1. ARMANDO GEAGONIA, petitioner, vs.
COURT respondent's agent; and had it been mentioned, he
OF APPEALS and COUNTRY BANKERS
INSURANCE CORPORATION, respondents.
FACTS: Petitioner is the owner of Norman's Mart
located in a public market, of which he obtained from
the private respondent fire insurance policy for
P100,000.00. The period of the policy was from 22
December 1989 to 22 December 1990 and covered
the following: "Stock-in-trade consisting principally of
dry goods such as RTW's for men and women wear
and other usual to assured's business."
The petitioner declared in the policy that the
Mercantile Insurance Co., Inc. was the co-insurer for
P50,000.00. From 1989 to 1990, the petitioner had
in his inventory stocks amounting to P392,130.50.
The policy contained the following condition:
3. The insured shall give notice to the
Company of any insurance or insurances
already affected, or which may subsequently
be effected, covering any of the property or
properties consisting of stocks in trade,
goods in process and/or inventories only
hereby insured, and unless such notice be
given and the particulars of such insurance
or insurances be stated therein or endorsed
in this policy pursuant to Section 50 of the
Insurance Code, by or on behalf of the
Company before the occurrence of any loss
or damage, all benefits under this policy
shall be deemed forfeited, provided
however, that this condition shall not apply
when the total insurance or insurances in
force at the time of the loss or damage is not
more than P200,000.00.
Later, a fire of accidental origin broke out at the
public market. The petitioner's insured stock-in-trade
were completely destroyed prompting him to file with
the private respondent a claim under the policy. The
latter denied the claim because it found that at the
time of the loss the petitioner's stocks-in-trade were
likewise covered by two fire insurance policies for
P100,000.00 each, issued by the Cebu Branch of
the Philippines First Insurance Co., Inc. (hereinafter
PFIC). These policies indicate that the insured was
"Messrs. Discount Mart (Mr. Armando Geagonia,
Prop.)" with a mortgage clause reading:
MORTGAGE: Loss, if any shall be payable to
Messrs. Cebu Tesing Textiles, Cebu City as their
interest may appear subject to the terms of this
policy. CO-INSURANCE DECLARED: P100,000. —
Phils. First CEB/F 24758.
The basis of the private respondent's denial was the
petitioner's alleged violation of Condition 3 of the
policy.
The petitioner then filed a complaint against the
private respondent with the Insurance Commission
for the recovery of P100,000.00 under fire insurance
policy. He admitted that at the time he obtained the
private respondent's fire insurance policy he knew
that the two policies issued by the PFIC were
already in existence; however, he had no knowledge
of the provision in the private respondent's policy
requiring him to inform it of the prior policies; this
requirement was not mentioned to him by the private
would not have withheld such information.
The Insurance Commission favored petitioner,
however, the CA, reversed and found that the
petitioner knew of the existence of the two other
policies issued by the PFIC. It said that it is apparent
from the face of the two fire policies that the
insurance was taken in the name of petitioner
herein. The policy states that "DISCOUNT MART
(MR. ARMANDO GEAGONIA, PROP)" was the
assured and that "TESING TEXTILES" was only the
mortgagee of the goods. In addition, the premiums
on both policies were paid for by petitioner, not by
the Tesing Textiles.
ISSUE: Whether the petitioner violates the Condition
3 of the policy, and now is precluded from
recovering therefrom.
HELD: YES, petitioner violated the said condition
but he is not precluded from recovering therefrom.
The SC agreed with the CA that the petitioner knew
of the prior policies issued by the PFIC. His letter to
the private respondent conclusively proves this
knowledge. π
Condition 3 of the said Policy is a condition which is
not proscribed by law. Its incorporation in the policy
is allowed by Section 75 of the Insurance Code
which provides that "a policy may declare that a
violation of specified provisions thereof shall avoid it,
otherwise the breach of an immaterial provision
does not avoid the policy."
Such a condition is a provision which invariably
appears in fire insurance policies and is intended to
prevent an increase in the moral hazard. It is
commonly known as the additional or "other
insurance" clause and has been upheld as valid and
as a warranty that no other insurance exists. Its
violation would thus avoid the policy. However, in
order to constitute a violation, the other insurance
must be upon same subject matter, the same
interest therein, and the same risk.
