NOTES ON INSURANCE

From the Lecture Notes of Atty. R. Rondez, Bar Qs & As, and Other Review Materials on Insurance
NOTES ON INSURANCE 2.1. B, a married man obtained a life insurance
policy designating his common law wife, C as
WHAT LAWS GOVERN INSURANCE beneficiary. Upon B’s death, his widow
contested the right of C to receive the proceeds.
1. The laws governing insurance in the order of priority HELD: Since the Insurance Code did not
are: contain a specific provision applicable to the
case, the provisions of Art. 2012 of the Civil
(1) The Insurance Code, as amended by Batas Code provides, “any person forbidden from
Pambansa Blg. 872 (approved: June 12, 1985); receiving any donation under Art. 739 cannot be
(2) In the absence of applicable provisions, the Civil named as a beneficiary of a life insurance policy
Code; by a person who cannot make a donation to
(3) In the absence of applicable provisions of the him.” Art. 739 declares as void those donations
Insurance Code and the Civil Code, the general “made between persons guilty of adultery or
principles on the subject in the United States concubinage at the time of the donation.”
(Constantino v Asia Life Insurance, 87 Phil. 248).
3. Asia Life Insurance Co., an American corporation
NOTE: On August 15, 2013, RA 10607 was signed into
insured the life of Constantino. The first premium
law. It is a restatement of the Insurance Code [PD 612],
covered the period up to September 26, 1942, after
with amendments. While RA 10607 restated the whole
which no premium payments were made. By reason of
law, most of the amendments touch only the
the Japanese occupation, the insurer had to close its
administrative portion of the Code, and very little on the
offices until 1945. Upon a subsequent claim, the
substantive portion.
insurer refused to pay due to non-payment of the
2. H applied for insurance with S Company with offices in premium. The beneficiary maintains that the non-
Montreal, Canada. The application was mailed to S and payment should be excused by reason of war. HELD:
on November 26, the insurer gave notice of acceptance Since the law is did not provide for the situation and the
by cable. H never received the cable and he died on fact that the law on insurance and the Civil Code was
December 20. The Insurance Code is silent as to largely copied from the Civil Code of California, the
acceptance by cable. HELD: The Civil Code shall apply court applied the United States Rule that declares that
and under Art. 1319, an acceptance made by letter the contract is not merely suspended as held by New
shall not bind the person making the offer except from York Rule, but instead is abrogated (revoked) by
the time it came to his knowledge. There was no valid reason of non-payment of the premium, since payment
contract as H died without knowing the acceptance of of the same is peculiarly of the essence of the contract.
his application (Enriquez v Sun Life Assurance of
Canada, 41 Phil. 269).
 NOTES ON INSURANCE
From the Lecture Notes of Atty. R. Rondez, Bar Qs & As, and Other Review Materials on Insurance
WHAT IS A CONTRACT OF INSURANCE? manner designed to evade the provisions of this
Code.
1. A contract of insurance is an agreement whereby one
undertakes for a consideration to indemnify another 3.1. The fact that no profit is derived from making of
against loss, damage or liability arising from an insurance contracts, agreements, or
unknown or contingent event [Sec. 2(a), Insurance transactions or that no separate or direct
Code]. consideration is received shall not be deemed
Bar Question (2011) conclusive to show that the making thereof
Q: In return for the 20 years of faithful service of X as a does not constitute the doing or transacting of
house helper to Y, the latter promised to pay P100,000 an insurance business.
to X’s heirs if he (X) dies in an accident by fire. X 3.2. Philippine Health Care Providers v CIR (2009)
agreed. Is this an insurance contract? has stated that:
(1) Contracts of law firm with clients whereby in
A: No, since Y actually made a conditional donation in consideration of periodical payments, the
X’s favour. law firm promises to present such clients in
all suits for or against them are not
2. A contract of suretyship shall also be deemed an insurance contracts;
insurance contract if made by a surety who or which is (2) A contract by which a corporation, in
doing an insurance business [Sec. 2 (a)]. consideration of a stipulated amount,
agrees at its own expense to defend a
3. Doing an insurance business or transacting an physician against all suits for damages for
insurance business is: malpractice is one of insurance, and the
corporation will be deemed as engaged in
the business of insurance.
(a) Making or proposing to make as insurer, any
insurance contract; WHAT IS THE CONCEPT OF INSURANCE?
(b) Making or proposing to make, as surety, any
contract of suretyship as a vocation and not as  Insurance is a means by which one seeks to be
merely incidental to any other legitimate business covered against the consequences of an event that
or activity of the surety; may cause loss or damage.
(c) Doing any business including a reinsurance  The concept is that the premiums that are paid are
business, specifically recognized as doing an accumulated in a pool from which payment of claims
insurance business within the meaning of the Code; are to be obtained. As a basis, it is assumed that the
(d) Doing or proposing to do any business in people contributing premiums are in excess of those
substance equivalent to any of the foregoing in a making claims resulting in a larger pool of money than
the amounts being claimed.
 NOTES ON INSURANCE
From the Lecture Notes of Atty. R. Rondez, Bar Qs & As, and Other Review Materials on Insurance
WHAT ARE PURE AND SPECULATIVE RISKS? 2. It is a contract of indemnity if it is a non-life insurance
contract as recovery must be commensurate to the loss.
 The risks that may be insured against are what are It is an investment or a contract to pay a sum certain in
known as pure risks, as opposed to speculative risks. money upon death if it is a life insurance contract as it
 A pure risk is whether a person will suffer or will not is secured by the insured as a measure of economic
suffer a loss from the occurrence of an event. security for him during his lifetime and for his
 A speculative risk is whether a person will profit or beneficiary upon his death, life not being subject to a
suffer a loss from the occurrence of an event. valuation nor the loss being adjustable on any principle
of indemnity, except when it is secured by the creditor
INSURANCE IS RISK- DISTRIBUTING
on the life of the debtor.
 Insurance is a risk-distributing device because when 2.1. An employee earns P20,000 a month. Over a
the insurer assumes the risk, it is distributing potential 10-year period, he will receive P2,400,000. He
liability in part, among others. obtains a 10-year life insurance policy for
 It is not risk shifting because the entirety of the risk of P5,000,000. When the employee dies, his
loss is not shifted to another. beneficiary makes a claim on the policy but the
insurer refused to pay the full amount, instead it
NATURE AND CHARACTERISTICS OF A CONTRACT OF offers to pay the amount that the employee
INSURANCE would have earned had he not died. The refusal
of the insurer to pay is not valid because life
What is the nature of a healthcare agreement? insurance is a not contract of indemnity.
In the case of Fortune Medicare, Inc. v Amorin (GR No. 3. It is a personal contract as an insurer contracts with
195872; March 12, 2014), it was held to be in the nature reference to the character of the insured and vice versa.
of non-life insurance, which is primarily a contract of It might be willing to make good the loss of a person by
indemnity. Once the member incurs hospital, medical, or the destruction of his property, while it would altogether
any other expense arising from sickness, injury or other be unwilling to insure the same property if owned by
stipulated contingency, the health care provided must pay another. On the other hand, the insurance taken by one
for the same to the extent provided under the contract. person will not apply to the interest of another person in
the same property.
The Court also interpreted an ambiguity in favour of the 4. It is an executor and conditional contract on the part of
insured allowing him to recover for his medical expenses the insurer because upon happening of the event or
incurred while abroad. peril insured against, the conditions having been met, it
has the obligation to execute the contract by paying the
1. It is an aleatory contract as the liability of the insured insured. On the other hand, it is an executed contract
depends upon the happening of a contingent event. It on the part of the insured after payment of the premium.
is not a wagering contract (Bar 2012 MCQ).
 NOTES ON INSURANCE
From the Lecture Notes of Atty. R. Rondez, Bar Qs & As, and Other Review Materials on Insurance
5. It is a contract of perfect good faith for both insurer and SCRA 364). Note though in a case where the
insured, but more so for the insurer, since its dominant policy provided for loss of both legs by
bargaining position imposes a stricter liability/ amputation, a claim against the policy was
responsibility. allowed for a total paralysis to be excluded is
6. It is a contract of adhesion as insurance companies contrary to public policy, public good and sound
manage to impose upon the insured prepared contracts morality, as it would force the insured to have
which the insured cannot change. his legs amputated to be able to claim on the
6.1. The first rule of construction is: In case there is policy (Panaton v Malayan, 2 Court of Appeals,
no doubt as to the terms of the insurance 783).
contract, it is to be construed in its plain,
ordinary and popular sense. 6.2. The second rule of construction is: If the policy
or its terms are doubtful, ambiguous, or
Illustration: uncertain, it is to be construed strictly against
P Bank obtained insurance against robbery the insurer and in favour of the insured because
which excluded loss by any criminal act of the the latter has no voice in the selection of the
insured or any authorized representative. While words used, and the language used is selected
transferring funds from one branch to another, by the lawyers of the insurer.
the insured’s armored truck was robbed. The
driver was assigned by a labor contractor with Bar 2012
the insured, while the security guard was
assigned by an agency contracted by the An insurance contract is a contract of adhesion,
insured. Both driver and guard were found to be which means that in resolving ambiguities in the
involved. Can the loss be excluded? HELD: the province of the insurance contract, they are to
loss is excluded as while the driver and guard be construed liberally in favour of the insured
are assigned by labor contractors, they are still and strictly against the insurer who drafted the
within the term “authorized representative insurance policy.
(Fortune Insurance v CA, 244 SCRA 308).
Illustration:
Illustration 2: Warranty in a fire insurance policy prohibited
Personal Accident policies providing payment storage of oils having a flash point of below 300
for “loss of hand.” The insurance policy defines Fahrenheit. Gasoline is stored. Is there a policy
it as amputation. Insured has an accident violation? HELD: The clause is ambiguous. In
resulting in a temporary total disability but hand ordinary parlance, oil means lubricants – not
is not amputated. HELD: Insurer is not liable (Ty gasoline. There is no reason why gasoline
v First National Surety and Assurance Co., 17 could not be expressed clearly in the language
 NOTES ON INSURANCE
From the Lecture Notes of Atty. R. Rondez, Bar Qs & As, and Other Review Materials on Insurance
the public can readily understand (Que Chee
Gan v Law Union Rock Ins. Co. Ltd., 98 Phils. 6.3. The third rule of construction is: Provisions in
85). the insurance contract must be read in its
entirety and the stipulation therein cannot be
Illustration 2: segregated in determining the intention of the
An action to recover the amount of P2,000 due parties. The provisions must be construed
to death by drowning where the policy provided together to arrive at their true meaning.
for indemnity in the amount of P1,000 to P3,000.
HELD: The interpretation of the obscure Illustration:
stipulation in contract must not favour the one An insurance policy covers loss due earthquake
who caused the obscurity. Hence, judgment for shock to two swimming pools and for which a
an additional P2,000 was affirmed (Del Rosario premium was paid. In a rider entitled
v Equitable Insurance and Casualty Co., 8 Earthquake Endorsement, it stated that in
SCRA 343). consideration of a premium, but without any
amount filled in, the company agrees to be
Illustration 3: liable for earthquake shock damage for other
Denial of a claim on the ground that the insured properties, the policy provisions notwithstanding.
vehicle was a private “owner” type vehicle on They insured claims that the conflict between
the ground that the policy issued to the insured the policy and the rider should be resolved in its
was a Common Carrier’s Liability Insurance favour. HELD: Only the pools are insured
Policy which covers a public vehicle for hire. against earthquake shock. The rider cannot be
HELD: Insurer is liable as it was aware all along construed to prevail over the policy (Guld
that the vehicle of the insured was a private Resorts, Inc. v Phil. Charter Insurance Corp.,
vehicle (Fieldmans Insurance v De Songco, 25 458 SCRA 550).
SCRA 70).
7. It is consensual because it is perfected by the meeting
Illustration 4: of the minds of the parties. There must be concurrence
Denial of claim for benefit due to the death of of offer and acceptance. Unless otherwise stipulated,
Flaviano Landicho in a plane crash under GSIS the policy is not essential to the existence of the
Policy on the ground of non-payment of the contract. It merely evidences the terms and conditions
premium. HELD: The policy contained a thereof [Campos, Insurance (1983)].
provision that the application for insurance is
authority for GSIS to cause the deduction of NOTE: UST Golden Notes
premium from the insured’s salary (Landicho v Consensual – acceptance of the offer perfects the
GSIS, 44 SCRA 7). contract of insurance.
 NOTES ON INSURANCE
From the Lecture Notes of Atty. R. Rondez, Bar Qs & As, and Other Review Materials on Insurance

