmative and a promissory
representation?
o AFFIRMATIVE - statements you make affirming those which
you have represented in your application
o PROMISSORY – acts as a condition
• Representations may be oral or written; if the representation is that
you will not store hazardous materials in your warehouse (written in the
policy)" is that a representation?
o No " warranty
o Warranties are in the policy itself
• If written, where might representations appear?
o Ex. application form
! It contains all the information that would make the
company decide to approve or disapprove the
policy
• If you make a representation, in the course of discussion, the insurer is
reluctant to insure your house in Bulacan because you live in an area
where fire works are made " you said there is a resolution that fire
works will be made in another barangay " you get insured. Was that
a representation that pertains to a past, present or future event?
o Future if it’s carried out
• Representations may pertain to past, present, or future events. Same
example as above, but you say, the barangay council WILL pass a
resolution (you are part of the barangay council). That kind of
statement, did he just express an opinion, or is that a promise to do
something?
o Can go either way
! He’s part of the council so he can persuade
! He has no control over the whole council because
he’s only one
• The Code says that absent anything else, a representation as to the
future should be considered as? (default rule)
o Promise (sec. 39)
o If there are elements that are beyond the control of the
insured " statement of opinion
• If an insured gives a representation (affirmative of promissory) is he
allowed to change his mind? When?
o Yes " before the policy is issued
• When the laws say that a representation cannot qualify an express
provision but may qualify an implied warranty, what does it mean?
o Since it’s not part of the contract itself, it cannot qualify an
express provision
• Ex. I keep saying that my house is residential, and the policy comes
out that the house is used as an office building, what are we bound
by in terms of what the house is?
o Insurance contract
o The fact that the policy was issued and you accepted it "
supersedes all the agreements you may have had prior that
• So in a representation, do representations cover both fact and
opinion?
o Yes
o If it’s a fact " personal knowledge
o Opinion " may not be personally known, but he can
nonetheless express that
• In case there is a mistake in the representation, in general, what does
that entitle the insurer to do?
o Rescission
• Is the entitlement to rescind available to the insurer for so long as the
information given turn out to be false
o No " only if the mistake is of a fact
• If personal knowledge + fact " is it regardless of the mistake or falsity?
o No. It must be material
o Same standard of materiality as concealment
o Not the event but act that may induce the parties to enter
into the contract
o If it’s immaterial " will not give rise to a right to rescind
 • If the representation was an opinion, will the insurer have the right to
rescind if the opinion given was not correct; If for example the opinion
given, he said that I believe that the neighbor’s house is no longer
used as a manufacturing company containing combustible materials
" if that turns out to be mistaken, can the insurer rescind?
o No, unless there is intention to deceive
o If opinion " not entitled to rescind; except bad faith
# In 1985, Batas Pambansa " intentional/unintentional
# The rule today is that unintentional concealment " right to rescind
1. Fieldmen’s Insurance v. Vda. De Songco (skipped)
• Songco " owner of privately owned jeepney " induced by
Fieldmen’s agent to get a common carrier’s liability insurance " paid
premium and policy was issue
• Accident " jeepney driven by Songco’s son " both father and son
died " claim under the policy " denied
• W/N insurance company is liable – YES
• Agent of Fieldmen’s induced Songco to acquire said policy "
estopped
# Most of the time, representations are made to induce the insurance
company to grant the policy, but it can be the reverse
# In some sense, this case is an example that the insurer kept assuring
the person that the jeep qualifies
2. Yu Pang Cheng vs. CA
• Yu Pang Eng " applied for life insurance " answered NO to questions
as to his medical history (stomach diseases, dizziness, ulcers, vertigo,
cancer, tumors, etc.) and to questions on consultations with doctors
regarding such illnesses
• Paid premium " policy issued " died due to infiltrating medullary
carcinoma, Grade 4, advanced cardiac and of lesser curvature,
stomach metastases spleen " brother (petitioner; beneficiary of the
policy) claimed under the policy (P10K)" denied due to
concealment/misrepresentation
• Apparently, before applying for the insurance, Eng was hospitalized in
Chinese General Hospital " peptic ulcers, bleeding
• W/N he is guilty of concealment of material facts – YES
• Concealment is a neglect to communicate that which a party knows
and ought to communicate. Whether intentional or not, concealment