It must, however, be underscored that unlike the
"other insurance" clauses involved in different cases
that failure to comply will immediately forfeit the
policy. In this case, Condition 3 in the private
respondent's policy does not absolutely declare void
any violation thereof. It expressly provides that the
condition "shall not apply when the total insurance or
insurances in force at the time of the loss or damage
is not more than P200,000.00."
It is a cardinal rule on insurance that a policy or
insurance contract is to be interpreted liberally in
favor of the insured and strictly against the
company, the reason being to afford the greatest
protection which the insured was endeavoring to
secure when he applied for insurance. It is also a
cardinal principle of law that forfeitures are not
favored and that any construction which would result
in the forfeiture of the policy benefits for the person
claiming thereunder, will be avoided, if it is possible
to construe the policy in a manner which would
permit recovery, as, for example, by finding a waiver
for such forfeiture. The reason for this is that, except
for riders which may later be inserted, the insured
sees the contract already in its final form and has
had no voice in the selection or arrangement of the
words employed therein. On the other hand, the
language of the contract was carefully chosen and
deliberated upon by experts and legal advisers who
had acted exclusively in the interest of the insurers
and the technical language employed therein is
rarely understood by ordinary laymen.
With these principles in mind, we are of the opinion
that Condition 3 of the subject policy is not totally
free from ambiguity and must, perforce, be
meticulously analyzed. Such analysis leads us to
conclude that (a) the prohibition applies only to
double insurance, and (b) the nullity of the policy
shall only be to the extent exceeding P200,000.00 of
the total policies obtained.
The first conclusion is supported by the portion of
the condition referring to other insurance "covering
any of the property or properties consisting of stocks
in trade, goods in process and/or inventories only
hereby insured," and the portion regarding the
insured's declaration that the co-insurer is Mercantile
Insurance Co., Inc. in the sum of P50,000.00. A
double insurance exists where the same person is
insured by several insurers separately in respect of
the same subject and interest. However, the
insurable interests of a mortgagor and a mortgagee
on the mortgaged property are distinct and separate.
Since the two policies of the PFIC do not cover the
same interest as that covered by the policy of the
private respondent, no double insurance exists. The
non-disclosure then of the former policies was not
fatal to the petitioner's right to recover on the private
respondent's policy.
Furthermore, by stating within Condition 3 itself that
such condition shall not apply if the total insurance in
force at the time of loss does not exceed
P200,000.00, the private respondent was amenable
to assume a co-insurer's liability up to a loss not
exceeding P200,000.00. What it had in mind was to
discourage over-insurance.
Indeed, the rationale behind the incorporation of
"other insurance" clause in fire policies is to prevent
over-insurance and thus avert the perpetration of
fraud. When a property owner obtains insurance
policies from two or more insurers in a total amount
that exceeds the property's value, the insured may
have an inducement to destroy the property for the
purpose of collecting the insurance. The public as
well as the insurer is interested in preventing a
situation in which a fire would be profitable to the
insured.
(Explanation about mortgage related to insurance):
As to a mortgaged property, the mortgagor and the
mortgagee have each an independent insurable
interest therein and both interests may be one
policy, or each may take out a separate policy
covering his interest, either at the same or at
separate times. The mortgagor's insurable interest
covers the full value of the mortgaged property, even
though the mortgage debt is equivalent to the full
value of the property. The mortgagee's insurable
interest is to the extent of the debt, since the
property is relied upon as security thereof, and in
insuring he is not insuring the property but his
interest or lien thereon. His insurable interest is
prima facie the value mortgaged and extends only to
the amount of the debt, not exceeding the value of
the mortgaged property. Thus, separate insurances
covering different insurable interests may be
obtained by the mortgagor and the mortgagee.
A mortgagor may, however, take out insurance for
the benefit of the mortgagee, which is the usual
practice. The mortgagee may be made the beneficial
payee in several ways. He may become the
assignee of the policy with the consent of the
insurer; or the mere pledgee without such consent;
or the original policy may contain a mortgage clause;
or a rider making the policy payable to the
mortgagee "as his interest may appear" may be
attached; or a "standard mortgage clause,"
containing a collateral independent contract between
the mortgagee and insurer, may be attached; or the
policy, though by its terms payable absolutely to the
mortgagor, may have been procured by a mortgagor
under a contract duty to insure for the mortgagee's
benefit, in which case the mortgagee acquires an
equitable lien upon the proceeds.