Insurance contracts through correspondence follow the

“cognition theory” wherein an acceptance made by
letter shall not bind the person making the offer except
 Theory of Cognition vs Theory of Manifestation (Bar
from the time it came to his knowledge (Enriquez v Sun
1997)
Life Assurance Co. of Canada, GR No L-15774;
November 29, 1920).
Q: The Civil Code adopts the Theory of Cognition,
while the Code of Commerce generally recognizes the
8. It is voluntary. As a general rule, it is voluntary in the
Theory of Manifestation, in the perfection of contracts.
sense that it is not compulsory and the parties are free
How do these two theories differ?
to incorporate such terms and conditions they may
deem convenient provided they are not contrary to law,
A: under the Theory of Cognition, the acceptance is
morals, good customs, public order or public policy.
considered to effectively bind the offeror only from the
8.1. Exceptions: Insurance contracts particularly
time it came to his knowledge. Under the Theory of
liability insurance, may be required by law in
Manifestation, the contract is perfected at the moment
certain instances:
when the acceptance is declared or made by the
a. For motor vehicles [Secs. 386 – 402];
offeree.
b. For employees [Arts. 168 – 184, Labor
Code]. WHAT ARE THE ELEMENTS OF AN INSURANCE
CONTRACT?
As a condition to granting a license to conduct
business or calling affecting the public safety or 1. Existence of Insurable Interest – the insured should
welfare [De Leon (2010)]. possess an interest of some kind, susceptible of
pecuniary estimation – known as “insurable interest.”
Also, there are insurance which may arise by
operation of law. Social insurance for members
1.1. Generally, a person has insurable interest in the
of the GSIS and for the employees in the
subject matter when: He has such a relation or
private sector covered by the SSS is
connection with, or concern in, such subject
established by law.
matter that he will derive pecuniary benefit or
9. It is unilateral because it imposes legal duties only on advantage from its preservation or will suffer
insurer who promises to indemnify in case of loss. pecuniary loss or damage from its destruction,
termination, or injury by the happening of the
10. It is onerous there is a valuable consideration called event insured against (Lalican v Insular Life Ins.
the “premium.” Co., 2009).
 NOTES ON INSURANCE
From the Lecture Notes of Atty. R. Rondez, Bar Qs & As, and Other Review Materials on Insurance
Bar 2000 2. Risk of loss – the insured is subject to risk of loss
Q: BD has a bank deposit of half a million pesos. through the destruction or impairment of that interest by
Since the limit of the insurance coverage of the the happening of the designated risks.
PDIC is only 1/1o of BD’s deposit, he would like 3. Assumption of Risk – the insurer assumes the risk of
some protection for the excess by taking out an loss
insurance against all risk or contingencies of
loss arising from any unsound or unsafe 4. Scheme to Distribute Losses – such assumption is part
banking practices including unforeseen adverse of a general scheme to distribute actual loss among a
effects of the continuing crisis involving the large group of persons bearing somewhat similar risks.
banking and financial sector in the Asian region.
Does BD have an insurable interest within the 5. Payment of Premium – as a consideration for the
meaning of the Insurance Code of the insurer’s promise, the insured makes a ratable
Philippines? contribution called a “premium” to the general
insurance fund.
A: Yes, BD has insurable interest in his bank
deposit. In case of loss of said deposit, more NOTE: Requisites for a Valid Insurance Contract (UST
particularly to the extent of the amount in Golden Notes)
excess of the limit covered by the PDIC Act, BD (1) Subject Matter in which the insured has an
will be damnified. He will suffer pecuniary loss insurable interest;
of P400,000, that is, his bank deposit of half a (2) Consideration which refers to the premium
million pesos minus P100,000 which is the payments based on probability of loss and extent of
maximum amount recoverable from the PDIC. liability;
(3) Object and purpose which is the transfer and
1.2. Exception: the expectation of benefit from the distribution of risk of loss, damage or liability;
continued life of the person insured need not be (4) Cause which refers to an event or peril insured
of a pecuniary nature. against; and
1.3. A person has insurable interest in life, health (5) A meeting of minds of the parties upon all the
and property. foregoing essentials.
1.4. It is necessary because its absence renders th
contract of insurance void. This is based on the PERFECTION OF AN INSURANCE CONTRACT
principle that insurance is a contract of An insurance contract is a consensual contract. Therefore, it is
indemnity. If the insured has no interest, he will perfected the moment there is meeting of minds with respect
not stand to suffer loss or injury by the to the object and the cause of consideration. Specifically, it is
happening of the event insured against. perfected the minute the offeror learns of the acceptance of his
offer by the offeree. It must be assented to by both parties,
 NOTES ON INSURANCE
From the Lecture Notes of Atty. R. Rondez, Bar Qs & As, and Other Review Materials on Insurance
either in person or through their agents, and sol long as an woman on her life or that of her children. She may
application for insurance has not been either accepted or exercise all rights and privileges of an owner under a
rejected, it is merely a proposal or an offer to make a contract. policy.
2.1. She may also insure her separate property
Mere submission of the application without the corresponding without the consent of her husband as she has
approval of the policy does not result in the perfection of the the right to administer her own property (Art.
contract of insurance (Bar 2011). 145, Family Code).
Q: On June 1, 2011, X mailed to Y Insurance, Co., his 3. The provision of the law regarding a minor 18 years of
application for life insurance, with payment for 5 years of age or more has been rendered moot and academic by
premium enclosed in it. On July 21, 2011, the insurance RA 6809 which reduced the age of majority to 18 years.
company accepted the application and mailed on the same 3.1. Regarding an unemancipated minor, he cannot
day its acceptance plus the cover note. It reached X’s enter into a contract of insurance without the
residence on August 11, 2011. But, as it happened, on August consent of his parents or guardian and when he
4, 2011, X figured in a car accident. He died a day later. May does, the contract is voidable (Art. 1327 and
X’s heir recover on the insurance policy? 1390, Civil Code).
3.2. If the original owner of a policy covering the life
A: No, since X had no knowledge of the insurer’s acceptance of a minor will die ahead of the minor, all rights,
of his application before he died. title and interest in the policy shall automatically
vest in the minor unless otherwise provided in
Note: What is being followed in insurance contracts is what is the policy.
known as the “cognition theory.”
HOW IS AN OFFER AND ACCEPTANCE MADE IN
Bar 2012 PROPERTY AND LIABILITY INSURANCE
For both the life insurance and property insurance, the When the insured applies for the insurance, he is already
insurable interest is required to be existing at the time of making an offer to the insurer, who may now accept, reject or
perfection and at the time of loss for property. In life insurance, make a counter-offer.
however, it need not be present at the time of loss occurs.
Acceptance occurs in the same manner as in life and health
CONSENT REQUIREMENTS WHEN INSURANCE IS TAKEN insurance.
1. Generally, the law does not require the consent of the INSURABLE INTEREST
person insured and such has been considered as not
essential to the validity of the contract as long as there Insurable interest will exist when the insured has such a
is insurable interest at the beginning. relation or connection with, or concern in, such subject matter
2. The consent of the husband is not necessary for the that he will derive pecuniary benefit or advantage from its
validity of an insurance policy taken out by a married preservation or will suffer pecuniary loss or damage from its
 NOTES ON INSURANCE
From the Lecture Notes of Atty. R. Rondez, Bar Qs & As, and Other Review Materials on Insurance
destruction, termination, or injury by the happening of the of indemnity. The interest of the creditor is capable of
event insured against. pecuniary estimation.

IN WHOSE LIFE AND HEALTH DOES A PERSON HAVE WHAT IS THE EXTENT OF INSURABLE INTEREST IN
INSURABLE INTEREST IN ONE’S LIFE?

1. Himself, his spouse and of his children; 1. A person has unlimited interest in his own life or that of
2. Any person on whom he depends wholly or in part for another person regardless of whether or not the latter
education or support, or in whom he has a pecuniary has insurable interest. Provided, that if the beneficiary
interest. has no insurable interest, there is no force or bad faith.
2.1. Art. 195 of the Family Code specifies the 2. However, if a person takes out a policy on the life of
persons obligated to support each other. another and names himself as the beneficiary, he must
2.2. A pecuniary interest exists as between partners have an insurable interest in the life of the insured.
or between the employer and employee.
3. Any person under a legal obligation to him for the Bar 1984
payment of money, respecting property or services, Q: On January 4, 1983, Mr. P joined Alpha Corp.
which death or illness might delay or prevent (Alpha) as President of the company. Alpha took out a
performance. life insurance policy on the life of Mr. P with Mutual
3.1. A creditor has insurable interest in the life and Insurance Co., designating Alpha as the beneficiary.
health of his debtor. Alpha also carried fire insurance with Beta Insurance
4. Any person upon whose life, any estate or interest Co. on a house owned by it, but temporary occupied by
vested in him depends Mr. P again with Alpha as beneficiary.
4.1. When usufructuary X allows Y to receive fruits On September 1, 1983, Mr. P resigned from Alpha and
of the land of the former as long as he is alive, purchased the company house he had been occupying.
Y has insurable interest in the life of X, because A few days later, a fire occurred resulting in the death
the death of X will terminate his right and cause of Mr. P and the destruction of the house.
him damage. What are the rights of Alpha against Mutual Life
Insurance on the life insurance policy?
WHEN MUST INSURABLE INTEREST IN LIFE EXIST?

Insurable interest in life must exist at the time of the effectivity A: Alpha can recover against Mutual Life in the life
of the policy and need not exist at the time of the death of the insurance policy as its insurable interest in the life of
insured as life insurance is not a contract of indemnity. the person insured, Mr. P, existed when the insurance
took effect. In life insurance, insurable interest need not
However, insurable interest of a creditor on the life of a debtor exist thereafter or when the loss occurred.
exists not only at the time of effectivity but also at the time of
the death of the debtor because in this instance, it is a contract
 NOTES ON INSURANCE
From the Lecture Notes of Atty. R. Rondez, Bar Qs & As, and Other Review Materials on Insurance
motor accident. Shortly thereafter, X filed his insurance
claim. Should the insurer pay?
Bar 1987
Q: Blanco took out a P1,000,000 life insurance policy A: the insurer is not obliged to pay. Friendship alone is
naming his girlfriend and creditor, Montenegro, as his not the insurable interest contemplated in life insurance.
beneficiary. When Blanco died, his outstanding loan Insurable interest in the life of others (other than one’s
obligation to Montenegro was only P50,000. Blanco’s own life, spouse or child) is merely to the extent of the
executor contended that only P50,000 out of the pecuniary interest in that life.
insurance proceeds should be paid to Montenegro and Assuming that such pecuniary interest exists, an
the balance of P950,000 should be paid to Blanco’s insurer would be liable despite concealment or
estate. misrepresentation if the insurance had been in effect
Is the executor correct? for more than 2 years (Incontestability Clause).

A: the contention of the executor is incorrect. The Bar 1997

beneficiary of a life insurance need not have any Q: A obtains insurance over his life and names his
insurable interest in the life of the insured. neighbour B the beneficiary because of A’s secret love
for B. If A dies, can B successfully claim against the
Alternative Answer: policy?
The contention of the executor is incorrect because it
was Blanco himself who took out the life insurance A: Yes. In life insurance, it is required that the
policy on his own life, naming Montenegro as the beneficiary must have insurable interest in the life of
beneficiary. It would have been different if it was the insured. It was the insured himself who took the
Montenegro, as creditor, who took out a life insurance policy on his own life.
policy on the life of Blanco, as a debtor. In that case,
Montenegro’s insurable interest in the life of Blanco Bar 2000
would be only to the extent of P50,000, which is the Q: IS is an elderly bachelor with no known relatives. He
amount of his credit. obtained life insurance coverage for P250,000 from
Starbite Insurance Corp., an entity licensed to engage
Bar 1987 in the insurable business under the Insurance Code of
Q: On July 14, 1985, X, a homosexual, took an the Philippines. He also insured his residential house
insurance policy on the life of his boyfriend, Y. in the for twice that amount with the same corporation. He
insurance application, X misrepresented that Y was in immediately assigned all his rights to the insurance
perfect health although he knew all the time that Y was proceeds to BX, a friend-companion living with him. 3
afflicted with AIDS. On October 18, 1987, Y died in a years later, IS died in a fire that gutted his insured
house 2 days after he had sold it. There is no evidence
 NOTES ON INSURANCE
From the Lecture Notes of Atty. R. Rondez, Bar Qs & As, and Other Review Materials on Insurance
of suicide or arson or involvement of BX in these validly be placed thereon. In life insurance, there is
events. BX demanded payment of the insurance no limit to the amount of insurance that may be
proceeds from the 2 policies, the premiums for which taken upon life.
IS had been faithfully paying during all the time he was 3) In property insurance, an interest insured must
alive. Starbite refused payment, contending that BX exist when the insurance takes effect and when the
had no insurable interest and therefore was not entitled loss occurs but need not exist in the meantime. In
to receive the proceeds from IS’ insurance coverage on life insurance, it is enough that insurable interest
his life and also on his property. Is Starbite’s contention exists at the time when the contract is made but
valid? need not exist at the time of loss.

A: Starbite is correct with respect to the insurance Bar 2011

coverage on the property of IS. The beneficiary in the Q: X Co., a partnership, is composed of A
property insurance policy or the assignee thereof must (capitalist), B (capitalist) and C (industrial). If you
have insurable interest in the property insured. BX, a were partner A, who between B and C would have
mere friend-companion of IS, has no insurable interest an insurable interest on your life, such that you my
in the residential house of IS. BS is not entitled to then insure him?
receive the proceeds from IS’ insurance on his property.
As to the insurance coverage on the life of IS, BX is A: Both B and C, as they are your partners.
entitled to receive the proceeds. There is no
requirement that he should have insurable interest in Bar 2011
the life of IS. It was IS himself who took the insurance Q: X has been a long-time household helper of Z.
on his own life. X’s husband, Y, has also been Z’s long-time driver.
May Z insure the loves of both X and Y as
Bar 2002 beneficiary?
Q: Distinguish insurable interest in property from
insurable interest in life insurance. A: No, since Z has no pecuniary interest in the lives
of X and Y arising from their employment with him.
A:
1) In property insurance, the expectation of benefit Bar 2012
must have a legal basis. In life insurance, the Q: X, a minor, contracted an insurance on his own
expectation of benefit to be derived from the life. What is the status of the policy?
continued existence of a life need not have any
legal basis. A: the life insurance policy is valid, provided the
2) In property insurance, the actual value of the beneficiary is his estate or his parents, spouse or
interest therein is the limit of the insurance that can child.
 NOTES ON INSURANCE
From the Lecture Notes of Atty. R. Rondez, Bar Qs & As, and Other Review Materials on Insurance
A: Yes, Carlo can claim the insurance benefit. If a
Bar 2013 person insures the life or health of another person
Q: In 2010, the PNP declared Kadafi “Public Enemy with himself as beneficiary, all his rights, title, and
No. 1” because of his terrorist activities in the interests in the policy shall automatically vest in the
country that have resulted in the death of person insured. Carlo, as husband of Blanca, has
thousands of Filipinos. A ransom of P15, 000, 000 insurable interest in the life of the latter. Also, every
was place on his head. person has an insurable interest in the life and
Worried about the future or their family, Kadafi’s health of any person on whom he depends wholly
wife, Aurelia, secured in December 2010 a life or in part for support. The insurable interest in the
insurance policy on his life and designated herself life of the person insured must exist when the
as beneficiary. Is the policy binding? insurance takes effect but need not exist when the
loss occurs. Thus, the subsequent knowledge of
A: Yes. The policy is valid and binding because Carlo, upon the death of Blanca, that the latter is a
Aurelia has an insurable interest on the life of transgender does not destroy his insurable interest
Kadafi. on the life of the insured.