entitles the insurer to rescind the contract. The law requires the insured
to communicate to the insurer all facts within his knowledge which are
material to the contract and which the other party has not the means
of ascertaining. The materiality is determined not by the event but by
the probable and reasonable influence of the facts upon the party to
whom the communication is due
• Answering NO " deprived insurance company from making further
inquiry as to check if they should approve his application " If the
insurance company knew, they would not have approved the
application for insurance
# If the insurer asks you a question " presumed material
# Standard of materiality is the same for concealment and
misrepresentation
3. Eguaras vs. Great Eastern Life Assurance
• Albay " life insurance " beneficiary is Eguaras (mother-in law)
• Albay died during the effectivity of the policy " Eguaras claimed the
5K " denied " filed a complaint in court
• Company alleges fraud " agent of company (Remigio) knew that
Albay had a serious medical condition before he applied but the
application said that he was of good health
• Remigio engaged Dr. Vidal to examine Albay but the doctor
examined another person (Castor Garcia) " thus, the doctor said
that he was of good health and that the company should issue the
policy
• W/N the insurance company should pay Eguaras – NO
• Art. 1269 of the Civil Code: There is deceit when by words or insidious
machinations on the part of one of the contracting parties the other is
induced to execute a contract which without them he would not
have made. It is essential that deceit be made prior to or
contemporaneous with the consent necessary to perfect a contract
• Insurance company was deceived by the result of the fraudulent
examination " contract is void and ineffective " company not liable
# In the case of misrepresentation " statements of material facts are
misrepresented " facts that are personally known
# If I don’t personally know of them, I can still misrepresent (I got them
from other people) " will I still be liable? NO, except if agency
# By the nature of agency, you are giving information as to information
personally known to your principal " agent, even if no personal
knowledge, because he is an agent, it is his duty to find out if the
information is true
4. Soliman vs. US Life (skipped)
 • 20 year endowment life policy " Sps. Soliman " beneficiary is each
other
• In Mar. 1949, the spouses were informed that the premium for Jan
1949 was still unpaid " 31-day grace period has already expired "
they were also furnished long-form health certificates for the
reinstatement of the policies
• Apr 1949 " they submitted the certificates and paid the premiums "
Jan 1950 wife died of acute dilation of the heart " husband filed a
claim
• US Life denied the claim " filed for rescission " health certificates
failed to disclose that wife had been suffering from bronchial asthma
for 3 years prior to their application
• W/N the contract can be rescinded – YES
• The insurer is given two years from the date of reinstatement (April
1949) to investigate into the veracity of the facts represented by the
insured in the application for reinstatement. When US life sought to
rescind the contract on the ground of concealment/
misrepresentation, two years had not yet elapsed. Hence, the
contract can still be rescinded
5. Pacific Banking Corp. vs. CA
• Fire policy issued by Oriental (maximum of 61K) in favor of Paramount
" Paramount is a debtor of Pacific Banking " the goods insured is
held in trust by Paramount (owned by Pacific)
• Fire " Pacific demanded for indemnity " Oriental does not want to
pay yet because they are waiting for the final report of the insurance
adjuster " case for sum of money
• During trial " discovered that there were undeclared co-insurances
• W/N these undeclared co-insurances violated condition No. 3 in the
policy which makes the contract void – YES
• By reason of said unrevealed insurances, the insured had been guilty
of a false declaration " a clear misrepresentation and a vital one
because where the insured had been asked to reveal but did not,
that was deception
• Had the insurer known that there were many co-insurances, it could
have hesitated or plainly desisted from entering into such contract.
Hence, the insured was guilty of clear fraud
• The whole foundation of the contract fails, the risk does not attach
and the policy never becomes a contract between the parties
• Also, did not give notice of loss within 15 days (only gave notice after
24 days)
# What did he do or not do that was tantamount to concealment or
misrepresentation? " Did not disclose other insurance
# If he wasn’t interested in filing the notice of loss " other party was to
be benefitted
# Even though the proceeds of insurance is payable to someone else,
the policy is not immune from rescission because of his
misrepresentations
# Mortgagor is still party to the contract " his acts may still be
prejudicial/affect the mortgagee
# Misrepresentation " subordinate to an express provision in the
contract
BREACH OF WARRANTY
• In so far as insurance law is concerned, what is a warranty?