In the policy obtained by the mortgagor with loss
payable clause in favor of the mortgagee as his
interest may appear, the mortgagee is only a
beneficiary under the contract, and recognized as
such by the insurer but not made a party to the
contract himself. Hence, any act of the mortgagor
which defeats his right will also defeat the right of
the mortgagee. This kind of policy covers only such
interest as the mortgagee has at the issuing of the
policy.
On the other hand, a mortgagee may also procure a
policy as a contracting party in accordance with the
terms of an agreement by which the mortgagor is to
pay the premiums upon such insurance. It has been
noted, however, that although the mortgagee is
himself the insured, as where he applies for a policy,
fully informs the authorized agent of his interest,
pays the premiums, and obtains on the assurance
that it insures him, the policy is in fact in the form
used to insure a mortgagor with loss payable clause
The fire insurance policies issued by the PFIC name
the petitioner as the assured and contain a
mortgage clause which reads: “Loss, if any, shall be
payable to MESSRS. TESING TEXTILES, Cebu City
as their interest may appear subject to the terms of
this policy,” which is clearly a simple loss payable
clause, not a standard mortgage clause.
2. EL ORIENTE FABRICA DE TABACOS,
INC., plaintiff-appellant, vs. JUAN POSADAS,
Collector of Internal Revenue, defendant-appellee.
INSURED: A. Velhagen, the Manager
INSURANCE: Manufacturers Life Insurance Co
BENEFICIARY: El Oriente Fabrica Tabacos,
plaintiff
FACTS: Plaintiff, a domestic corporation, in order to
protect itself against the loss that it might suffer by
reason of the death of its manager A. Velhagen and
whose death would be a serious loss to the plaintiff,
procured from the Manufacturers Life Insurance Co
an insurance policy on the life of the said A.
Velhagen for the sum of $50,000.
During the time the life insurance policy referred to
was in force and effect, plaintiff paid from its funds
all the insurance premiums due thereon. Plaintiff
charged as expenses of its business all the said
premiums and deducted the same from its gross
incomes as reported in its annual income tax
returns.
Upon the death of A. Velhagen in the year 1929, the
plaintiff received all the proceeds of the said life
insurance policy, together with the interests and the
dividends accruing thereon
Later, defendant CIR assessed and levied the sum
of P3,148.74 as income tax on the proceeds of the
insurance policy, however, plaintiff, claimed
exemption under section 4 of the Income Tax Law.
ISSUE: Whether the proceeds of insurance are
taxable as income law.
RULING: No, the proceeds of the life insurance
policy in question as representing an indemnity and
not taxable income, it is a capital.
In the case at bar, El Oriente, Fabrica de Tabacos,
Inc., took out the insurance on the life of its
manager, to protect itself against the loss it might
suffer by reason of the death of its manager. The
Court do not believe that this fact signifies that when
the plaintiff received P104,957.88 from the
insurance on the life of its manager, it thereby
realized a net profit in this amount. It is true that the
Income Tax Law, in exempting individual
beneficiaries, speaks of the proceeds of life
insurance policies as income, but this is a very slight
indication of legislative intention. In reality, what the
plaintiff received was in the nature of an indemnity
for the loss which it actually suffered because of the
death of its manager.
To quote the exact words in the cited case of Chief
Justice Taft delivering the opinion of the court:
It is earnestly pressed upon us that
proceeds of life insurance paid on the death
of the insured are in fact capital, and cannot
be taxed as income … that proceeds of a life
insurance policy paid on the death of the
insured are not usually classed as income.
Considering, therefore, the purport of the stipulated
facts, considering the uncertainty of Philippine law,
and considering the lack of express legislative
intention to tax the proceeds of life insurance
policies paid to corporate beneficiaries, particularly
when in the exemption in favor of individual
beneficiaries in the chapter on this subject, the
clause is inserted "exempt from the provisions of this
law," we deem it reasonable to hold the proceeds of
the life insurance policy in question as representing
an indemnity and not taxable income.
NOTE: Guys, wala guy gidiscuss sa case bahin sa
Insurable Interest. I checked the book, mao ni akong
nakita ra didto nga nakacite ni nga case:
It is generally held that a corporation has an
insurable interest in the life of an officer on whose
services the corporation depends for its prosperity,
and whose death will be the cause of a substantial
pecuniary loss to it.
3. VIOLETA R. LALICAN, Petitioner, - versus -
THE INSULAR LIFE ASSURANCE COMPANY
LIMITED, AS REPRESENTED BY THE
PRESIDENT VICENTE R. AVILON, Respondent.