Bar 2014 Bar 2014

Q: Carlo and Bianca met in the La Boracay Q: On July 3, 1993, Delia Sotero took out a life
festivities. They fell in love with each other and got insurance policy from Ilocos Bankers Life Insurance
married soon after. They have been cohabiting Corp., designating Cresencia Aban, her niece, as
blissfully as husband and wife, but they did not her beneficiary. Ilocos Life issued Policy No. 747
have any offspring. As the years passed by , Carlo with a face valie of P100,000 in Sotero’s favour on
decided to take out an insurance on Blanca’s life for August 30, 1993, after the requisite medical
P1,000,000 with him (Carlo) as sole beneficiary, examination and payment of the premium.
given that the did not have a steady source of On April 10, 1996, Sotero died. Aban filed a claim
income and he always depended on Blanca both for the insurance proceeds on July 9, 1996. Ilocos
emotionally and financially. During the term of the Life conducted an investigation into the claim and
insurance, Blanca died of what appeared to be a came out with the following findings:
mysterious cause so that Carlo immediately 1. Sotero did not personally apply for insurance
requested for an autopsy to be conducted. It was coverage, as she was illiterate;
established that Blanca died of a natural cause. 2. Sotero was sickly since 1990;
More than that, it was also established that Blanca 3. Sotero did not have financial capability to pay
was a transgender all along – a fact unknown to the premium on the policy;
Carlo. Can Carlo claim the insurance benefit? 4. Sotero did not sign the application for insurance;
 NOTES ON INSURANCE
From the Lecture Notes of Atty. R. Rondez, Bar Qs & As, and Other Review Materials on Insurance
5. Aban was the one who filed the insurance execution of an absolute sale, A has insurable
application and designed herself as beneficiary. interest in the house equivalent to the balance
due him, while B has insurable interest to the
For the above reasons and claiming fraud, extent of the down payment because loss of the
Ilocos Life denied Aban’s claim on April 16, house will mean that he will suffer a loss of
1997, but refunded the premium paid on the P500,000.
policy. May Sotero validly designate her niece 2. An inchoate interest founded on an existing interest
as beneficiary? 2.1. An inchoate interest has been defined as:
Interest in real estate which is not a present but
A: Yes, Sotero may validly designate her niece, which may ripen into a vested interest if not
Aban, as beneficiary. Sotero had insurable barred, extinguished, or divested.
interest in her own life, and could validly 2.2. Interest in corporate property arising from
designate anyone as her beneficiary. stockholdings but limited to its value is an
inchoate interest founded on an existing interest.
WHEN DOES A PERSON HAVE INSURABLE INTEREST IN 3. An expectancy, coupled with an existing interest in that
PROPERTY? out of which the expectancy arises.
1. A person has insurable interest in property, as every 3.1. The expectancy must be founded on an actual
interest in property, whether real or personal, or any right to the thing or a valid contract for it.
relation thereto, or liability in respect thereof, of such 3.2. A farmer has insurable interest on an
nature that a contemplated peril might directly damnify anticipated harvest of the crops that he will
the insured is an insurable interest. grow on land belonging to him at the time of the
issuance of the policy.
WHAT IS THE TEST OR MEASURE OF INSURABLE 4. A carrier depositary of any kind has insurable interest
INTEREST IN PROPERTY in the thing held by him as such to the extent of his
liability but not to exceed the value thereof.
1. Whether one will derive pecuniary benefit or advantage 5. But a mere contingent or expectant interest in anything,
from its preservation or will suffer pecuniary loss or not founded on contract or actual right to the thing is
damage from its destruction. not insurable as there is no insurable interest.
5.1. A son has no insurable interest on a building
WHAT DOES INSURABLE INTEREST IN PROPERTY
owned by father despite being designated as an
CONSIST OF
heir in the will as the will does not produce any
1. An existing interest effect before the testator’s death.
1.1. By means of a conditional deed of sale, A sold
his house to B for P2,000,000. B pays a down
payment of P500,000. Prior to full payment and
 NOTES ON INSURANCE
From the Lecture Notes of Atty. R. Rondez, Bar Qs & As, and Other Review Materials on Insurance
Bar 1982 policy was not approved by the insurer. Hence, C
Q: A owns a house valued at P50,000 which he had cannot recover.
insured against fire for P100,000. He obtained a loan
from B in the amount of P100,000, and to secure MUST THE BENEFICIARY IN PROPERTY INSURANCE
payment thereof, he executed a deed of mortgage on HAVE INSURABLE INTEREST ON THE PROPERTY
the house, but without assigning the insurance policy to INSURED?
the latter. For A’s failure to pay the loan upon maturity, 1. Yes, as no contract or policy of insurance on property
B initiated foreclosure proceedings and in the ensuing shall be enforceable except for the benefit of some
public sale, the house was sold by the sheriff to B as person having insurable interest in the property insured.
highest bidder. Immediately upon issuance of the 1.1. The owner insures his building against fire,
sheriff’s certificate of sale in his favour, B insured the naming his nephew as beneficiary. In case of
house against fire for P120,000 with another insurance loss, only the owner can recover. What is not
company. In order to redeem the house, A borrowed enforceable is the designation of beneficiary,
P100,000 from C and, as security device, he assigned not the entire policy itself.
the insured policy of P100,000 to C. However, before A
could pay B his obligation of P100,000, the house was Bar 2009
accidentally and totally burned. Q: Ciriaco leased a commercial apartment from
Does A, B, or C have any insurable interest in the Supreme Building Corp. One of the provisions
house? May A, B, and C recover under the policies? If of the provisions of the one-year lease contract
so, how much? states:
“ –18. Xxx The LESSEE shall not insure against
A: As to A, he has insurable interest in his house, an fire the chattels, merchandise, textiles, goods
existing interest, but only for P50,000, the value of said and effects placed at any stall or store or space
house. But, when he assigned it to C, said A had no in the leased premises without first obtaining
more interest in his insurance policy, and A cannot the written consent of the LESSOR. If the
anymore recover on said insurance policy. lessee obtains fire insurance coverage without
As to B, he has insurable interest on A’s house, having the consent of the lessor, the insurance policy is
an interest founded upon an existing interest, but only deemed assigned and transferred to the lessor
for P50,000, the value of A’s house, and therefore, he for the latter’s benefit.”
can recover only the amount of P50,000. Notwithstanding the stipulation in the contract,
As to C, he has no insurable interest on A’s house, without the consent of SBC, Ciriaco insured the
being mere contingent or expectant interest not merchandise inside the leased premises
founded on an actual right or valid contract to A’s against loss by fire in the amount of P500,000
house; besides, the assignment to him of A’s insurance with First United Insurance Corp. A day before
the lease contract expired, fire broke out inside
 NOTES ON INSURANCE
From the Lecture Notes of Atty. R. Rondez, Bar Qs & As, and Other Review Materials on Insurance
the leased premises, damaging Ciriaco’s 2.2. The reason for the rule is that insurance is a
merchandise. Having learned of the insurance personal contract. The insurer may not be
earlier procured by Ciriaco, SBC demanded willing to insure the same property if owned by
from FUIC that the proceeds of the insurance another person.
policy be paid directly to it, as provided in the 2.3. The policy is revived by the assignment of the
lease contract. Who is legally entitled to receive policy to the transferee with the consent of the
the insurance proceeds? Explain. insurer or the reacquisition by the insured of his
interest in the property.
A: Ciriaco is entitled to receive the proceeds of 2.4. If there is a prohibition against alienation or
the insurance policy. change of interest without the consent of the
No contact or policy of insurance on property insurer, the policy is not suspended but rather it
shall be enforceable except for the benefit of is avoided. Hence, the subsequent reacquisition
some person having insurable interest in the of the interest will not revive the policy.
property insured. The stipulation that the policy
is deemed assigned and transferred to SBC is WHEN IS INSURANCE CONTRACT NOT SUSPENDED?
void, because SBC has no insurable interst in 1. Life, health or accident insurances because they are
the merchandise of Ciriaco (Cha v CA, 277 not contracts of indemnity and insurable interest is not
SCRA 690; 1997). required at the time of loss.
WHEN MUST INSURABLE INTEREST IN PROPERTY EXIST? 2. A change in interest after occurrence of an injury that
results in loss does not affect the right of the insured to
1. Must exist at the time the insurance takes effect and indemnify as the occurrence of the loss will fix the
when the loss occurs but need not exceed in the liability of the insurer.
meantime. 3. A change of interest in one or more several distinct
things, separately insured by one policy, does not avoid
Change of Interest the insurance as to the others.
2. A change of interest in any part of a thing insured 4. A change in interest by will or succession on the death
unaccompanied by a corresponding change of interest of the insured does not avoid the insurance and his
in the insurance suspends the insurance to an interest passes in the thing insured to the person taking
equivalent extent until interest in the thing and interest his interest in the thing insured.
in the insurance is vested in the same person. 5. A transfer of interest by one or several partners, joint
2.1. The contemplated change is an absolute owners, or owners in common, who are jointly insured
transfer of the insured’s entire interest in the to the others, does not avoid insurance even though it
property insured to one not previously has been agreed that insurance shall cease upon an
interested or insured. alienation of the thing insured.
 NOTES ON INSURANCE
From the Lecture Notes of Atty. R. Rondez, Bar Qs & As, and Other Review Materials on Insurance
5.1. The transfer contemplated is that to a stranger 2) In property insurance, the actual value of the
and if so, the policy is only suspended to such interest therein is the limit of the insurance that can
equivalent extent as that transferred. validly be placed thereon. In life insurance, there is
6. When notwithstanding a prohibition, the consent of the no limit to the amount of insurance that may be
insurer is obtained. taken upon life.
7. When the policy is so framed that it will inure to the 3) In property insurance, an interest insured must
benefit of whomsoever may become the owner during exist when the insurance takes effect and when the
the continuance of the risk. loss occurs, but need not exist in the meantime. In
life insurance, it is enough that insurable interest
DISTINGUISHING INSURABLE INTEREST IN LIFE FROM exists at the time when the contract is made but it
INSURABLE INTEREST IN PROPERTY need not exist at the time of the loss.
1. Insurable interest in life can be based on consanguinity, Bar 1977
affinity, contract or a pecuniary interest, while insurable
interest in property is based on pecuniary interest; Q: A owns a house worth P500,000. He insured it
2. Insurable interest in life must exist only at the effectivity against fire for P250,000 for the period from January 1,
of the contract except that taken by a creditor in the life 1977 to January 1, 1978. At the instance of B, who is a
of the debtor while insurable interest in property must judgment creditor of A, the said house was levied upon
exist at the time of effectivity of the contract and when by the Sheriff and sold at a public auction on March 15,
loss occurs, although it may not exist in the meantime. 1977. It was adjudicated to B for P150,000 at the
3. The value of insurable interest in life is not limited auction sale. B insured the house against fire for
unless taken by a creditor on the life of the debtor while P150,000 for the period from March 16, 1977 to March
insurable interest in property is limited to the actual 16, 1978. The house was accidentally burned on April
value of the interest in the property. 1, 1977. May A recover under his policy? How about B?

Bar 2002 A: A can recover under his policy. A judgment debtor

Q: Distinguish insurable interest in property insurance whose property has been seized on execution has an
from insurable interest in life insurance. insurable interest therein until the right to redeem or
have the same set aside has been lost. Inasmuch as
A: the right of A to redeem has not expired, the 12
1) In property insurance, the expectation of benefit months’ time after the sale having not elapsed before
must have a legal basis. In life insurance, the the loss occurred. A has an insurable interest in the
expectation of benefit to be derived from the house at the time of the loss.
continued existence of a life need not have any As regards B, he can recover upon his policy because
legal basis; as purchaser at a judicial sale, he has an insurable
 NOTES ON INSURANCE
From the Lecture Notes of Atty. R. Rondez, Bar Qs & As, and Other Review Materials on Insurance
interest in the property to the extent of the amount for fact he already knew before announcing the sailing. A,
which he insured it not exceeding his interest in the the buyer of the copra, in all good faith, took out a
property. marine insurance on the copra. The copra was badly
damaged and was a total loss. Can the insured recover
Bar 1980 on the policy?
Q: N owns a condominium unit presently insured with A: The insured may not recover on the policy, since the
the Holy Insurance Co. for P1,000,000. N later sells the subject matter of the marine insurance at the time of
condominium unit to O. Somehow, O fails to obtain the contracting the insurance was already lost. An interest
transfer of the insurance policy to his name from N. in property insured must exist when the insurance
subsequently, fire of unknown origin destroys takes effect and when the loss occurs.
completely the condominium unit. Who may collect the
insurance proceeds? Bar 1984

A: Neither N nor O may collect the insurance proceeds. Q: On January 4, 1983, P joined Alpha Corp. as
As to N: An interest in property insured must exist president of the company. Alpha took out a life
when the insurance takes effect and when the loss insurance policy on the life of P with Mutual Insurance,
occurs. Although N had insurable interest when the designating Alpha as beneficiary. Alpha also carried
insurance took effect, he had no more interest when fire insurance with Beta Insurance on a house owned
the loss happened. Further, a change of interest in any by it, but temporarily occupied by P again with Alpha as
part of a thing insured unaccompanied by a beneficiary.
corresponding change of interest in the insurance
suspends the insurance to an equivalent extent, until On September 1, 1983, P resigned from Alpha and
the interest in the thing insured and the interest in the purchased the company house he had been occupying.
insurance are vested in the same person. A few days later, a fire occurred resulting in the death
of P and the destruction of the house.
As to O: He cannot recover because he had no
insurance contract on the said condominium unit which What are the rights of Alpha against Beta Insurance on
he bought from N. the fire insurance?

Bar 1979 A: Alpha cannot recover from Beta Insurance since an

interest in the property insured must exist not only
Q: The agent of the insured A was employed to ship when the insurance took effect but also when the loss
A’s copra to Manila and to communicate the shipment occurs. Since the fire that destroyed the insured’s
to the buyer A in Manila. The said agent wrote the house took effect after Alpha had sold the house of P,
owner of the copra announcing the sailing of the ship, the insurable interest of Alpha in the property insured
but failed to state that the ship had run aground, which no longer exists when the loss occurred.
 NOTES ON INSURANCE
From the Lecture Notes of Atty. R. Rondez, Bar Qs & As, and Other Review Materials on Insurance
Bar 1987 a perfected contract of sale already vested equitable
interest on the property in favour of the buyer while it is
Q: On February 3, 1987, while Jose Palacio was in the pending delivery.
hospital preparatory to a heart surgery, he called his
only son, Boy Palacio, and showed the latter a will Bar 1994
naming the son as sole heir to all the father’s estate
including the family mansion in Forbes Park. The Q: In a civil suit, the Court ordered Benjie to pay Nat
following day, Boy took out a fire insurance policy on P500,000. To execute the judgment, the sheriff levied
the mansion. One week later, the father died. After his upon Benjie’s registered property (a parcel of land and
father’s death, Boy moved his wife and children to the the building thereon), and sold the same at public
family mansion which he inherited. On March 30, 1987, auction to Nat, the highest bidder. The latter, on March
a fire occurred razing the mansion to the ground. Boy 18, 1992, registered with the Register of Deeds the
then proceeded to collect on the fire insurance he took certificate of sale issued to him by the sheriff.
earlier on the house. Meanwhile, on January 27, 1993, Benjie insured with
Garapal Insurance for P1,000,000 the same building
Should the insurance company pay? that was sold at public auction to Nat. Benjie failed to
redeem the property by March 18, 1993.
A: In property insurance, insurable interest must exist
both at the time of the taking of the insurance and at On March 19, 1993, a fire razed the building to the
the time the risk insured against occurs. The insurable ground. Garapal Insurance refused to make good its
interest must be an existing interest. The fact alone that obligation to Benjie under the insurance contract.
Boy was the expected sole heir of his father’s estate
does not give the prospective heir any existing interest 1. Is Garapal Insurance legally justified in refusing
prior to the death of the decedent. payment to Benjie?
2. Is Nat entitled to collect on the insurance policy?
Bar 1991
A:
Q: A piece of machinery was shipped to Pablo on the
basis of C&F, Manila. Pablo insured said machinery 1. Yes. At the time of the loss, Benjie was no longer
with the Talaga Merchants Insurance for loss or the owner of the property insured as eh failed to
damage during the voyage. The vessel sank en route redeem the property. The law requires in property
to Manila. Pablo then filed a claim with Talaga insurance that a person can recover the proceeds
Merchants which was denied for the reason that prior of the policy if he has insurable interest at the time
to delivery, Pablo had no insurable interest. Decide. of the issuance of the policy and also at the time
when the loss occurs. At the time of fire, Benjie no
A: Pablo had an existing insurable interest on the piece longer had insurable interest in the property insured.
of machinery he bought. The purchase of goods under
 NOTES ON INSURANCE
From the Lecture Notes of Atty. R. Rondez, Bar Qs & As, and Other Review Materials on Insurance
2. No. While at the time of the loss he has insurable b) Suppose you are the judge, how much would you
interest in the building, as he was the owner thereof, allow a businessman and the creditor to recover
Nat did not have any interest in the policy. There from their respective insurers?
was no automatic transfer clause in the policy that
would give him such interest in the policy. A:

Bar 1997 a) Yes. The businessman, as owner, and the creditor,

as mortgagee, have separate insurable interests in
Q: A obtains a fire insurance on his house and as a the same stocks-in-trade. Each may insure such
generous gesture names his neighbour as beneficiary. interest to protect his own separate interest.
If A’s house is destroyed by fire, can B successfully b) As judge, I would allow the businessman to recover
claim against the policy? his total loss of P5,000,000 representing the full
value of his goods which were lost through fire. As
A: No. In property insurance, the beneficiary must have to the creditor, I would allow him to recover the
insurable interest in the property insured. B does not amount to the extent of or equivalent to the value of
have insurable interest in the house insured. the credit he extended to the businessman for the
Bar 1999 stocks-in-trade which were mortgaged by the
businessman.
Q: A businessman in the grocery business obtained
from First Insurance an insurance policy of P5,000,000 Bar 2000
to fully cover his stocks-in-trade from the risk of fire. Q: IS, an elderly bachelor with no known relatives,
Three months later, a fire of accidental origin broke out obtained life insurance coverage for P250,000 from
and completely destroyed the grocery including his Starbite Insurance, an entity licensed to engage in the
stocks-in-trade. This prompted the businessman to file insurable interest business under the Insurance Code
with the First Insurance a claim for P5,000,000 of the Philippines. He also insured his residential house
representing the full value of his goods. for twice that amount with the same corporation. He
First Insurance denied the claim because it was immediately assigned all his rights to the insurance
discovered that at the time of the loss, the stocks-in- proceeds to BX, a friend-companion living with him.
trade were mortgaged to a creditor who likewise Three years later, IS died in a fire that gutted his
obtained from Second Insurance for insurance insured house 2 days after he had sold it. There is no
coverage for the stocks at their full value of P5,000,000. evidence of suicide or arson or involvement of BX in
these events. BX demanded payment of the insurance
a) May the businessman and the creditor obtain proceeds from the 2 policies, the premiums for which
separate insurance coverage over the same IS had been faithfully paying during all the time he was
strocks-in-trade? alive. Starbite refused to pay, contending that BX had
 NOTES ON INSURANCE
From the Lecture Notes of Atty. R. Rondez, Bar Qs & As, and Other Review Materials on Insurance
no insurable interest and therefore not entitled to WHAT ARE THE VOID STIPULATIONS IN A CONTRACT OF
receive the proceeds from IS’ insurance coverage on INSURANCE?
his life and also on his property.
1. A stipulation for the payment of the loss whether
Is Starbite’s contention valid? the person insured has or has no interest in the
property insured because it is a contract of
A: Starbite is correct with respect to the insurance indemnity.
coverage on the property of IS. The beneficiary in the 2. A stipulation that the policy shall be received as
property insurance policy or the assignee thereof must proof of such interest because the existence of
have insurable interest in the property insured. BX, a insurable interest does not depend on the policy.
mere friend-companion of IS, has no insurable interest 3. Every policy issued by way of gaming or wagering
in the residential house of IS. BX is not entitled to shall be void because those insured without
receive the proceeds from IS’ insurance on his property. insurable interest do not suffer a damage from the
As to the insurance coverage on the life of IS, BX is occurrence of the event insured against. Instead,
entitled to receive the proceeds. There is no they will profit. Further, it brings a strong temptation
requirement that BX should have insurable interest in to bring about the occurrence of the event insured
the life of IS. It was IS himself who took the insurance against.
on his own life. WHAT MAY BE INSURED AGAINST?
Bar 2001 1. Any unknown or contingent event, whether past or
Q: JQ, owner of a condominium unit, insured the same future, which may damnify a person having insurable
against fire with XYZ Insurance Co., and made the loss interest or create a liability against him;
payable to his brother, MLQ. In case of loss by fire of 2. Insurance against damage or liability arising from and
the said condominium unit, who may recover on the fire unknown past event must ne expressly stipulated as in
insurance policy? marine insurance where the insurance over the vessel
against perils of the sea will be paid lost or not lost;
A: JQ can recover on the fire insurance policy for the 3. Insurance risks are:
loss of said condominium unit. He has the insurable a. One that may cause damage to the insured; or
interest as owner-insured. As beneficiary in the fire b. One that may create liability against him.
insurance policy, MLQ cannot recover on the fire
insurance policy. For the beneficiary to recover on the
fire or property insurance policy, it is required that he WHAT CANNOT BE INSURED?
must have insurable interest in the property insured. In
this case, MLQ does not have insurable interest in the
condominium unit.
 NOTES ON INSURANCE
From the Lecture Notes of Atty. R. Rondez, Bar Qs & As, and Other Review Materials on Insurance
1. Insurance for or against the drawing of any lottery or for A: Yes. Y Insurance is liable. X Co., through its executive
or against any chance or ticket in a lottery drawing a PJ, acted as agent of Y Insurance. The latter is thus bound
prize cannot be acquired; by the misconduct of its agent. It is the usual practice in the
2. It cannot be insured because gambling results in profit, group insurance business that the employer-policy holder
while the object of insurance is to indemnify the insured is the agent of the issuer.
against loss;

WHO ARE THE PARTIES TO A CONTRACT OF

INSURANCE? 1.1. It is the party who agrees to indemnify another
upon the happening of a specified contingency.
1. The Insurer – every person, partnership, association or
corporation duly authorized to transact insurance 2. The Insured – who is the party to be indemnified in
business as provided in the Code may be an insurer. case of a loss
2.1. Anyone, except a public enemy or a nation at war
Bar 2000 with the Philippines and every citizen or subject of
Q: X Co. procured a group accident insurance policy for its such nation, may be insured. The reason is that the
construction employees variously assigned to its provincial purpose of war is to cripple the power and exhaust
infrastructure projects. Y Insurance Co. underwrote the the resources of the enemy, and it is inconsistent to
coverage, the premiums of which were paid for entirely X destroy its resources then pay it the value of what
Co. without any employee contributions. has been destroyed.

While the policy was in effect, five of the covered Bar 2000
employees perished at sea on their way to their provincial
assignments. Their wives sued Y Insurance for payment of Q: May a member of the MILF or its breakaway
death benefits under the policy. While the suit was pending, group, the Abu Sayyaf, be insured with a company
the wives signed a power of attorney designating an X Co. licensed to do business under the Insurance Code
executive, PJ, as their authorized representative to enter of the Philippines?
into a settlement with the insurance company. When a
settlement was reached, PJ instructed the insurance A: A member of the MILF or the Abu Sayyaf may
company to issue a settlement check to the order of the X be insured with a company licensed to do business
Co., which will undertake the payment to the individual under the Insurance Code of the Philippines. What
claimants of their respective shares. PJ misappropriated is prohibited to be insured is a public enemy. A
the settlement amount and the wives pursued their case public enemy is a citizen or national of a country
against Y Insurance. with which the Philippines is at war. Such member
of the MILF or the Abu Sayyaf is not a citizen or
Will the suit prosper? national of another country, but of the Philippines.
 NOTES ON INSURANCE
From the Lecture Notes of Atty. R. Rondez, Bar Qs & As, and Other Review Materials on Insurance
making a new contract under him, the acts of
2.2. Both the mortgagor and the mortgagee may take the mortgagor cannot affect the rights of the
out separate policies with the same or different assignee. This is known as the Union Mortgage
companies. The mortgagor, up to the extent if the Clause, which creates the relation of the
value of his property; the mortgagee, up to the insured and insurer between the mortgagee and
extent of his credit. the insurer independent of the contract of the
2.3. When the mortgagor insures the property in his mortgagor. In such case, any act of the
own name but assigns the policy to or makes loss mortgagor can no longer affect the rights of the
payable to the mortgagee and unless the policy mortgagee. The insurance contract is now
provides otherwise, the consequences are: independent of that with the mortgagor. On the
(a) The insurance is still deemed to be upon the other hand, of the mortgagor still remains as a
interest of the mortgagor who does not cease to party, the policy is said to contain an Open
be a party to the original contract. Hence, if the Mortgage Clause.
policy is cancelled, notice must be given to the 2.4. When the mortgagee procures the insurance
mortgagor. without reference to the right of the mortgagor, the
(b) Any act of the mortgagor, prior to loss, which consequences are:
would otherwise avoid the policy of insurance, (a) The mortgagee may collect from the insurer
will have the same effect, although the property upon occurrence of the loss to the extent of his
is in the hands of the mortgagee. Hence, if credit.
there is a violation of the policy by the (b) Unless otherwise stated, the mortgagor cannot
mortgagor, the mortgagee cannot recover. collect the balance of the proceeds after the
(c) Any act required to be done by the mortgagor mortgagee is paid.
may be performed by the mortgagee with the (c) The insurer, after payment to the mortgagee,
same effect as if it has been performed by the becomes subrogated to the rights of the
mortgagor as when if notice of loss is required, mortgagee against the mortgagor and may
the mortgagee may give it. collect the debt to the extent paid to the
(d) Upon the occurrence of the loss, the mortgagee mortgagee.
is entitled to recover to the extent of his credit, (d) The mortgagee after payment cannot collect
and the balance, if any, is to be paid to the anymore from the mortgagor but if he is unable
mortgagor, since such is for both their benefits. to collect in full from the insurer, he can recover
(e) Upon recovery by the mortgagee, his credit is from the mortgagor.
extinguished. However, if the insurer assents to (e) The mortgagor is not released from the debt
the transfer of the insurance from the mortgagor because the insurer is subrogated in place of
to the mortgagee, and at the time of his assent, the mortgagee
imposes further qualifications on the assignee,
 NOTES ON INSURANCE
From the Lecture Notes of Atty. R. Rondez, Bar Qs & As, and Other Review Materials on Insurance
Bar 1984, 2010 though it was Mario who committed them (Sec.
8, IC).
Q: To secure a loan of P10,000,000, Mario b) Since Armando would have collected
mortgaged his building to Armando. In accordance P5,000,000 from Second Insurance, this
with the loan arrangements, Mario had the building amount shold be considered as partial payment
insured with First Insurance for P10,000,000, of the loan. Atmando can still collect the
designating Armando as the beneficiary. Armando balance of P5,000,000 from Mario, the
also took an insurance of the building upon his own mortgagor.
interest with Second Insurance for P5,000,000. It is a well-settled rule that the
The building was totally destroyed by fire, a peril mortgagee after payment cannot collect
insured against under both insurance [Link] was anymore from the mortgagor but if he is unable
subsequently determined that the fire had been to collect in full from the insurer, he can recover
intentionally started by Mario and that in violation of from the mortgagor. Also, under the Code, the
the loan agreement, he had been storing flammable insurer, after payment to the mortgagee,
materials in the building. becomes subrogated to the rights against the
mortgagor and may collect the debt to the
a) How much, if any, can Armando recover from extent paid to the mortgagee. Thus, Mario,
either or both insurance companies? mortgagor, is not released from the debt
b) What happens to the P10,000,000 debt of Mario because Second Insurance is subrogated in
to Armando? place of Armando, the mortgagee. Hence,
Second Insurance can recover from Mario the
A: amount of P5,000,000 it paid, because it
became subrogated to the rights of Armando.
a) Armando can receive P5,000,000 from Second
2.5. When a person has dual citizenship, what will be
Insurance. As mortgagee, he had an insurable
material is his choice of allegiance. Dual citizenship
interest in the building. Armando cannot collect
arises as a result of the concurrent application of
anything from First Insurance.
different laws, a person is simultaneously
First Insurance is not liable for the loss of the
considered a national of the said states. Dual
building. First, it was due to a wilful act of Mario,
allegiance, which is declared inimical to national
who committed arson. Second, fire insurance
interest (Art. IV, Sec. 5, Constitution) arises when a
policies contain a warranty that the insured will
person simultaneously owes, by some positive act,
not store hazardous materials within the insured
loyalty to two or more states. In this sense, dual
premises. Mario breached this warranty when
citizenship can be said to be involuntary, while dual
he stored inflammable materials in the building.
allegiance is a result of the exercise of volition.
These two factors exonerate First Insurance
from liability to Armando as mortgagee even
 NOTES ON INSURANCE
From the Lecture Notes of Atty. R. Rondez, Bar Qs & As, and Other Review Materials on Insurance
Hence, if he opts for allegiance to the country which A: I would adjudicate the proceeds of the policy to
the Philippines is at war with, he is not insurable. Laura, the legal wife.