o Statement that are included in the policy (express), or in a
separate document which is still part of the contract of
insurance
o May be express or implied
• What’s an implied warranty?
o Not written in the insurance policy
! Ex. the law says that vessels are sea worthy
o May be affirmative or promissory
! Affirmative " already existing in the present
! Promissory " those are to be accomplished in the
future
• Ex. Person is of good health
o Affirmative
• Ex. Person is of good health, and will continue to be of good health
o Combination of affirmative and promissory
• If the parties, before the policy is issued, the insured gave assurances
to the insurer, and says that within 1 year, he will be able to fix all the
wirings in his house, the insurer was reluctant, the insurer says I’m going
to have that fixed within 1 year, trust me " policy was issued but no
reference as to the obligation that the insured has to fix the wirings.
Promissory warranty or promissory representation?
o Not in writing so promissory representation
o Only difference is that it’s not in writing
 • How do you know if it is a representation or warranty?
o Check the policy
o But both have the same effect
• In the example given, if there is a provision given which says – fix within
1 year the wirings – does he have to fulfill that or not?
o Must fulfill, within the time
o If he does not, the insurer can rescind
• If the house burns after 6 months, is the insured still required to perform
that?
o No longer if the loss occurs before the period of time it is to be
performed
! Also when it becomes unlawful, impossible
• If for example you insured your building against fire, warranty that you
will always keep your house clean " lazy fit did not sweep the floor for
one month, can the insurer rescind the policy for breach?
o NO " must be material
o But if it is provided in the contract, an immaterial provision
may be considered as material (Sec. 75)
! Not available in concealment/misrepresentation "
must be material
• If the breach of warranty was not characterized by fraud, it
exonerates from what time?
o From the time of breach
! Practical application?
• Pro-rata premium is given back
! If breach before effectivity
• Whole amount of premium is given back
1. Qua Cheen Gan vs. Law Union (skipped)
• Gan " merchant; owned warehouses in Albay " insured " fire
• Insurance company did not want to pay " Gan violated the
conditions of the policy (because instead of 11 hydrants, Gan only
had 2)
• W/N Gan may recover – YES
• Insurance company was negligent " continued to issued policies
over the years despite knowing that there were only 2 fire hydrants "
estoppel
• Where the insurer, at the time of the issuance of a policy of insurance,
has knowledge of existing facts which, if insisted on, would invalidate
the contract from its very inception, such knowledge constitutes a
waiver of conditions in the contract inconsistent with the facts, and
the insurer is stopped thereafter from asserting the breach of such
conditions
2. Filipinos Compania de Seguros v. Tan
• (Note: Japanese forces entered Lucena on December 27, 1941.)
• Tan " owner of a building in Lucena " insured for P20,000 and
P10,000 in two policies
• During the term of the policies " the building insured was burned and
completely destroyed
• Notice and proof of loss " refused to pay " an action was brought to
recover on the policies because (1) under article 6 of the insurance
policies issued, the inferential finding that the fire of January 5, 1942
was of accidental origin, without more, could not make respondent's
loss compensable, considering that the contract of the parties
specifically required respondent to prove that loss happened
independently of the abnormal conditions before he could recover;
and (2) according to the petitioner, the respondent had made
fraudulent declaration in his claim submitted to the petitioner denying
that there had been a previous fire in the premises in which the
insured was interested, whereas at the trial he admitted that there
had been a previous fire in which he was an interested party.
• W/N respondent can recover – YES
• The evidence of record " fire in question was purely an ordinary and
accidental one, unrelated to war, invasion, civil commotion, or to the
abnormal conditions arising therefrom.
• It could have occurred just as well in times of peace and under
normal conditions, as it actually occurred under abnormal conditions.
In the language of the policy and as concluded by the trial court, it
occurred independently of war, invasion, civil commotion, or of the
abnormal conditions produced thereby. (The fire originated from the
kitchen at about 1:30 in the afternoon. In the morning, the caretaker
of was in the kitchen with her husband and did not notice anything
peculiar or extraordinary therein. There were then many Japanese
soldiers patrolling, and the people were quiet and peaceful, either
through timidity or fear of the Japanese. The fire could not have
possibly been of an incendiary origin, as the house was closed when
the fire started and the things in the morning in the kitchen were still
there when the fire was discovered.)