Facts: During his lifetime, Eulogio applied for an
insurance policy with Insular Life. On 24 April 1997,
Insular Life, through its agent, Malaluan, issued in
favor of Eulogio an insurance policy which contained
a 20-Year Endowment Variable Income Package
Flexi Plan worth P500,000.00, with two riders valued
at P500,000.00 each. Thus, the value of the policy
amounted to P1,500,000.00. Violeta was named as
the primary beneficiary.
Under the terms of the said policy, Eulogio was to
pay the premiums on a quarterly basis in the amount
of P8,062.00, payable every 24 April, 24 July, 24
October and 24 January of each year, until the end
of the 20-year period of the policy. According to the
Policy Contract, there was a grace period of 31 days
for the payment of each premium subsequent to the
first. If any premium was not paid on or before the
due date, the policy would be in default, and if the
premium remained unpaid until the end of the grace
period, the policy would automatically lapse and
become void.
Eulogio paid the premiums due on 24 July 1997 and
24 October 1997. However, he failed to pay the
premium due on 24 January 1998, even after the
lapse of the grace period of 31 days. Policy No.
9011992, therefore, lapsed and became void.
Eulogio submitted to Insular Life an application for
reinstatement for the said policy, together with the
payment for the premium due on 24 January 1998.
Insular Life notified Eulogio that his application could
not be fully processed because he left unpaid the
overdue interest thereon. Thus, Insular Life
instructed Eulogio to pay the amount of interest and
to file another application for reinstatement; and to
pay the premiums that subsequently became due on
24 April 1998 and 24 July 1998, plus interest.
On 17 September 1998, Eulogio went to Malaluan’s
house and submitted a second Application for
Reinstatement of the said Policy, including the
amount of P17,500.00, representing payments for
the overdue interest on the premium for 24 January
1998, and the premiums which became due on 24
April 1998 and 24 July 1998. A while later, Eulogio
died of cardio-respiratory arrest secondary to
electrocution.
Malaluan forwarded Eulogio’s second application on
18 September 1998. However, upon knowing of
Eulogio’s death, Insular life no longer acted upon the
said application.
On 28 September 1998, Violeta, Eulogio’s widow,
filed with Insular Life a claim for payment of the full
proceeds of the Policy.
In a letter, Insular Life informed Violeta that her
claim could not be granted since, at the time of
Eulogios death, the said Policy had already lapsed,
and Eulogio failed to reinstate the same. According
to the application, the policy would only be
considered reinstated upon approval of the
application by Insular Life during the applicants’
lifetime and good health, and whatever amount the
applicant paid in connection thereto was considered
to be a deposit only until approval of said
application. Enclosed with the said letter was a
check, drawn in Violeta’s favour, representing the
full refund of the payments made by Eulogio on the
Policy. Subsequently, it agreed to re-evaluate
Violeta’s claim.
However, without waiting for the result of the re-
evaluation by Insular Life, Violeta filed with the RTC
a Complaint for Death Claim Benefit.
The RTC, taking into account the clear provisions of
the Policy Contract between Eulogio and Insular Life
and the Application for Reinstatement Eulogio
subsequently signed and submitted to Insular Life,
held that Eulogio was not able to fully comply with
the requirements for the reinstatement.
Issue: whether Eulogio was able to reinstate the
lapsed insurance policy on his life before his death
on 17 September 1998.
Ruling: No. Policy No. 9011992 had lapsed and
become void on 24 February 1998, upon the
expiration of the 31-day grace period for payment of
the premium, which fell due on 24 January 1998,
without any payment having been made.
Eulogio’s filing of his first Application for
Reinstatement with Insular Life constitutes an
admission that Policy No. 9011992 had lapsed by
then. Insular Life did not act on Eulogio’s first
Application for Reinstatement, since the amount
Eulogio simultaneously deposited was sufficient to
cover only the P8,062.00 overdue premium for 24
January 1998, but not the P322.48 overdue interests
thereon. On 17 September 1998, Eulogio submitted
a second Application for Reinstatement to Insular
Life, again through Malaluan, depositing at the same
time P17,500.00, to cover payment for the overdue
interest on the premium for 24 January 1998, and
the premiums that had also become due on 24 April
1998 and 24 July 1998. On the very same day,
Eulogio passed away.
To reinstate a policy means to restore the same to
premium-paying status after it has been permitted to
lapse. Both the Policy Contract and the Application
for Reinstatement provide for specific conditions for
the reinstatement of a lapsed policy.