3. The Beneficiary is the person who receives the benefits Under Art. 739 of the Civil Code, one cannot be
of an insurance policy upon its maturity. designated as beneficiary if made between persons
guilty of adultery or concubinage at the time of the
3.1. In life insurance, anyone, except those who are designation.
prohibited by law to receive donations from the Since Crispulo was married to Laura at the time
insured. Under Art. 739 of the Civil Code, the when he designated his beneficiary, his concubine,
following cannot be designated as beneficiaries: Angie, with whom he was guilty of concubinage at
(a) Those made between persons guilty of adultery the time of designation, Laura may have said
or concubinage at the time of the designation; designation of Angie nullified by mere
(b) Those found guilty of the same criminal offense preponderance of evidence in the same action for
by reason thereof; nullification. There is even no need of the criminal
(c) Those made to a public officer, or his wife, conviction for concubinage.
descendants/ ascendants, by reason of his
office. 3.2. A prior conviction for adultery or concubinage is not
required as it can be proven by a prepondenrance
Bar 1981, 1985, 1998 of evidence in the same action nullifying the
Q: On July 1, 1979, Crispulo, married to Laura with designation. The common law wife of the insured
whom he has two legitimate children, was issued who is married could not be named as a beneficiary
Policy No. 8008 of the Midland Life Insurance, on a (Insular Life Assurance v Ebrado, 80 SCRA 181).
whole-life plan for P10,000. He designated Angie, Note where the insured designated his second wife
his common-law wife as the revocable beneficiary. as beneficiary, the same was upheld as the later
He referred to her, in his application and policy, as was not aware of the first marriage (SSS v Davac,
his wife. 17 SCRA 863).
3.3. The disqualification does not extend to the children
Two years later, Crispulo died. Angie filed her claim of the adultery or concubinage in view of the
for the proceeds of the policy as the designated express recognition of the successional rights of
beneficiary therein. The widow, Laura, also filed her illegitimate children.
claim as legal wife. 3.4. Generally, there is no requirement that the
beneficiary shall have insurable interest in the life of
If you were the legal counsel for the insurance the insured as it is recognized that the insured may
company, to whom would you adjudicate the name anyone he chooses, except those
proceeds of the insurance policy? disqualified to receive donations, as beneficiary, in
 NOTES ON INSURANCE
From the Lecture Notes of Atty. R. Rondez, Bar Qs & As, and Other Review Materials on Insurance
his life insurance, even if he is a stranger and has policy, is valid. The insured, A, can change the
no insurable interest in the life of the insured. The beneficiary in a policy of life insurance, without
designation, however, must be in good faith and consent of the beneficiary.
without fraud or intent to enter into a wagering
contract, as when: Jose obtains several life Bar 1998
insurance policies that he cannot afford; named as Q: On October 18, 1988, P took out a life insurance
beneficiary is Juan, the spouse or children are not policy and named his only son Q as beneficiary.
named as beneficiaries.; the premiums paid by The policy was silent with regard to any change of
Juan, who did not have insurable interest in the life beneficiary. P later learned that Q was hooked on
of Jose; in this case, the policies are void because drugs and immediately notified the insurance
they were entered into as wagering contracts. company in writing that he is substituting his sister,
3.5. The designated beneficiary can be changed as the R, as his beneficiary in place of Q. P later died of
insured shall have the right to change the advanced tuberculosis. In the application form filled
beneficiary he designated – unless he was up by the agent of insurance company prior to the
expressly waived the right in the policy. If he has issuance of the life insurance policy by the
waived the right, the effect is to make the insurance company, the agent, without the
designation as irrevocable. knowledge of P, filled in a false answer and made it
appear that P was in good health. Upon P’s death,
Bar 1978 Q claimed the proceeds of the insurance policy
Q: On December 20, 1974, A took out a life contending that as designated beneficiary, he
insurance policy and named his wife B, as cannot be changed without his consent, he having
beneficiary. The policy was silent with regard to any acquired a vested right to the proceeds of the policy.
change of beneficiary. Suspecting that B was Is Q’s contention correct?
committing adultery, A immediately notified the
insurance company in writing that he is substituting A: No. The designation of the beneficiary is
his brother C as beneficiary in place of B. A died revocable unless the right to revoke is expressly
later on June 30, 1975. B claims the proceeds of waived.
the insurance policy, contending that as designated
beneficiary, she cannot be changed without her
consent, she having acquired a vested right to the 3.6. Note thought that the designation of the guilty
proceeds of the policy. spouse as irrevocable beneficiary is revocable at
the instance of the innocent spouse in cases of:
A: B cannot claim the proceeds to A’s life insurance a) termination of a subsequent marriage;
policy. A’s action in substituting his brother C as his b) nullification of marriage;
beneficiary in place of B, his wife, in his insurance c) annulment of marriage;
 NOTES ON INSURANCE
From the Lecture Notes of Atty. R. Rondez, Bar Qs & As, and Other Review Materials on Insurance
d) legal separation (Art. 43, Family Code). specified period. If the insured outlives the period,
the benefits are to be paid.
3.7. When an irrevocable beneficiary is designated in a
life insurance contract, the beneficiary has a vested 3.9. The effect of the failure to designate a beneficiary
right that cannot be taken away without his consent or when the beneficiary is disqualified is that the
(Bar 2005). In fact, should the insured discontinue benefits of the policy shall accrue to the estate of
payment of the premium, the beneficiary may the insured.
continue paying. Neither can the insured get a loan
or obtain the cash surrender value of the policy 3.10. When the beneficiary will predecease the insured,
without his consent (Nario v Philamlife, 20 SCRA the effects are:
434). Where the wife and minor children were
named irrevocable beneficiaries and the wife dies, (a) If the designation is irrevocable, the legal
the husband’s change of the beneficiaries with the representatives of the beneficiary may recover
consent of the children is not valid die to the unless it was stipulated that the benefits are
minority of the children (Philamlife v Pineda, 170 payable only “if living”;
SCRA 416). (b) If the designation is revocable, and no change
is made, the benefits pass to the estate of the
Bar 2005 insured. The rule holds also if benefits were
Q: Jacob obtained a life insurance policy for payable “only if living” or “if surviving” and the
P1,000,000 designating irrevocably Diwata, a friend, beneficiary dies before the insured.
as his beneficiary. Jacob, however, changed his
mind and wants Yob and Jojo, his other friends, to 3.11. If the beneficiary is the principal, an accomplice or
be included as beneficiaries considering that the an accessory in the wilful killing of the insured, his
proceeds of the policy are sufficient for the three interest is forfeited. The nearest relative of the
friends. Can Jacob still add Yob and Jojo as his insured will be entitled to the proceeds if not
beneficiaries? otherwise disqualified. If not wilful or felonious, the
provision does not apply.
A: The insured cannot add other beneficiaries as
this would diminish the interest of Diwata who is the
irrevocably designated beneficiary. The insured can Bar 2008
only do so with the consent of Diwata. Q: On January 1, 2000, Antonio Rivera secured a
life insurance from SOS Insurance Corp. for
3.8. The interest of an irrevocable beneficiary in an P1,000,000 with Gemma Rivera, his adopted
endowment policy is contingent as benefits are to daughter, as the beneficiary. Antonio Rivera dies
be paid to him only if the assured dies before the on March 4, 2005 and in the police investigation, it
 NOTES ON INSURANCE
From the Lecture Notes of Atty. R. Rondez, Bar Qs & As, and Other Review Materials on Insurance
was ascertained that Gemma Rivera participated 2. Misrepresentation/ Omission
as an accessory in the killing of Antonio Rivera. 3. Breach of Warranties
Can SOS Insurance avoid liability by setting up as
a defense the participation of Gemma Rivera in the CONCEALMENT
killing of Antonio Rivera ? Concealment is a neglect to communicate that which a party
knows and ought to communicate.
A: No, SOS Insurance cannot avoid liability.
Under Sec. 12 of the Insurance Code, the interest  Requisites:
of a beneficiary shall be forfeited when the (1) A party knows a fact which he neglects to
beneficiary is the principal, accomplice, or communicate or disclose to the other;
accessory in wilfully bringing about the death of the (2) Such party concealing is duty bound to disclose
insured. In which event, the nearest relative of the such fact to the other;
insured shall receive the proceeds of said (3) Such party concealing makes no warranty of the
insurance, if not otherwise disqualified. fact concealed;
Here, even if Gemma Rivera wilfully participated in (4) The other party has not the means of ascertaining
the killing of Antonio Rivera, the law provides that the fact concealed;
the nearest relative of the insured shall be the one (5) The fact concealed is material.
entitled to receive the proceeds of the policy. Thus,
the insurance company must still pay out the Concealment may be committed by either the insured or the
proceeds of the life insurance policy to the nearest insured [Qua Chee Gan v Law Union & Rock Insurance (1955);
qualified relative of the insured. Fieldmen’s Insurance v Vda. de Songco (1968)].

Generally, a party must have knowledge of the fact concealed

at the time of the effectivity of the policy.

1. Note that even if a party did not know of the existence

at the time of application, but before its effectivity, there
is still concealment.

2. Information acquired after effectivity is not concealment

and does not constitute ground to rescing the policy, as
RESCISION OF INSURANCE CONTRACT after the policy is issued, information subsequently
acquired is no longer material as it will not affect or
Instances wherein a contract of insurance may be rescinded: influence the party to enter into contract. However, in
case of reinstatement of a lapsed policy, facts known
1. Concealment
 NOTES ON INSURANCE
From the Lecture Notes of Atty. R. Rondez, Bar Qs & As, and Other Review Materials on Insurance
after effectivity but before reinstatement must be his estimate of the disadvantages of the proposed
disclosed. contract or in making his inquiries.

 Reinstatement of Lapsed Life Policy 4.1. The test of materiality is whether knowledge of
Reinstatement of a lapsed life policy is not a non- the true facts could have influenced a prudent
default option. It does not create a new contract, but insurer in determining whether to accept the risk
merely revives the original policy so insurer cannot or in fixing the premiums.
require a higher premium than the amount stipulated in
the contract. It does not apply to group/ industrial life 5. Concealment need not, in order to be material, be of
insurance. facts which bring about or contribute to, or are
connected of the insured’s loss. It is immaterial that
Requisites: there is no causal relationship between the fact
(1) It must be exercised within three years from date of concealed and the loss sustained. It is sufficient that
default; the non-revelation has misled the insurer in forming its
(2) The insured must present evidence of insurability estimate of disadvantage or in fixing the premium as
satisfactory to the insurer; when the insured had concealed that he had kidney
(3) He must pay all back premiums and all disease. He later dies in a plane crash. The insurer
indebtedness to the insurer; would not be liable due to concealment [Sunlife v CA,
(4) The CSV must not have been duly paid to the 245 SCRA 269].
insured nor the extension period expired;
(5) The application must be filed during the lifetime of  Concealment in Non-Medical Insurance
the insured [Andres v Crown Life Insurance (1958)]. The waiver of medical examination in a non-medical
insurance contract renders even more material the
3. The party claiming the existence of concealment must information required of the applicant concerning the
prove that there was knowledge on the part of the party previous conditions of health and diseases suffered.
charged with concealment. If the insured stated that The fact that the matter concealed had no bearing on
there was no hereditary taint or illness that has affected the cause of death is not important because it is well
members of the family to my knowledge, in order to settled that the insured need not die of the disease he
show or prove concealment, the insurer must prove had failed to disclose to the insurer. It is sufficient that
that the hereditary taint alleged to exist was known to his nondisclosure misled the insurer in forming his
the insured. estimates of the risks of the proposed policy or in
4. The materiality of the fact concealed or misrepresented making inquiries [Sunlife v Sps. Bacani (1995)].
is determined not by the event, but solely by the Where matters of opinion or judgment are called for,
probable and reasonable influence of the facts upon answers made in good faith and without intent to
the party to whom the communication is due, in forming deceive will not avoid the policy even though they are
 NOTES ON INSURANCE
From the Lecture Notes of Atty. R. Rondez, Bar Qs & As, and Other Review Materials on Insurance
untrue. Reason: The insurer cannot simply rely on is a very important factor which the insurer takes into
those statements. He must make further inquiry consideration in deciding to issue the policy.
[Philamcare Health Systems v CA (2002)].
Bar 1979
Bar 2001
Q: A fire insurance policy in favour of the insured contained a
Q: A applied for a non-medical life insurance. The insured did stipulation that the insured shall give notice to the company of
not inform the insurer that one week prior to his application for any insurances already effected or which may subsequently be
insurance; he was examined and confined at St. Luke’s effected, covering the property insured and that unless such
Hospital where he was diagnosed for lung cancer. The insured notice be given before the occurrence of any loss, all benefits
soon thereafter died in a plane crash. is the insurer liable shall be forfeited. The face of the policy bore the annotation
considering that the fact concealed had no bearing with the “Co-Insurance Declared.” The things insured were burned. It
cause of death of the insured? turned out that several insurances were obtained on the same
goods for the same term. The insurer refused to pay on the
A: No. The concealed fact is material to the approval and ground of concealment. May the insured recover?
issuance of the insurance policy. It is well-settled that the
insured need not die of the disease he failed to disclose to the A: Yes, the insured may recover since there is no concealment.
insurer. It is sufficient that his non-disclosure misled the insurer The face of the policy already bore the annotation “Co-
in forming his estimate of the risks of the proposed insurance Insurance Declared” which is a notice to the insurer as to the
policy or in making inquiries. existence of other insurance contracts on the property insured
[Gen. Insurance v Ng Hua; January 30, 1960].
Bar 1975
Bar 1983
Q: In a non-medical insurance contract (one where the
company waives medical examination) the insured failed to Q: In June 1981, Juan applied for a life insurance policy with a
disclose that she had once been operated on, although the double indemnity provision in case of death by accident.
information on this matter was supposed to have been Despite an express inquiry in the application form for
supplied the company. Within the proper period, may the insurance, he did not mention the fact that he had suffered
insurance company have the contract rescinded? from viral hepatitis the previous year. As Juan had fully
recovered from the disease, the medical examination
A: Yes, the insurance company can rescind the contract on the performed by the insurance company’s physician did not
ground of misrepresentation or concealment of material fact. reveal such previous illness, and showed that Juan was
The fact of the insured’s operation is material to the insurer, healthy and was an insurable risk. The policy was issued
who may have refused to issue the life policy had it known of forthwith.
such fact. This is even more true in a non-medical insurance
where no medical examination is made and the information
given by the insured concerning his past health and diseases
 NOTES ON INSURANCE
From the Lecture Notes of Atty. R. Rondez, Bar Qs & As, and Other Review Materials on Insurance
In March 1983, Juan died in an automobile accident. the insurer from any liability on the policy, regardless of
Subsequent investigation revealed that Juan was negligent in the cause of death. Since the insurer is relieved from
not having his brakes checked. liability, the question as to whether the event was an
accident or not becomes moot. In any case, under the
The insurance company refused to pay Juan’s wife, the Insurance Code, negligence of the insured or of others
designated beneficiary, on two grounds: that Juan was guilty does not exonerate the insurer.
of fraudulent concealment of his liver ailment, and that Juan’s b) My conclusion would be different. The insurer would be
death was caused by his own negligence. liable despite the fraudulent concealment because the
The policy is silent as to the effect of the insured’s negligence policy has become incontestable since more than two
on the right to recover thereunder. Juan’s wife insists that she years had elapsed from the date thereof.
has a right to recover because Juan’s death was caused by an PROOF OF FRAUD IN CONCEALMENT
accident which had nothing to do whatsoever with his liver
ailment. She therefore insists on double indemnity. General Rule: Fraud need not be proven in order to prove
concealment. Good faith is not a defense.
a) Is she entitled to any indemnity?
b) If Juan’s accident occurred in July 1983, would your Exception: When the concealment is made by the insured in
answer be the same? relation to the falsity of a warranty, the non-disclosure must be
intentional and fraudulent in order that the contract may be
A: rescinded.
a) No, she is not entitled to any indemnity. Although Juan WHAT IS THE EFFECT OF CONCELAMENT?
did not die of a liver ailment, the fact of his
concealment vitiated the insured’s consent to the
contract of insurance. Under the Insurance Code, 1. Whether intentional or not, it entitles the injured party to
concealment of a material fact is a ground for rescind the contract of insurance.
rescission. And materiality is determined not by the
event which caused the death but by the probable and Bar 1989
reasonable influence of the fact concealed upon the Q: X applied for life insurance with Metropolitan Life.
other party in forming his estimate of the disadvantages The application contained this question: “Have you
of the proposed contract, or in making inquiries. If the ever had any ailment or disease of xxx (b) the stomach
insurer had known of Juan’s previous ailment, it would or intestines, liver, kidney or genitourinary organ?” X, a
in all probabilities have at least made more detailed laundrywoman who has no medical knowledge
inquiries about it or make a special examination of his answered “No.” The application was approved,
liver function, or perhaps even charge a higher premium was paid and six months later, X died from
premium because of the greater risk involved. The cancer of the stomach. The post medical examination
concealment was therefore of a material fact, relieving of X shows that she had the cancer at the time she
 NOTES ON INSURANCE
From the Lecture Notes of Atty. R. Rondez, Bar Qs & As, and Other Review Materials on Insurance
applied for a policy. Can the beneficiary of X collect on effective for one year or until May 14, 1997. The policy
the policy? expressly stated that the insured properties located at
“Sanyo Precision Phils. Building, Phase III, Lots 4 and
A: No. Concealment, as a defense against liability by 6, Block 15, PEZA, Rosario, Cavite.” Before its
the insurer, may either be intentional or unintentional. expiration, the policy was renewed on “as is” basis for
Lack of knowledge on the part of the insured about her another year until May 14, 1998. The subject properties
ailment will not preclude the insurer from raising the were later transferred to Pace Factory also in PEZA.
defense. The insurer my be held in estoppel only if, On October 12, 1997, during the effectivity of the
having known of the concealed or misrepresented fact, renewed policy, a fire broke out at the Pace Factory
still accepts the payment of premium which is not the which totally burned the insured properties.
situation in this case. The policy forbade the removal of the insured
properties unless sanctioned by Ilocano Insurance.
Bar 1979 Condition 9 (c) of the policy provides that “the
Q: Marine insurance was secured upon goods on insurance ceases to attach as regards the property
board a ship which departed from Madagascar to affected unless the insured, before the occurrence of
Manila, without any disclosure to the insurer of the fact any loss or damage, obtains the sanction of the
that the ship had been reported at Lloyd of London as company signified by endorsement upon the policy xxx
seen at sea, deep in water and leaky. This report (c) if the property insured is removed to any building or
turned out to be wrong because the ship was at no time place other than in that which is herein stated to be
during the voyage leaky or in trouble, but was lost insured.” PAM claims that it has substantially complied
through another insured risk. The insurer refuses to with notifying Ilocano for the insurance coverage. Is
pay the insured, claiming concealment. The insured Ilocano liable under the policy?
counters that the fact not disclosed was erroneous and
did not increase the risk and therefore immaterial. A: Ilocano is not liable under the policy. With the
Decide on the dispute. transfer of the location of the subject properties, without
notice and without the insured’s consent, after the
A: The insured may not recover from the insurer. The renewal of the policy, the insured clearly committed
information that the ship in question was seen at sea, concealment, misrepresentation and a breach of
deep in water and leaky, although erroneous, was material warranty. The Insurance Code provides that a
material, and its concealment entitled the insurer to neglect to communicate that which a party knows and
rescind the contract of insurance. ought to communicate, is called concealment. It entitles
Bar 2014 the injured party to rescind a contract of insurance in
Q: On May 13, 1996, PAM, Inc. obtained a case of an alteration in the use or condition of the thing
P15,000,000 fire insurance policy from Ilocano insured. An alteration in the use or condition of a thing
Insurance covering its machineries and equipment insured from that to which it is limited b the policy made
 NOTES ON INSURANCE
From the Lecture Notes of Atty. R. Rondez, Bar Qs & As, and Other Review Materials on Insurance
without the consent of the insurer, by means within the
control of the insured, and increasing the risks, entitles 2. The provisions on concealment and representation
the insurer to rescind the contract of fire insurance. finds basis in the fact that it is a fundamental
characteristic of a contract of insurance that it is one of
Bar 2013 perfect/ utmost good faith.
Q: Benny applied for life insurance for P1,500,000. The
insurance company approved his application and  Notes on Effects of Concealment
issued an insurance policy effective November 6, 2008. General Rule: Concealment vitiates the contract and
Benny named his children as his beneficiaries. On April entitles the insurer to rescind, even if the death or loss
6, 2010, Benny died of hepatoma, a liver ailment. The is due to a cause not related to the concealed matter.
insurance company denied the children’s claim for the
proceeds of the insurance policy on the ground that Exceptions:
Benny failed to disclose in his application two previous 1) Incontestability Clause, which stipulates that the
consultations with his doctors for diabetes and policy shall be incontestable after a stated period.
hypertension, and that he had been diagnosed to be The incontestability clause is a mandatory provision
suffering from hepatoma. The insurance company also in life policies. The policy must be payable on the
rescinded the policy and refunded the premiums paid. death of the insured and has been in force during
Was the insurance company correct? the lifetime of the insured for at least 2 years from
its date of issue or of its last reinstatement;
A: Under Sec. 27 of the Insurance Code, whether
intentional or not, concealment entitles the injured party 2) Concealment after the contract has become
to rescind the contract of insurance. effective, because concealment must take place at
Here, Benny did not disclose that he was suffering from the time of the contract is entered into in order that
diabetes, hypertension, and hepatoma. The the policy may be avoided. Information obtained
concealment is material, because these are serious after the perfection of the contract is no longer
ailments (Florendo v Philam Plans, 666 SCRA 618; necessary to be disclosed by the insured, even if
2012). Thus, the insurance company has the right to the policy has not been issued (except in
rescind the life policy within two years from the date of reinstatement);
issue or its reinstatement (Sec. 48, Insurance Code).
3) Waiver or Estoppel;
1.1. Note though that the right to rescind is optional
on the part of the injured party. Rescission is an 4) Marine insurance, where concealment of the
option because it misleads or deceives the following matters does not vitiate the entire contract:
insurer into accepting the risk of accepting it at
the rate of premium agreed upon. (a) The national character of the insured;
 NOTES ON INSURANCE
From the Lecture Notes of Atty. R. Rondez, Bar Qs & As, and Other Review Materials on Insurance
(b) The liability of the thing insured to capture and communications equipment is out of order will
detention; entitle the insurer to rescind.
(c) The liability to seizure from breach of foreign
laws of trade;  If the applicant is aware of the existence of some
(d) The want of necessary documents; and circumstance which he knows would influence the
(e) The use of false and simulated papers [Sec. insurer in acting upon his application, food faith
112 (e)]. requires him to disclose that circumstance, though
unasked [Vance (1951)].
WHAT FACTS THEN MUST BE COMMUNICATED?