• (2) There was a previous building on the land on which the insured
building was built, which had also been destroyed by fire from
neighboring buildings. On the basis of this fact, it is claimed on
defendant-appellant’s behalf that the plaintiff-appellee should be
considered as having forfeited all benefits under the policies, in
accordance with article 13 thereof. However, it must be noted that
the previous fire that appellee failed to mention in answering the
questions appearing in the claims application is certainly immaterial
and irrelevant, in so far as the fire in question is concerned.
• With regard to the clause of the policy providing that it shall not cover
"loss or damage by fire happening during the existence of any
invasion, foreign enemy, rebellion, insurrection, riot, civil commotion,
military or usurped power, or martial law within the country or locality
in which the property insured is situated, SC stated that this clause
should be taken most strongly against the insurer and the
interpretation should be adopted which is most favorable to the
insured, if such interpretation be not inconsistent with the words used.
In this view the above words should be held to mean that the policy
covered loss by fire occurring during the existence of any invasion,
foreign enemy, rebellion, insurrection, riot, civil commotion, military or
usurped power, or martial law, in the general locality where the
property insured was situated. Whether there was any substantial
connection between the fire and military or other disturbance of the
kind specified existing in the locality where the property was situated
was a question of fact, and it was properly left to the jury. It is to be
taken that the jury found, upon the whole evidence, that the loss was
occasioned by causes independent of the existence of any invasion,
foreign enemy, rebellion, insurrection, riot, civil commotion, military or
usurped power or martial law
# In this case, one of the warranties was that the policy will not attach if
there is some alteration which will increase the risk as to fire,
notwithstanding the events, the insurer still paid. Why did the insurer
not able to rescind?
o Sealing " no increase in the risk; the number of Japanese
forces lessened
o (Hofi) – If you put soldiers in the area, they become targets "
the Americans may bomb the area " increase the chance
of risk
# The Court said it was just to seal " they don’t increase the chance of
fire
# Fire would’ve exonerated the insurer if it originated from abnormal
conditions, but here, SC said it was not from abnormal condition
# Authority to rescind requires that the breach is proven " there are
warranties that enter into debatable areas " court must decide if
there was indeed breach of contract
3. Young v. Midland Textile Co
• Young " owned a candy and fruit store in Manila " Midland issued a
policy for the payment of a premium of P60.
• The indemnity was 3,000 if the place was destroyed by fire. One
clause claimed: “Waranty B. – It is hereby declared and agreed that
during the pendency of this policy no hazardous goods stored or kept
for sale, and no hazardous trade or process be carried on, in the
building to which this insurance applies, or in any building connected
therewith.”
• Young then placed three boxes of fireworks. The plaintiff intended to
use them for Chinese New Year, but the authorities prohibited the use.
The bodega was destroyed by fire. Both of the parties agree that said
fireworks come within the phrase “hazardous goods,” mentioned in
said “warranty B” of the policy. But it was found out that the fireworks
were found in a part of the building not destroyed by the fire, and
that they in no way contributed to the fire.
• W/N the placing of fireworks in the building is a violation of the terms
of the contract of insurance and of “warranty B” -- YES
• The appellant argues, that in view of the fact that the “storing” of the
fireworks on the premises of the insured did not contribute in any way
to the damage occasioned by the fire, he should be permitted to
recover – that the “storing” of the “hazardous goods” in no way
caused injury to the defendant company " The “storing” was a
violation of the terms of the contract by virtue of the provisions of the
policy itself, terminated the contractual relations. The plaintiff paid a
premium based upon the risk at the time the policy was issued.
Certainly it cannot be denied that the placing of the firecrackers in
the building insured increased the risk.
• The plaintiff had not paid a premium based upon the increased risk,
neither had the defendant issued a policy upon the theory of a
different risk. An increase of risk which is substantial and which is
continued for a considerable period of time, is a direct and certain
injury to the insurer, and changes the basis upon which the contract
of insurance rests.
# The warranty, must it relate to the loss? No.
# May the insurer by estopped? Yes, because for example, they were
aware that he was keeping fireworks and did not tell him to remove it
# Right to rescind is a right on the insurer " but may be waived