In the instant case, Eulogios death rendered
impossible full compliance with the conditions for
reinstatement of Policy No. 9011992. True, Eulogio,
before his death, managed to file his Application for
Reinstatement and deposit the amount for payment
of his overdue premiums and interests thereon with
Malaluan; but the Policy could only be considered
reinstated after the Application for Reinstatement
had been processed and approved by Insular
Life during Eulogio’s lifetime and good health.
The conditions for reinstatement under the Policy
Contract and Application for Reinstatement were
written in clear and simple language, which could
not admit of any meaning or interpretation other than
those that they so obviously embody. Violeta did not
adduce any evidence that Eulogio might have failed
to fully understand the import and meaning of the
provisions of his Policy Contract and/or Application
for Reinstatement, both of which he voluntarily
signed. While it is a cardinal principle of insurance
law that a policy or contract of insurance is to be
construed liberally in favor of the insured and strictly
as against the insurer company, yet, contracts of
insurance, like other contracts, are to be construed
according to the sense and meaning of the terms,
which the parties themselves have used.
Policy No. 9011992 remained lapsed and void, not
having been reinstated in accordance with the Policy
Contract and Application for Reinstatement before
Eulogios death. Violeta, therefore, cannot claim any
death benefits from Insular Life on the basis of
Policy No. 9011992; but she is entitled to receive the
full refund of the payments made by Eulogio
thereon.
4. HILARIO GERCIO, plaintiff-appellee, vs. SUN
LIFE ASSURANCE OF CANADA, ET
AL., defendants.
SUN LIFE ASSURANCE OF CANADA, appellant.
The question of first impression in the law of life
insurance to be here decided is whether the insured
— the husband — has the power to change the
beneficiary — the former wife — and to name
instead his actual wife, where the insured and the
beneficiary have been divorced and where the policy
of insurance does not expressly reserve to the
insured the right to change the beneficiary. Although
the authorities have been exhausted, no legal
situation exactly like the one before us has been
encountered.
ESSENTIAL FACTS:
Insured: Hilario Gercio
Insurer: SUN LIFE ASSURANCE OF CANADA
Beneficiary: Andrea Zialcita, former wife of Insured
1. the Sun Life Assurance Co. of Canada
issued insurance on the life of Hilario
Gercio. The policy was what is known as a
twenty-year endowment policy. By its terms,
the insurance company agreed to insure the
life of Hilario Gercio for the sum of P/2,000,
to be paid him on February 1, 1930, or if the
insured should die before said date, then to
his wife, Mrs. Andrea Zialcita, should she
survive him
2. The policy did not include any provision
reserving to the insured the right to change
the beneficiary.
3. On the date the policy was issued, Andrea
Zialcita was the lawful wife of Hilario Gercio.
Towards the end of the year 1919, she was
convicted of the crime of adultery. On
September 4, 1920, a decree of divorce was
issued in civil case no. 17955, which had the
effect of completely dissolving the bonds of
matrimony contracted by Hilario Gercio and
Andrea Zialcita.
4. On March 4, 1922, Hilario Gercio formally
notified the Sun Life Assurance Co. of
Canada that he had revoked his donation in
favor of Andrea Zialcita, and that he had
designated in her stead his present wife,
Adela Garcia de Gercio, as the beneficiary
of the policy. Gercio requested the
insurance company to eliminate Andrea
Zialcita as beneficiary. This, the insurance
company has refused and still refuses to do.
Issue:
1. Should the insurance contract, whereby the
husband names the wife as the beneficiary,
be denominated a donation inter vivos, a
donation causa mortis, a contract in favor of
a third person, or an aleatory contract?
2. Won the insured — the husband — has the
power to change the beneficiary — the
former wife — and to name instead his
actual wife, where the insured and the
beneficiary have been divorced and where
the policy of insurance does not expressly
 reserve to the insured the right to change
the beneficiary.