1. Each party to an insurance contract is bound to (a) The mere fact of being a “mongoloid” is a material
communicate to the other all facts that meet the fact that needs to be disclosed {Great Pacific Life v
following requisites: CA (1979)].
(b) Mere possibility of previous hypertension is not
(a) Such facts that must be within his knowledge as enough to establish concealment.
concealment requires knowledge of the fact WHEN IS THERE A WAIVER OF INFORMATION?
concealed by the party charged with concealment;
(b) Fact/s must be material to the contract as it must A waiver takes place either, by the terms of the insurance or
be of such nature that had the insurer known of it, it by the neglect to make inquiries as to such facts where they
would not have accepted the risk or demanded a are distinctly implied in other facts of which information is
higher premium’ communicated.
(c) That the other party had no means of ascertaining
such fact/s WHAT MATTERS NEED NOT BE COMMUNICATED?
(d) That the party with a duty to communicate makes
1. Except in answer to the inquiries of the other, the
no warranty.
following facts needs not be communicated.

1.1. The existence of a warranty makes the

1.1. Matters already known to the insurer [Sec. 30
requirement to disclose superfluous but an
(a)]
intentional and fraudulent omission on the part
of the one insured to communicate information
Those which the other knows as the insurer
on a matter proving or tending to prove the
cannot say that it has been deceived or misled
falsity of the warranty entitles the insurer to
as when the insured discloses that he has
rescind, as when there is a warranty that the
tuberculosis to the agent of the insurer, who in
ship is seaworthy, the intentional and fraudulent
turn omits to state the same in the application of
omission of the insured to state that the ship’s
the insured was deemed knowledge of the
 NOTES ON INSURANCE
From the Lecture Notes of Atty. R. Rondez, Bar Qs & As, and Other Review Materials on Insurance
insurer (Insular Life Assurance v Feliciano, 74 other facts of which information is
SCRA 468), or when the insurer had surveyed communicated.
the location and surrounding area of a building
that is to be insured against fire, an omission to As when, an application for insurance is made
state that there are neighboring building will not in writing and the questions therein are
avoid the policy. unanswered or incompletely answered, and the
insurer without further inquiries, issues the
1.2. Matters which each party is bound to know [Sec. policy. It thereby waives all right to a disclosure
30 (b) and Sec. 32] or to a more complete answer. If question asks
whether the insured has submitted himself to
Those which, in the exercise of ordinary any infirmary, sanitarium or hospital for
care, the other ought to know, and of which, the consultation or treatment. Insured replies that
former has no reason to suppose him to be he was confined at the Quezon Memorial
ignorant. Hospital for 5 days due to influenza. There is no
The facts that the other ought to know are: waiver and shall constitute concealment as the
(a) All general causes which are open to his answer was complete and could be relied upon
inquiry, equally with that of the other, and by the insurer. If the insured answered “Yes”,
which may affect the political or material the answer would have been incomplete and
perils contemplated such as public events ambiguous. This would constitute a waiver as
like the fact that a nation is at war, or laws the insured did not make any further inquiry (Ng
or political conditions in other countries. Gan Zee v Asian Crusader, 112 SCRA 461).
Here, the source of information is equally Note that the waiver of a medical examination is
open to the insurer, who is therefore not tantamount to a waiver of material
presumed to know them; and information because waiver of medical
(b) All the general uses of trade such as the examination is made when the insured
rules of navigation, kinds of seasons, all the represents himself to be in good health. It is
risks of navigation. reasonable to assume that had the insured
revealed material information, the insurer would
1.3. Matters of which the insurer waives not have waived the examination (Saturnino v
communication [Sec. 30 (c) and Sec. 33] Philamlife, 7 SCRA 316).

A waiver takes place either, by the terms of the Bar 1996

insurance or by the neglect to make inquiries as Q: Juan procured a “non-medical” life insurance
to such facts where they are distinctly implied in from Good Life Insurance. He designated his
wife, Petra, as the beneficiary. Earlier, in his
 NOTES ON INSURANCE
From the Lecture Notes of Atty. R. Rondez, Bar Qs & As, and Other Review Materials on Insurance
application response to the question as to If the policy of life insurance has been in
whether or not he had ever been hospitalized, force for a period of 2 years or more from the
he answered in the negative. He forgot to date of its issue (on which point the given facts
mention his confinement at the Kidney Hospital. are vague), then Good Life can no longer prove
After Juan died in a plane crash, Petra filed a that the policy is void ab initio or is rescindable
claim with Good Life. Discovering Juan’s by reason of fraudulent concealment or
previous hospitalization, Good Life rejected misrepresentation of Juan.
Petra’s claim on the ground of concealment and
misrepresentation. Petra sued Good Life, Bar 1997
invoking good faith on the part of Juan. Will her Q: The assured answers “No” to the question in
suit prosper? the application for a life policy, “Are you
suffering from any form of heart illness?” In fact,
A: No. Petra’s suit will not prosper (assuming the assured has been a heart patient for many
that the policy of life insurance has been in years. On September 2, 1991, the assured is
force for a period of less than 2 years from the killed in a plane crash. The insurance company
date of its issue). The matter which Juan failed denies the claim for insurance proceeds and
to disclose was material and relevant to the returns the premium paid. Is the decision of the
approval and issuance of the insurance policy. insurance company justified?
They would have affected Good Life’s action on
his application, either by approving it with the A: assuming that the incontestability clause
corresponding adjustment for a higher premium does not apply because the policy has not been
or rejecting the same. Moreover, a disclosure in force for 2 years from date of issue, during
may have warranted a medical examination of the lifetime of the insured, the decision of the
Juan by Good Life in order for it to reasonably insurance company not to pay is justified. There
assess the risk involved in accepting the was fraudulent concealment. It is not material
application. In any case, good faith is no that the insured died of a different cause than
defense in concealment. The waiver of a the fact concealed. The fact concealed, that is
medical examination in the “non-medical” life the heart ailment, is material to the
insurance from Good Life makes it even more determination by the insurance company
necessary that Juan supply complete whether or not to accept the application for
information about his previous hospitalization insurance and to require the medical
for such information constitutes an important examination of the insured.
factor which Good Life takes into consideration However, if the incontestability clause
in deciding whether to issue the policy or not. applies to the insurance policy covering the life
of the insured had been in force for 2 years
 NOTES ON INSURANCE
From the Lecture Notes of Atty. R. Rondez, Bar Qs & As, and Other Review Materials on Insurance
from date of issuance thereof, the insurance 1.5. Matters which relate to a risk excepted in the
company would not be justified in denying the policy, and which are not otherwise material
claim for the proceeds of the insurance and in [Sec. 30 (e)]
returning the premium paid. In that case, the
insurer cannot prove the policy void ab initio or As when, the policy covers against loss by theft.
rescindable by reason of fraudulent There is no need to disclose that the area
concealment or misrepresentation of the where the object is located in earthquake-prone
insured. area if loss due to earthquake is not covered by
the policy.
Bar 1998
Q: Renato was issued a life insurance policy on OTHER MATTERS THAT DO NOT NEED TO BE
January 2, 1990. He concealed the fact that 3 COMMUNICATED
years prior to the issuance of his life insurance 1. Information of the nature or amount of the interest of
policy, he had been seeing a doctor about his one insured unless if inquired upon by the insurer,
heart ailment, and on March 1, 1992, he died of except if required by Sec. 51 [Sec. 34]. Such
heart failure. May the heirs file a claim on the information need not be communicated unless in
proceeds of the life insurance policy of Renato? answer to inquiry, except as prescribed by Sec. 51 as
the extent of the interest of the insured in property
A: Yes. The life insurance policy in question insured must be specified if he is not the absolute
was issued on January 2, 1990. More than 2 owner. Also, a trustee, mortgagee or building
years had elapsed when Renato, the insured, contractor must communicate his particular insurable
died on March 1, 1992. The incontestability interest in the property even if no inquiry is made.
clause applies.
2. Matter of opinion [Sec. 35]
1.4. Matters which prove or tend to prove the
existence of a risk excluded by a warranty and Neither a party to a contract is bound to communicate
which are not otherwise material [Sec. 30 (d)] even upon inquiry any information of his own opinion or
judgment upon the matters in question as only material
As when, the insured makes a warranty that facts are required – not opinions, speculations or
when the covered vessel sails to the Middle expectations, except in marine insurance – where the
East, loss occasioned thereby shall not be belief or the expectation of a 3rd person in reference to
covered. There is thus no need to disclose the a material fact is material and must be communicated.
anticipated dangers in the area.
As when, the insured is required to disclose an opinion
of marine experts as to seaworthiness of a vessel.
 NOTES ON INSURANCE
From the Lecture Notes of Atty. R. Rondez, Bar Qs & As, and Other Review Materials on Insurance
REPRESENTATIONS WHAT ARE THE FORMS AND KINDS OF
REPRESENTATION?
1. A representation is an oral or written statement of a fact
or a condition affecting the risk made by the insured to 1. Representations may be oral or written.
the insurance company tending to induce the insurer to
take the risk. 1.1. They can be affirmative, when it is
2. It is made at the same time as or before the issuance an affirmation of a fact existing when
of a policy since it is an inducement to entering into a the contract begins.
contract.
As when, the insured states that he
2.1. It can also be made after the issuance of the is of good health at the time of the
policy when the purpose thereof is to induce the contract.
insurer to modify an existing insurance contract, 1.2. They can be promissory, when it is a
as the provisions likewise apply to a statement by the insured concerning
modification. Note that the rule is the same what is to happen during the term of
when it comes to concealment. the insurance.
3. The language of representation is to be interpreted by
the same rules as the language of contracts in general. As when, the insured will install
additional fire extinguishers at a
3.1. Consequently, it need not be literally true and stipulated future date. A
correct/ accurate in every respect. Rather it is representation as to the future is to
sufficient that it is substantially or materially true. be deemed a promise, unless it was
In the case of a promissory representation, it is merely a statement of belief or
sufficient if it is substantially complied with. expectation.

