Concealment

. Concealment is defined as "a neglect to communicate that which a party knows and ought to communicate" (Sec. 26 PD 612 aa). To constitute concealment, the party concealing must have knowledge of the fact concealed, the fact concealed must be material to the risk, the party concealing makes no warranty as to the fact concealed, and the other party has not the means of ascertaining the fact/s concealed. . Where a party is duty bound to communicate to the insurer an information within his knowledge which is material to the contract but which he did not communicate, he is guilty of concealment. Under Sec. 27 the remedy of the insurer is to rescind the contract. The purpose of rescission is to terminate a valid contract (Art. 1385 NCC). . Materiality is explained in Sec. 31. Henceforth, everytime we meet the word 'material' or 'materiality' the explanation in Sec. 31 always applies. . However recall Sec. 30 which enumerates the matters which need not be communicated except in answer to an inquiry by the other. .

Utmost Good Faith

. Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith (Art. 1159 NCC). In a contract of insurance, the law requires not only good faith, but utmost good faith. . Utmost good faith means the absence of concealment or misrepresentation, however slight. This is required in insurance contract in order for the parties to properly address the following concerns: . 1) The correct estimation of the risk which enables the insurer to decide whether he is willing to assume it, and if so, at what rate of premium; 2) The precise delimitation of the risk which determines the extent of the contingent duty to pay undertaken by the insurer; 3) Such control of the risk after it is assumed as will enable the underwriter to guard against the increase of the risk because of change in conditions; and 4) Determining whether a loss has occurred, and if so, the amount of such loss. . Insurance being a highly aleatory contract, the insurer's liability is conditional. The parties especially the insurer - rely on the representation and statements made by the other. Hence, the applicant has the duty to disclose all material facts and failure to do so could be used as ground to rescind the insurance contract made. .

Subrogation
. "Art. 2207. If the plaintiff's property has been insured, and he has received indemnity from the insurance company for the injury or loss arising out of the wrong or breach of contract complained of, the insurance company shall be subrogated to the rights of the insured against the wrongdoer or the person who has violated the contract. If the amount paid by the insurance company does not fully cover the injury or loss, the aggrieved party shall be entitled to recover the deficiency from the person causing the loss or injury." (NCC) . Subrogation is essentially a process of substitution where the subrogee, in this case, the insurer, steps into the shoes of the insured. Actions or right pertaining to the insured are transferred to the insurer.

Insurable Interest in Mortgaged Property

. The mortgagor and the mortgagee have separate and distinct insurable interest in the same mortgaged property: the mortgagor's insurable interest is equal to the value of the property; and the mortgagee's is equal to the amount of loan secured by the mortgage. . The practice is for the mortgagor to take out insurance for the benefit of the mortgagee. To achieve that purpose, the mortgagor can: (a) insure the mortgaged property in his own name with the stipulation that in case of loss, the proceeds shall be payable to the mortgagee; or (b) insure the mortgaged property in his own name then assign the policy in favor of the mortgagee. . In either case, the effects are: (a) the mortgagor remains a party (as the insured) to the original contract of insurance; (b) any act of the mortgagor prior to the loss, which would otherwise avoid the insurance, will have the same effect, even if the property is in the hands of the mortgagee; and (c) any act which, under the contract of insurance, is to be performed by the mortgagor, may be performed by the mortgagee with the same effect as though it was performed by the mortgagor himself (Sec. 8). . Where the insurer assents to an assignment (mortgagor insures the mortgaged property in his own name then assigns the policy in favor of the mortgagee), but imposes further obligations on the assignee (mortgagee), the mortgagor ceases to

be a party to the contract, and the act of the mortgagor can no longer affect the rights of the assignee (Sec. 9). .

Distinctions Between Insurable Interest in Life and Property Insurance

. The following are the basic distinctions in insurable interest between life and property insurance: . (1) In property insurance, the expectation of benefit must have a legal basis; in life insurance, the expectation of benefit to be derived from the continued existence of a life need not have any legal basis whatsoever. . (2) In property insurance, the actual value of the interest thereon is the limit of the insurance that can be validly placed thereon; in life insurance, assuming that insurable interest exists, there is no limit to the amount of insurance that may be taken upon the life, unless the insurable interest has its origin in commercial relation such as the insurable interest of a creditor in the life of his debtor [Sec. 10(c)]. . (3) In property insurance, "an interest insured must exist when the insurance takes effect and when the loss occurs but need not exist in the meantime"; in life insurance, it is enough that insurable interest exists at the time when the contract is made but need not exist at the time of loss (Sec. 19).

Insurable Interest in Property

. Every interest in property, whether real or personal, or any relation thereto or liability in respect thereof, of such nature that a contemplated peril might directly damnify the insured, is an insurable interest (Sec. 13, PD 612 aa). . Sec. 14 states that an insurable interest in property may consist in: (a) An existing interest; (b) An inchoate interest founded on an existing interest; or (c) An expectancy coupled with an existing interest in that out of which the expectancy arises. . Distnguish between existing interest and inchoate interest; and between inchoate interest and an expectancy coupled with an existing interest. . Also distinguish between the expectancy in par. (c) above and the expectancy in Sec. 16. One is insurable, the other is not. . Recall that a carrier (common and private) or a depositary of any kind (innkeeper, warehouseman, commission merchant or factor, and hirer of chattels, and receiver) has insurable

interest in the thing held by him as such, to the extent of his liability but not to exceed the value thereof (Sec. 13 & Sec. 17).