Ruling:
1. The subject is further complicated by the
fact that if an insurance contract should be
considered a donation, a husband may then
never insure his life in favor of his wife
and vice versa, inasmuch as article 1334
prohibits all donations between spouses
during marriage. It would seem, therefore,
that this court was right when in the case
of Del Val vs. Del Val ([1915]), 29 Phil.,
534), it declined to consider the proceeds of
the insurance policy as a donation or gift,
saying "the contract of life insurance is a
special contract and the destination of the
proceeds thereof is determined by special
laws which deal exclusively with that
subject. The Civil Code has no provisions
which relate directly and specifically to life-
insurance contracts or to the destination of
life-insurance proceeds. . . ." Some
satisfaction is gathered from the perplexities
of the Louisiana Supreme Court, a civil law
jurisdiction, where the jurists have disagreed
as to the classification of the insurance
contract, but have agreed in their
conclusions as will hereafter see.
2. On the admitted facts and the authorities
supporting the nearly universally accepted
principles of insurance, we are irresistibly
led to the conclusion that the question at
issue must be answered in the negative.
The wife has an insurable interest in the life
of her husband. The beneficiary has an
absolute vested interest in the policy from
the date of its issuance and delivery. So
when a policy of life insurance is taken out
by the husband in which the wife is named
as beneficiary, she has a subsisting interest
in the policy. And this applies to a policy to
which there are attached the incidents of a
loan value, cash surrender value, an
automatic extension by premiums paid, and
to an endowment policy, as well as to an
ordinary life insurance policy. If the husband
wishes to retain to himself the control and
ownership of the policy he may so provide in
the policy. But if the policy contains no
provision authorizing a change of beneficiary
without the beneficiary's consent, the
insured cannot make such change.
Accordingly, it is held that a life insurance
policy of a husband made payable to the
wife as beneficiary, is the separate property
of the beneficiary and beyond the control of
the husband.
As to the effect produced by the divorce, the
Philippine Divorce Law, Act No. 2710,
merely provides in section 9 that the decree
of divorce shall dissolve the community
property as soon as such decree becomes
final. Unlike the statutes of a few
jurisdictions, there is no provision in the
Philippine Law permitting the beneficiary in a
policy for the benefit of the wife of the
husband to be changed after a divorce. It
must follow, therefore, in the absence of a
statute to the contrary, that if a policy is
taken out upon a husband's life the wife is
named as beneficiary therein, a subsequent
divorce does not destroy her rights under
the policy.
Somewhat the same question came before the
Supreme Court of Kansas in the leading case
of Filley vs. Illinois Life Insurance Company ([1914]),
91 Kansas, 220; L.R.A. [1915 D], 130). It was held,
following consideration extending to two motions for
rehearing, as follows:
The benefit accruing from a policy of life
insurance upon the life of a married man,
payable upon his death to his wife, naming
her, is payable to the surviving beneficiary
named, although she may have years
thereafter secured a divorce from her
husband, and he was thereafter again
married to one who sustained the relation of
wife to him at the time of his death.
The rights of a beneficiary in an ordinary life
insurance policy become vested upon the issuance
of the policy, and can thereafter, during the life of the
beneficiary, be defeated only as provided by the
terms of the policy
5. Spouses NILO CHA and STELLA UY CHA, and
UNITED INSURANCE CO., INC., petitioners, vs.
COURT OF APPEALS and CKS DEVELOPMENT
CORPORATION, respondents.
INSURED: Merchandise and goods
INSURANCE: United Insurance Co
BENEFICIARY: CKS Development Corporation
FACTS: Petitioner-spouses Nilo Cha and Stella Uy-
Cha, as lessees, entered into a lease contract with
private respondent CKS Development Corporation
(CKS), as lessor. One of the stipulations of the one
year lease contract states is that the lessee shall not
insure against fire the, merchandise and goods
placed in the leased premises without first obtaining
the written consent and approval of the LESSOR
and if the LESSEE obtain the insurance thereof
without the consent of the LESSOR then the policy
is deemed assigned and transferred to the LESSOR
for its own benefit. Notwithstanding such stipulation
in the lease contract, the Cha spouses insured
against loss by fire the merchandise inside the
leased premises for Php 500,000.00 with the United
Insurance Co., Inc. (United) without the written
consent of private respondent CKS. On the day that
the lease contract was to expire, fire broke out inside
the leased premises.
When CKS learned of the insurance earlier procured
by the Cha spouses, it wrote the insurer (United) a
demand letter asking that the proceeds of the
insurance contract be paid directly to CKS, based on
its lease contract with the Cha spouses. However,
United refused to pay CKS. The latter filed a
complaint against the Cha spouses and United to
which the RTC rendered a decision in favor of CKS.
ISSUE: Whether or not CKS, the lessor, has
insurable interest in the goods and merchandise
inside the leased premises.