As when, H bought a car for P2,800 and spent 2. A representation does not form part of the
P900 for repairs. H then gave it to W as a gift. contract as an express provision thereof as
W secures insurance and says the price is it is a collateral inducement to the same.
around P4,000, though the present actual value
is about P3,000. Is W guilty if misrepresentation 2.1. While it does not form part of the
because she did not pay for the car? No, contract, it may qualify an implied
because the literal truth is not necessary. The warranty.
insurer can value the car independently.
As when, under Sec. 115, it is
implied that a ship is seaworthy. A
 NOTES ON INSURANCE
From the Lecture Notes of Atty. R. Rondez, Bar Qs & As, and Other Review Materials on Insurance
representation. A representation by 2.1. Conversely, there is a false representation if it
the insured that its communication true at the time it was made but false at the time
system is defective will qualify the the contract takes effect.
warranty. Hence, insured can still
recover in case of loss. As when, insured states that he has never been
affected with pneumonia at the application, but
IS A REPRESENTATION PART OF THE INSURANCE if in the meantime, he is afflicted with
CONTRACT? pneumonia before the policy takes effect, and
a representation does not form part of the contract as an he does not disclose, there is a false
express provision thereof as it is a collateral inducement to the representation.
same. WHEN IS A REPRESENTATION SAID TO BE FALSE?
While it does not form part of the contract, it may qualify an A representation is said to be false when the facts fail to
implied warranty. correspond with its assertions or stipulations.
CAN A REPRESENTATION BE WITHDRAWN OR ALTERED? MUST THE INSURED COMMUNICATE INFORMATION OF
A representation can be withdrawn as long as the insurance WHICH AS NO PERSONAL KNOWLEDGE BUT MERELY
has not yet been effected and the insured has not yet been RECEIVES THE SAME FROM OTHERS?
induced to issue the policy. If withdrawn or altered afterwards, 1. When a person has no personal knowledge of a fact,
the contract can be rescinded as the insurer has already been he may or may not communicate such information to
led to issue the policy. the insurer. If he does communicate, he is not
TO WHAT DATE DOES A REPRESENTATION REFER? responsible for its truth. Hence, there can be no
misrepresentation.
1. It must be presumed to refer to the date on which the
contract goes into effect. 2. However, when the information material to the
2. There is no false representation of it is true at the time transaction was acquired by an agent of the insured,
the contract takes effect although false at the time it is the same must be communicated, as knowledge of the
made. agent is also knowledge of the principal.

As when, the insured states at application that vessel in As when: a ship captain is aware of a defect that
satisfactory operating condition but is really undergoing affects the seaworthiness, that defect must be
maintenance, there is no false representation if at communicated as the ship captain is under obligation
issuance the vessel has completed maintenance. to disclose it to the owner.
 NOTES ON INSURANCE
From the Lecture Notes of Atty. R. Rondez, Bar Qs & As, and Other Review Materials on Insurance
WHAT IS THE EFFECT OF MISREPRESENTATION ON A acceptance of the premium [Stokes v Malayan,
MATERIAL POINT? 127 SCRA 766].
 A representation cannot qualify an express provision or
1. If it false in a material point, whether affirmative or an express warranty of insurance [Sec. 40] because a
promissory, the injured party is entitled to rescind the representation is not party of the contract but only a
contract from the time the representation becomes collateral inducement to it. However, it may qualify as
false. an implied warranty.

 Exceptions: There is fraud and misrepresentation when another

(1) Incontestability Clause; person takes the place of the insured in the medical
(2) Misrepresentation after contract takes effect; examination [Eguaras v Great Eastern (1916)].
(3) Waiver, made by acceptance of insurer of premium
payments despite knowledge of the ground for The insurer is not entitled to rescission for
rescission; misrepresentation of age if the birth date on the policy
(4) A representation of the expectation, belief, opinion, leads to the conclusion that the insured is beyond the
or judgment of the insured, although false, and age covered and yet insurer continued to accept
even if material to the risk [Philamcare Health payment and had issued the policy. Insurer is deemed
Systems v CA (2002)]; and estopped [Edillon v Manila Bankers Life (1982)].
(5) Representation by insured based on information
obtained from 3rd persons (not his agent), provided HOW IS MATERIALITY DETERMINED?
the insured:
(a) Has no personal knowledge of the facts; The materiality of a representation is determined like in a
(b) Believes them to be true; and concealment, that is the probable and reasonable influence of
(c) Explains to the insurer that he does so on the the facts upon the party to whom the representation is made in
information of others. forming his estimate of the advantages/ disadvantages of the
2. However, the right to rescind is considered waived by contract or in making inquiries.
the acceptance of premium payments despite WHEN IS THE RIGHT TO RESCIND SUPPOSED TO BE
knowledge of the ground to rescind. EXERCISED?

As when: insurer was aware of the lack of 1. The right to rescind must be exercised prior to the
extinguishers required by the policy. commencement of an action on the contract.
2. The right to rescind is also qualified by the 2nd
2.1. There is no waiver, if the insurer had no paragraph of Sec. 48 which provided: that after a policy
knowledge of the ground at the time of the of life insurance payable on the death of the insured
shall have been in force during the lifetime of the
 NOTES ON INSURANCE
From the Lecture Notes of Atty. R. Rondez, Bar Qs & As, and Other Review Materials on Insurance
insured for a period of 2 years from the date of issue or
its last reinstatement, the insurer cannot prove that the 3.1. The two-year period within which to contest the
policy is void ab initio or is subject to rescission by policy is regardless of whether or not the insured is
reason of a fraudulent concealment or still living within the period [Tan v CA, 174 SCRA
misrepresentation of the insured or his agent. This is 403].
known as the Incontestability Clause.
3.2. The defenses that are not barred by the
 INCONTESTABILITY CLAUSE – a clause in a policy of incontestability clause are:
a life insurance that is payable on the death of the
insured which will prevent the insurer from claiming if (a) Non-payment of premiums;
the policy is void ab initio or is subject to rescission by (b) Lack of insurable interest;
reason of a fraudulent concealment or (c) That the cause of death was expected or not
misrepresentation of the insured or his agent if it shall covered by the terms of the policy;
have been in force during the lifetime of the insured for (d) That the fraud was of a particular vicious type
a period of 2 years from the date of issue or its last such as:
reinstatement. (1) Policy was taken in furtherance of a scheme
to murder the insured;
2.1. The theory and object of the clause on the part of (2) Where the insured substituted another for
the insurer is that an insurer has/ should have a the medical examination;
reasonable opportunity to investigate the (3) Where the beneficiary feloniously killed the
statements which are made by the applicant and insured.
that after a definite period, it should no longer be (e) Violation of a condition in the policy relating to
permitted to question its validity. military or naval service in time of war;
(f) The necessary notice or proof of death was not
On the part of the insured, its object is to give the given;
greatest possible assurance that the beneficiaries (g) Action is not brought within the time specified in
would receive payment of the proceeds without the policy, which in no case should be less than
question as to validity of the policy. 1 year.
3.3. If the incontestability clause applies, the insurer can
3. The requisites of its application are: no longer escape liability under the policy or be
(a) It is a life insurance policy; allowed to prove that the policy is void ab initio or
(b) It is payable on the death of the insured; may be rescinded by reason of concealment or
(c) It has been in force during the lifetime of the misrepresentation by the insured or his agent.
insured for at least 2 years from date of issue or
last reinstatement. Bar 1984
 NOTES ON INSURANCE
From the Lecture Notes of Atty. R. Rondez, Bar Qs & As, and Other Review Materials on Insurance
Q: On May 5, 1982, Juan applied for a life Manpower regularly working at least 30 hours per
insurance policy with Acme Life. The policy was week. The policy also had an incontestable clause.
issued to Juan on June 30, 1982, but the date of Beforehand, Phoenix sent enrolment cards to
issue, as appearing on the policy was May 15, Manpower for distribution to its eligible employees.
1982, the date of his application. Juan X filled out the card which contained a printed
subsequently realized that some of his answers in clause: “I request the insurance for which I may
the insurance application were erroneous. become eligible under said Group Policy.” The
Accordingly, he supplied the insurance company cards were then sent to Phoenix and X was among
with the correct replies. However, his letter to the the employees of Manpower who was issued a
insurance company was lost in the mails. He died certificate of coverage by Phoenix.
on June 1, 1984.
On July 3, 1988, X was killed on the occasion of a
The insurance company now refuses to pay Juan’s robbery in their house. While processing the claim
beneficiary contending that Juan misrepresented of X’s beneficiary, Phoenix found out that X was not
the state of his health at the time of his application. an eligible employee as defined in the group policy
Is the insurance company liable? since he has not been employed 30 hours a week
by Manpower. Phoenix refused to pay. May X’s
A: Yes. The incontestability clause that must be beneficiary invoke the incontestability clause
contained in every individual life insurance policy against Phoenix?
refers to the date of its issue as shown in the policy.
Since the policy of life insurance had been in force A: The beneficiary of X may validly invoke the
during the lifetime of the insured, Juan, for a period incontestability clause can apply even to cases of
of 2 years from May 15, 1982, the date of issue as intentional concealment and misrepresentation;
shown in the policy, the policy has become there would be no cogent reason for denying such
incontestable. The insurance company can no application where the insured had not been guilty
longer prove that the policy is void ab initio or thereof. When X filled out the card, it behoved the
rescindable by reason of fraudulent concealment or insurer to look into the qualification of X whether he
misrepresentation of the insured. can thus be covered or not by the group life
insurance policy. In issuing the certificate of
Bar 1989 coverage to X, Phoenix may, in fact, be said to
Q: Manpower Co. obtained a group life insurance have waived the 30-hour per week requirement.
for its employees from Phoenix Insurance. The
master policy issued by Phoenix on June 1, 1986 Bar 1991
contained a provision that eligible employees form Q: Atty. Roberto took out a life insurance policy
insurance coverage were all full time employees of from Dana Insurance on September 1, 1989. On
 NOTES ON INSURANCE
From the Lecture Notes of Atty. R. Rondez, Bar Qs & As, and Other Review Materials on Insurance
August 31, 1990, Roberto died. Dana Insurance insurance died on April 26, 1992, or less than 2
refused to pay his beneficiaries because it years from September 23, 1990.
discovered that Roberto had misrepresented
certain material facts in his application. The The right of the insurer to rescind is only lost if the
beneficiaries sued on the basis that Dana beneficiary has commenced an action on the policy.
Insurance can contest the validity of the insurance There is no such action in this case.
policy only within 2 years from the date of issue and
during the lifetime of the insured. Decide. Bar 1998
Q: Renato was issued a life insurance policy on
A: I would rule in favour of the insurance company. January 2, 1990. He concealed the fact that 3 years
The incontestability clause applies only of the policy prior to the issuance of his life insurance policy, he
had been in effect for at least 2 years. The two-year had been seeing a doctor about his heart ailment.
period is counted from the time the insurance On March 1, 1992, Renato died of heart failure.
becomes effective until the death of the insured and May the heirs file a claim on the proceeds of the life
not thereafter. insurance policy of Renato?

Bar 1994 A: Yes. The life insurance policy in question was

Q: On Septemeber 23, 1990, Tan took a life issued on January 2, 1990. More than 2 years had
insurance policy from Philam. The policy was elapsed when Renato, the insured, died on March 1,
issued on November 6, 1990. He died on April 26, 1992. The incontestability clause applies.
1992 of hepatoma. The insurance company denied
the beneficiaries’ claim and rescinded the policy by Bar 2014
reason of alleged misrepresentation and Q: On July 3, 1993, Delia Sotero took out a life
concealment of material facts made by Tan in his insurance policy from Ilocos Bankers Life Insurance
application. It returned the premiums paid. Corp. designating her niece Cresencia Aban as her
The beneficiaries contend that the company had no beneficiary. Ilocos Life issued Policy No. 747, with
right to rescind the contract as rescission must be a face value of P100,000, in Sotero’s favour on
done “during the lifetime” of the insured within 2 August 20, 1998, after the requisite medical
years and prior to the commencement of the action. examination and payment of the premium.
Is the contention of the beneficiaries tenable?
On April 10, 1996, Sotero died. Aban filed a claim
A: No. The incontestability clause does not apply. for the insurance proceeds on July 6, 1996. Ilocos
The insured died within less than 2 years from the Life conducted an investigation into the claim and
issuance of the policy on September 23, 1990. The came out with the following findings:
 NOTES ON INSURANCE
From the Lecture Notes of Atty. R. Rondez, Bar Qs & As, and Other Review Materials on Insurance
1. Sotero did not personally apply for insurance years, 7 months and 24 days. considering that the
coverage, as she was illiterate; insured died after the 2-year period, Ilocos Life is,
2. Sotero was sickly since 1990; therefore, barred from proving that the policy is vod
3. Sotero did not have financial capability to pay ab initio by reason of the insured’s fraudulent
the premium on the policy; concealment or misrepresentation or want of
4. Sotero did not sign the application for the insurable interest on the part of the beneficiary.
insurance;
5. Aban was the one who filed the insurance b. Yes. After the 2-year period lapse, or when the
application and designated herself as insured dies within the period, the insurer must
beneficiary. make good on the policy, even though the policy
was obtained by fraud, concealment, or
For the above reasons and claiming fraud, Ilocos misrepresentation, as in this case, when the
Life denied Aban’s claim on April 6, 1997, but insured did not personally apply for the policy as
refunded the premium paid on the policy. she was illiterate and that it was the beneficiary
a. May the incontestability period set in who filled up the insurance application designating
even in cases of fraud as alleged in this herself as beneficiary.
case? Bar 1976
b. Is Aban entitled to claim the proceeds
under the policy? Q: A, an agent of life insurance company X, induced B who
has been suffering from advance tuberculosis to apply for
A: P10,000 life insurance which B did and requested A to fill the
a. Yes. The incontestability clause is a provision in application form. Thru the connivance of the physician, it was
law that after a policy of life insurance made made to appear in the application that B is in good health and
payable on the death of the insured shall have the P10,000 life insurance policy was issued by X to B. If B
been in force during the lifetime of the insured for a dies of tuberculosis, may his beneficiaries recover?
period of 2 years from date of its issue or of its last A: It depends. The insurer is bound when its agent writes a
reinstatement, the insurer cannot prove that the false answer into the application without the knowledge of the
policy is void ab initio or is rescindable by reason of insured, in which case, the insured’s beneficiaries may recover
fraudulent concealment or misrepresentation of the but a collusion between the agent and the insured in
insured or his agent. misrepresenting the facts will vitiate the policy. Thus, in the
instant case, if A obtained from B a correct and truthful answer
In this case, the policy was issued on August 30, to interrogatories contained in the application but without the
1993, and the insured died on April 10, 1996. The knowledge of B filed in a false answer and thru the connivance
insurance policy was thus in force for a period of 3 with the company physician, it was made to appear that B was
 NOTES ON INSURANCE
From the Lecture Notes of Atty. R. Rondez, Bar Qs & As, and Other Review Materials on Insurance
in good health, the insurer cannot assert the falsity of such
answers as a defense to liability on the policy. 2. Concealment is the passive and misrepresentation
is the active form of the same bad faith.
Bar 1988

On October 18, 1980, P took out a life insurance policy and CONCEALMENT AND REPRESENTATION COMPARED
named his only son Q as beneficiary. The policy was silent
with regard to any change of beneficiary. P later learned that Q 1. In concealment, the insured withholds information of
was hooked on drugs and immediately notified the insurance material facts; in representation, the insured makes
company in writing that he is substituting his sister, R, as his erroneous statements.
beneficiary in place of Q. P later died of advanced tuberculosis.
In the application form filled up by the agent of the insurance 2. In concealment and misrepresentation, both give the
company prior to the issuance of the life insurance policy by insurer the right to rescind the contract of insurance.
the insurance company, the agent, without the knowledge of P,
filled in a false answer and made it appear that P was in good
health. Upon P’s death, Q claimed the proceeds of the 3. The materiality of concealment and representation are
insurance policy contending that as designated beneficiary, he determined by the same rules.
cannot be changed without his consent, he having acquired a
vested right to the proceeds of the policy. 4. Whether the concealment and representation is
intentional or not, the injured party can rescind.
Can the insurance company refuse liability on the policy?