Distinctions Between Insurable Interest in Life and Property Insurance

. The following are the basic distinctions in insurable interest between life and property insurance: . (1) In property insurance, the expectation of benefit must have a legal basis; in life insurance, the expectation of benefit to be derived from the continued existence of a life need not have any legal basis whatsoever. . (2) In property insurance, the actual value of the interest thereon is the limit of the insurance that can be validly placed thereon; in life insurance, assuming that insurable interest exists, there is no limit to the amount of insurance that may be taken upon the life, unless the insurable interest has its origin in commercial relation such as the insurable interest of a creditor in the life of his debtor [Sec. 10(c)]. . (3) In property insurance, "an interest insured must exist when the insurance takes effect and when the loss occurs but need not exist in the meantime"; in life insurance, it is enough that insurable interest exists at the time when the contract is made but need not exist at the time of loss (Sec. 19).

Insurable Interest in Property

. Every interest in property, whether real or personal, or any relation thereto or liability in respect thereof, of such nature that a contemplated peril might directly damnify the insured, is an insurable interest (Sec. 13, PD 612 aa). . Sec. 14 states that an insurable interest in property may consist in: (a) An existing interest; (b) An inchoate interest founded on an existing interest; or (c) An expectancy coupled with an existing interest in that out of which the expectancy arises. . Distnguish between existing interest and inchoate interest; and between inchoate interest and an expectancy coupled with an existing interest. . Also distinguish between the expectancy in par. (c) above and the expectancy in Sec. 16. One is insurable, the other is not. . Recall that a carrier (common and private) or a depositary of any kind (innkeeper, warehouseman, commission merchant or factor, and hirer of chattels, and receiver) has insurable

interest in the thing held by him as such, to the extent of his liability but not to exceed the value thereof (Sec. 13 & Sec. 17).

Insurable Interest in Life

. The law does not define what insurable interest in life is, but merely enumerates the persons who have insurable interest in each others' lives and the nature of the relationship between them. The enumeration is exclusive. . Authors agree, however, that a person has an insurable interest in the subject matter insured where he has a relation or connection with or concern in it that he will derive pecuniary benefit or advantage from its preservation and will suffer pecuniary loss or damage from its destruction, termination, or injury by the happening of the event insured against. It has been observed, though, that this description of insurable interest applies more to property than to life. . Sec. 10 of PD 612 as amended states that every person has an insurable interest in the life and health: (a) Of himself, of his spouse and of his children; (b) Of any person on whom he depends wholly on in part for education and support, or in whom he has a pecuniary interest; (c) Of any person under a legal obligation to him for the payment of money, or respecting property or service, of which death or illness might delay or prevent the performance; and (d) Of any person upon whose life any estate or interest vested in him depends. . Relate par. (a) above with Sec. 3 second and third paragraphs, PD 612 aa. Relate par. (b) above with Arts. 194 , 195 & 196, Family Code. Par. (c) above observes the rule on property insurance in Sec. 19, PD 612 aa. Par. (d) above is self-explanatory. . May the persons enumerated above reciprocally insure each other's lives? Except for par. (a), only the party who stands to be damnified by the death or incapacity of the other has insurable interest in the life of the other.

Parties to the Contract

. The insurer can be any person, partnership, association or corporation duly authorized to transact business (Sec. 6, PD 612 aa). He undertakes to indemnify the insured against loss, damage, or liability arising from an unknown or contingent event. Anyone, except a public enemy, may be insured (Sec. 7). . The beneficiary is the person designated by the terms of the contract of insurance as the one to receive the proceeds of the insurance. Is he a party to the contract? Must he have insurable

interest over the person/property insured? Is his consent (to his designation) necessary for the validity of the contract? . In property insurance the rule is absolute that the beneficiary to the contract has to have insurable interest in the property insured (Sec. 18 in rel. to Sec. 13, PD 612 aa). However in life insurance there is an exceptional situation where the beneficiary need not have insurable interest in the life insured. . Where insurable interest is not required, anybody at all may be designated as beneficiary, even without his knowledge or over his objection - except when the law expressly forbids such designation. Recall Art. 2012, NCC, which states that a person who is forbidden from receiving any donation under Art. 739 cannot be named beneficiary of a life insurance policy by the person who cannot make the donation to him. . As a general rule a person enters into a contract because he wants something for himself out of that contract. But when he insures his life and designates someone else as beneficiary, he wants nothing for himself and intends only that the designated person benefit from it after his death. This is donation mortis causa that partakes of a testamentary disposition. Hence, the rule on donation applies to a life insurance policy where the designation of a beneficiary is made out of pure liberality. . Remember the enumeration of persons who, under the law, can neither receive donation nor be designated beneficiary of a life insurance policy. .

Contract of Insurance
. The contact of insurance is governed by special laws (PD 1460 as amended) and matters not expressly provided for in such special laws shall be regulated by the New Civil Code (Art. 2011, NCC), particularly the provisions on obligations and contracts. In the absence of any applicable provisions in both, the decisions and doctrines on insurance prevailing in the United States may be applied. This is because our laws on insurance is of American origin, patterned after the insurance laws of California and New York. . A contract of insurance is an agreement whereby one undertakes for a consideration to indemnify another against loss, damage, or liability arising from an unknown or contingent event [Sec.2(1), PD 612 as amended]. . As a contract, it must have all the elements of contract, i.e., consent, object, and cause or consideration (Art.1318 & 1319, NCC). Additionally, it must not be contrary to law, morals, good customs, public order, or public policy (Art. 1306, NCC). . However it is distinguished by the presence of the following elements: 1) The insured possessess an interest of some kind susceptible of pecuniary estimation, known as insurable interest;

2) The insured is subject to a risk of loss through the destruction or impairment of that interest by the happening of designated perils; 3) The insurer assumes that risk of loss; 4) Such assumption is part of a general scheme to distribute actual losses among a large group of persons bearing somewhat similar risks; and 5) As consideration for the insurer's promise to indemnify the assured, the latter makes a ratable contribution, called a premium, to a general insurance fund. .