RULING: No, the lessor has no insurable interest
over the goods and merchandise inside the leased
premises.
A non-life insurance policy such as the fire insurance
policy taken by petitioner-spouses over their
merchandise is primarily a contract of indemnity.
Insurable interest in the property insured must exist
at the time the insurance takes effect and at the time
the loss occurs. The basis of such requirement of
insurable interest in property insured is based on
sound public policy: to prevent a person from taking
out an insurance policy on property upon which he
has no insurable interest and collecting the proceeds
of said policy in case of loss of the property.
Section 17 of the Insurance Code provides:
Sec. 17. The measure of an insurable
interest in property is the extent to which the
insured might be damnified by loss of injury
thereof.
Therefore, respondent CKS cannot, under the
Insurance Code — a special law — be validly a
beneficiary of the fire insurance policy taken by the
petitioner-spouses over their merchandise. This
insurable interest over said merchandise remains
with the insured, the Cha spouses. The automatic
assignment of the policy to CKS under the provision
of the lease contract previously quoted is void for
being contrary to law and/or public policy. The
proceeds of the fire insurance policy thus rightfully
belong to the spouses Nilo Cha and Stella Uy-Cha
(herein co-petitioners). The insurer (United) cannot
be compelled to pay the proceeds of the fire
insurance policy to a person (CKS) who has no
insurable interest in the property insured.
6. VICENTE ONG LIM SING, JR., petitioner, vs.
FEB LEASING & FINANCE CORPORATION,
respondent.
Facts: On March 9, 1995, FEB entered into a
lease of equipment and motor vehicles with JVL
Food Products (JVL). On the same date, Vicente
executed an Individual Guaranty Agreement with
FEB to guarantee the prompt and faithful
performance of the terms and conditions of the
aforesaid lease agreement. Under the contract, JVL
was obliged to pay FEB an aggregate gross monthly
rental of P170,494.00.
JVL defaulted in the payment of the monthly rentals.
As of July 31, 2000, the amount in arrears, including
penalty charges and insurance premiums, amounted
to P3,414,468.75. On August 23, 2000, FEB sent a
letter to JVL demanding payment of the said
amount. However, JVL failed to pay.
On December 6, 2000, FEB filed a Complaint with
the RTC of Manila for sum of money, damages, and
replevin against JVL, Lim, and John Doe.
JVL and Lim admitted the existence of the lease
agreement but asserted that it is in reality a sale of
equipment on installment basis, with FEB acting as
the financier. JVL and Lim claimed that this intention
was apparent from the fact that they were made to
believe that when full payment was effected, a Deed
of Sale will be executed by FEB as vendor in favor
of JVL and Lim as vendees. FEB purportedly
assured them that documenting the transaction as a
lease agreement is just an industry practice and that
the proper documentation would be effected as soon
as full payment for every item was made.
The trial court stated, among others, that if JVL and
Lim (then defendants) were to be regarded as only a
lessee, logically the lessor who asserts ownership
will be the one directly benefited or injured and
therefore the lessee is not supposed to be the
assured as he has no insurable interest.
FEB subsequently appealed the case to the CA,
wherein it declared the transaction between the
parties as a financial lease agreement. The said
decision reversed and set aside the trial court’s
decision. Hence, Lim filed the present Petition for
Review on Certiorari.
ISSUE: Whether or not petitioner has an insurable
interest in the equipment and motor vehicles leased.
RULING: Yes.
The stipulation in Section 14 of the leased contract,
that the equipment shall be insured at the cost and
expense of the lessee against loss, damage, or
destruction from fire, theft, accident, or other
insurable risk for the full term of the lease, is a
binding and valid stipulation. Petitioner, as a lessee,
has an insurable interest in the equipment and motor
vehicles leased. Section 17 of the Insurance Code
provides that the measure of an insurable interest in
property is the extent to which the insured might be
damnified by loss or injury thereof. It cannot be
denied that JVL will be directly damnified in case of
loss, damage, or destruction of any of the properties
leased.
7. ORIENTAL ASSURANCE
CORPORATION, petitioner,
vs. COURT OF APPEALS AND PANAMA SAW
MILL CO., INC., respondents.
ESSENTIAL FACTS:
Insured: Panama Sawmill Co., Inc
Insurer: Oriental Assurance Corporation
Carrier: Transpacific Towage, Inc
Amount insured: P1-M
1. private respondent Panama Sawmill Co.,
Inc. (Panama) bought, in Palawan, 1,208
pieces of apitong logs, with a total volume of
2,000 cubic meters. It hired Transpacific
Towage, Inc., to transport the logs by sea to
Manila and insured it against loss for P1-M
with petitioner Oriental Assurance
Corporation (Oriental Assurance).
2. There is a claim by Panama, however, that
the insurance coverage should have been
for P3-M were it not for the fraudulent act of
one Benito Sy Yee Long to whom it had
entrusted the amount of P6,000.00 for the
payment of the premium for a P3-M policy.
3. Oriental Assurance Warranted that this
Insurance is against TOTAL LOSS ONLY.
4. The logs were loaded on two (2) barges.
But, as fate would have it, during the
voyage, rough seas and strong winds
caused damage to Barge resulting in the
loss of 497 pieces of logs out of the 598
pieces loaded thereon.
5. Panama demanded payment for the loss but
Oriental Assurance refuse on the ground
 that its contracted liability was for "TOTAL (Emphasis supplied)
LOSS ONLY."
Respondent Appellate Court treated the loss as a
Issue: whether or not Oriental Assurance can be constructive total loss, and for the purpose of
held liable under its marine insurance policy based computing the more than three-fourths value of the
on the theory of a divisible contract of insurance logs actually lost, considered the cargo in one barge
and, consequently, a constructive total loss. as separate from the logs in the other. Thus, it
concluded that the loss of 497 pieces of logs from
Ruling: barge TPAC-1000, mathematically speaking, is more
than three-fourths (¾) of the 598 pieces of logs
loaded in that barge and may, therefore, be
Our considered opinion is that no liability attaches.
considered as constructive total loss.
The terms of the contract constitute the measure of
The basis thus used is, in our opinion, reversible
the insurer liability and compliance therewith is a
error. The requirements for the application of
condition precedent to the insured's right to recovery
Section 139 of the Insurance Code, quoted above,
from the insurer (Perla Compania de Seguros, Inc. v.
have not been met. The logs involved, although
Court of Appeals, G.R. No. 78860, May 28, 1990,
185 SCRA 741). Whether a contract is entire or placed in two barges, were not separately valued by
severable is a question of intention to be determined the policy, nor separately insured. Resultantly, the
logs lost in barge TPAC-1000 in relation to the total
by the language employed by the parties. The policy
number of logs loaded on the same barge can not
in question shows that the subject matter insured
be made the basis for determining constructive total
was the entire shipment of 2,000 cubic meters of
loss. The logs having been insured as one
apitong logs. The fact that the logs were loaded on
two different barges did not make the contract inseparable unit, the correct basis for determining
the existence of constructive total loss is the totality
several and divisible as to the items insured. The
of the shipment of logs. Of the entirety of 1,208,
logs on the two barges were not separately valued
pieces of logs, only 497 pieces thereof were lost or
or separately insured. Only one premium was paid
41.45% of the entire shipment. Since the cost of
for the entire shipment, making for only one cause or
consideration. The insurance contract must, those 497 pieces does not exceed 75% of the value
therefore, be considered indivisible. of all 1,208 pieces of logs, the shipment can not be
said to have sustained a constructive total loss
under Section 139(a) of the Insurance Code.
More importantly, the insurer's liability was for "total
loss only." A total loss may be either actual or
constructive (Sec. 129, Insurance Code). An actual In the absence of either actual or constructive total
total loss is caused by: loss, there can be no recovery by the insured
Panama against the insurer, Oriental Assurance.
(a) A total destruction of the thing
insured;
(b) The irretrievable loss of the thing
by sinking, or by being broken up;
(c) Any damage to the thing which
renders it valueless to the owner for
the purpose for which he held it; or
(d) Any other event which effectively
deprives the owner of the
possession, at the port of
destination, of the thing insured.
(Section 130, Insurance Code).

A constructive total loss is one which gives to a

person insured a right to abandon, under Section
139 of the Insurance Code. This provision reads:

SECTION 139. A person insured by

a contract of marine insurance may
abandon the thing insured, or any
particular portion thereof separately
valued by the policy, or otherwise
separately insured, and recover for
a total loss thereof, when the cause
of the loss is a peril injured against,

(a) If more than three-fourths thereof

in value is actually lost, or would
have to be expended to recover it
from the peril;

(b) If it is injured to such an extent

as to reduce its value more than
three-fourths;

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