A: No, the insurer cannot escape liability. The insurance agent

is an agent not of the insured but of the insurer and the latter 5. Since insurance contracts are of utmost good faith, the
must thus suffer for the misconduct of the agent. The result insurer is also covered by the rules.
would have been different had the false answer been made by Bar 2009
the agent in connivance with the insured.
Q: Antarctica Life Assurance publicly offered a specially
DISTINGUISH CONCEALMENT FROM REPRESENTATION designed insurance policy covering persons between ages of
1. Concealment is the neglect of one party to 5- to 75 who may be afflicted with serious and debilitating
communicate to the other material facts. The illnesses. Quirico applied for insurance coverage, stating that
information he gives in compliance with his duty to he was already 80 years old.
reveal information is representation. Nonetheless, Antarctica Life approved his application. Quirico
Representation therefore, is the communication then requested Antarctica Life for the issuance of a cover note
required to comply with the prohibition against while he was trying to raise funds to pay the insurance
concealment. premium. Antarctica Life granted the request. Ten days after
 NOTES ON INSURANCE
From the Lecture Notes of Atty. R. Rondez, Bar Qs & As, and Other Review Materials on Insurance
he received the cover note, Quirico had a heart seizure and representative of the insurance company that he planned to
had to be hospitalized. He then filed a claim on the policy. assign a security guard on every floor of the building right
away. Except for the ground floor, no security guards were
Can Antarctica Life validly deny the claim on the ground that assigned. Eleven months after the policy was issued, the
the insurance coverage, as publicly offered, was available only building was gutted by fire which started on the third floor.
to persons 50 to 75 years of age? Unknown to Pabaya, the insurance company had incorporated
A: No. There is no misrepresentation or concealment in this his planned undertaking in the policy. Can Pabaya recover on
case which would result to the denial of Quirico’s claim the fire insurance policy?
because by approving the application of Quirico who disclosed A: Pabaya can recover under the insurance policy. The
that he was already 80 years old. Antarctica Life waived the statement of Pabaya that the planned to assign a security
age requirement. The insurance company is now estopped guard on every floor of the building, whether incorporated in
from raising such defense of age of the insured. the policy or not, did not amount to firm commitment so as to
WARRANTIES constitute an express warranty or representation. The facts
indicate that it was simply planned, not obligatory or
DEFINED promissory, undertaking.

1. It is a statement or promise stated in the policy or FORM

incorporated therein by reference, whereby the insured,
expressly or impliedly contracts as to the past, present 1. No particular form of words is necessary to create a
and future existence of certain facts, conditions, or warranty.
circumstances, the literal truth of which is essential to
the validity of the contract. 2. What is essential is what the parties intend a statement
to be, and if so intended as a warranty, it must be
included as part of the contract.
 Warranty is a statement or promise by the insured set
forth in the policy itself or incorporated in it by proper
2.1. Whether a warranty is constituted or not
reference, the untruth or nonfulfillment of which in any
depends upon:
aspect and without reference to whether the insurer
(a) the intention of the parties,
was in fact prejudiced by such untruth or nonfulfillment,
(b) the nature of the contract, or
renders the policy voidable by the insurer (Vance,
(c) the words used thereto.
1951).

Bar 1986 2.2. In case of doubt, the statement is presumed to

be a representation, not a warranty.
Q: Pabaya paid for a fire insurance policy on his multi-storey
building. At the time he applied for the insurance, he told the WHAT ARE THE KINDS OF WARRANTIES?
 NOTES ON INSURANCE
From the Lecture Notes of Atty. R. Rondez, Bar Qs & As, and Other Review Materials on Insurance
1. Affirmative warranties – refer to those that relate to 3.1. They can be affirmative or promissory
matters that exist at or before the issuance of the policy. warranties.

2. Promissory warranties – refer to those where the 3.2. An express warranty made at or before the
insured promises or undertakes that certain matters execution of the policy should be contained:
shall exist or will be done or will be omitted after the
policy takes effect. (a) In the policy itself;
(b) In another instrument signed by the insured
2.1. It is a statement in the policy, which imports that and referred to in the policy as making a
it is intended to do or not to do a thing which part of it. This also includes a rider. It is a
materially affects the risk, is a warranty that part of the policy; it need not be signed
such act or omission shall take place. unless the rider was issued after the original
policy took effect.
As when: That a house shall not be leased our
or that the insured premises will be fenced. 4. Implied warranties are assertions or promises not
expressly set forth in the policy, but because of the
2.2. Unless the contrary intention appears, the general tenor of the terms of the policy, or from the
courts will presume that the warranty is merely very nature of the insurance contract, a warranty is
an affirmative warranty. necessarily inferred or understood.

As when: A description of the property as being 4.1. The law only provides for implied warranties
a two-storey residence, there is no promissory only in contracts of marine insurance.
warranty that it will be maintained as a
residence or there is a statement that “there is a EFFECT OF VIOLATION OR BREACH OF A MATERIAL
security guard on duty at night” is not a WARRANTY
promissory warranty that a security guard will 1. The violation of a material warranty, or other material
be maintained. provision of the policy, on the part of either party
thereto, entitles the other to rescind.
3. Express warranty is a statement in a policy of a matter
relating to the person or the thing insured, or to the risk 1.1. Note that the insured can exercise the right also
as a fact and where the assertion or promise is clearly when the insurer violates a warranty, like when
set forth in the policy or incorporated therein by it refuses to grant a loan on the policy.
reference.
NOTE: Breach of a material warranty may
either be:
 NOTES ON INSURANCE
From the Lecture Notes of Atty. R. Rondez, Bar Qs & As, and Other Review Materials on Insurance
Hence, even if the violation did not contribute to the
(a) Without fraud, in which case, the insurer will loss, the other party may still rescind.
be exonerated from the time it occurs. If
made during the inception, it will prevent the As when: A insured his building against fire. A warranty
policy from taking effect (Sec. 76). stated that no hazardous goods would be stored. A
stored fireworks. The building was burned and the
(b) With fraud, in which case, the policy is fireworks were discovered stored in the area not
avoided ab initio. affected by fire. The insurer was not held liable as the
storage had increased the risk [Young v Midland
2. The policy may declare that a violation of specified Textiles, 30 Phil. 617].
provisions thereof shall avoid it, otherwise the breach
of an immaterial provision does not avoid the policy. 5. Exceptions:

2.1. This means that while ordinarily the breach of The non-performance of a promissory warranty does
an immaterial provision does not avoid the not avoid the policy before the arrival of the time for
policy, a stipulation that any breach avoids the performance when:
policy will cause it to be avoided.
(a) The loss insured against happens or loss occurs
3. A breach of warranty without fraud, merely exonerates before thej time of performance of the warranty.
an insurer from the time it occurs, or where it is broken
at its inception, prevents the policy from attaching to As when: There is a warranty that a firewall will be
the risk. constructed, but fire occurs before the period for
3.1. This means that if the breach is without fraud, compliance.
the policy is avoided only from the time of the
breach, but prior to the breach, it is still effective. (b) The performance becomes unlawful at the place of
Consequently, the insured is entitled to: the contract.

(a) a pro-rata return of the premium paid under As when: A law or ordinance prohibits the
Sec. 80; or construction of the specified firewall.
(b) all premiums, if the breach occurs at the
inception of the contract, as such is void ab (c) The performance becomes impossible;
initio and had never become binding.
As when: A severe lack of materials to construct.
4. Note that a causal connection between a violation of
the warranty and cause of the loss is not necessary. (d) Waiver or Estoppel.
 NOTES ON INSURANCE
From the Lecture Notes of Atty. R. Rondez, Bar Qs & As, and Other Review Materials on Insurance
Bar 1993 if violated by the insured, would ipso facto avoid
the contract (Pioneer v Yap, 1974).
Q: Julie and Alma formed a business partnership. Under the
business name Pino Shop, the partnership engaged in a sale 2.2. Insurer is barred by waiver (or estoppel) to
of construction materials. Julie insured the stocks in trade of claim violation of the so-called hydrants
Pino Shop with WGC Insurance for P350, 000. Subsequently, warranty when, despite knowing fully that only 2
she again got an insurance contract with RSI for P1,000,000 fire hydrants existed (out of the 11 hydrants
and then from EIC for P200,000. A fire of unknown origin required), it still issued the insurance policies
gutted the store of the partnership. Julie filed her claims with and received the premiums (Qua Chee Gan v
the 3 insurance companies. However, her claims were denied Law Union, 1955)
separately for breach of policy. Julie went to court and
contended that she could not be blamed for the omission,
alleging that the insurance agents for WGC, RSI and EIC knew DISTINGUISHING IT FROM REPRESENTATIONS
of the existence of the additional insurance coverage and that
she was not informed about the requirement that such other or 1. As to Nature: A warranty is a part of the contract; a
additional insurance should be stated in the policy. representation is merely a collateral inducement
thereto;
May she recover on her fire insurance policies?
2. As to Form: A warranty is expressly set forth in the
A: No, because she is guilty of violation of a warranty/ policy or incorporated therein by reference, while a
condition. representation may be oral or written in another
BREACH OF IMMATERIAL WARRANTY statement.

1. General Rule: Breach of an immaterial provision does 3. As to Compliance: A warranty must be strictly and
not avoid the policy (Sec. 75). literally performed, while a representation must be
substantially true.
2. Exception: Breach of an immaterial provision avoids
the policy when the parties stipulate that violation of a 4. As to Materiality: A warranty is presumed material,
particular provision, though immaterial, shall avoid the while a representation must be shown to be so.
policy, in effect, the parties converted the immaterial
provision into a material one (Sundiang and Aquino, 5. As to Applicability of Incontestability Clause:
2013). Incontestability clause does not apply to breach of
warranty, while it applies in misrepresentation.
2.1. A condition in the policy which requires insured
to disclose to the insurer of any insurance that,
 NOTES ON INSURANCE
From the Lecture Notes of Atty. R. Rondez, Bar Qs & As, and Other Review Materials on Insurance
6. A breach of warranty is a breach of the contract itself
while a misrepresentation is ground to rescind the 2.1. If pasted or attached after the original policy at
contract. the time it was issued, the signature of the
insured is not necessary to make it binding.

POLICY 2.2. If pasted or attached after the original policy is

It is the written instrument in which a contract of insurance is issued, it must be counter-signed by the insured
set forth. unless it was applied for by the insured.

HOW TO CONSTRUE THE POLICY 2.3. No rider, clauses, or warranties, or

endorsements shall be attached, printed or
1. Generally, policy is construed in favour of the insured stamped on the policy unless the form of such
and against the insurer. application has been approved by the Insurance
Commissioner.
2. The burden of proving that the terms of the policy have
been explained is upon the party seeking to enforce it. 2.4. Riders are forms attached to the policy when
the policy finds it necessary to alter or amend
As when: The claim of the beneficiary that since the the applicant’s answer to any question in the
insured was illiterate and spoke Chinese only, she application.
could not be held guilty of concealment because the
application and policy was in English when upheld 2.5. Clauses are forms containing additional
(Tang v CA, 90 SCRA 236). stipulations.
FORM OF THE POLICY
2.6. Warranties are written statements/ stipulations
1. It shall be printed and may contain blank spaces and inserted on the face of the contract or
any word, phrase, clause or mark, sign, symbol, incorporated by proper words of reference
signature, or number necessary to complete it shall be where the insured contracts as to the existence
written in the blank spaces. of facts, circumstances or conditions, the truth
of which are essential to the validity of the
2. If there are riders, clauses, warranties or endorsements contract.
purporting to be part of the contract of insurance and
which are pasted or attached to the policy is not 2.7. Endorsements are agreements not contained
binding on the insured unless the descriptive title of the but may be written or attached to policy, to
same is also mentioned and written on the blank change or modify a part thereof.
spaces provided in the policy.
 NOTES ON INSURANCE
From the Lecture Notes of Atty. R. Rondez, Bar Qs & As, and Other Review Materials on Insurance
WHAT MUST A POLICY SPECIFY?
3.1. The following rules have been promulgated by
1. A policy must specify the Insurance Commissioner to govern cover
notes:
(a) The parties between whom the contract is made;
(b) The amount to be insured except in open or (a) A cover note is valid for 60 days whether or
running policies; not a premium is paid but it may be
(c) The premium, or if the premium is to be determined cancelled by either party upon at least a 7-
at the termination of the contract, a statement of the day notice to the other party;
basis and rates upon which the final premium is to
be determined; (b) If the cover note is cancelled, a regular
(d) The property or life insured; policy must be issued within 60 days from
(e) The interest of the insured in the property insured, if the date of issue of the cover note, including
not the absolute owner; within its terms the identical insurance;
(f) The risks insured against; and
(g) The period during which the insurance is to (c) It may be extended with the written approval
continue. of the Commissioner but may be dispensed
with by a certification of the President, Vice-
President, or General Management of the
WHAT ARE COVER NOTES? insurer that the risks involved and the
extension do not violate the Code.
1. It is a written memorandum of the most important terms
of a preliminary contract of insurance intended to give (d) Insurance companies may impose a deposit
protection pending investigation by the insurer of the premium equivalent to at least 25% of the
risk or until the issuance of the formal policy. estimated premium but in no case less than
P500.
2. It is also known as a “binding slip” or “binder.”
4. A cover note will give adequate insurance protection
3. The effectivity of a cover note is 60 days, as within when: it is considered as a preliminary contract of
such period, a policy shall be issued including in its present insurance and not a mere agreement to insure
terms the identical assurance found under the cover at a future time, as on acceptance of the application or
rate and the premium therefore. It may however, be issuance/ delivery of the policy (44 CJS 958).
extended beyond 60 days and with the written approval
of the Insurance Commissioner if he determines that it 4.1. As when: An agent issued a provisional policy
does not violate the Insurance Code. acknowledging receipt of premiums and stating
 NOTES ON INSURANCE
From the Lecture Notes of Atty. R. Rondez, Bar Qs & As, and Other Review Materials on Insurance
that the insurance shall be effective upon
approval and issuance of the policy by the head
office. There is no protection as it is a mere Bar 1980
acknowledgment of the payment of premiums Q: P filed an application with an insurance company for a 20-
as the effectivity of the insurance is expressly year endowment policy in the amount of P50,000 on the life of
provided (Lim v Sunlife,, 41 Phil. 265), or a his one-year old daughter, supplying all the essential data in
binding slip stated that it was subject to the the application form, but without disclosing that his daughter
approval of the insurer and the same was was a mongoloid child. Upon P’s payment of the annual
subsequently disapproved (Grepalife v CA, 89 premium, a binding deposit receipt was issued to him by the
SCRA 543). insurance agent, subject to processing by the company. The
insurance company disapproved the insurance application
5. Rules of Joyce (Joseph Joyce, Author of five volumes stating that the plan applied for was not available for minors
of Commentaries on Insurance) below 7 years old, and offered another plan. The insurance
agent did not inform P of the disapproval nor of the alternative
(a) If the act of the acceptance of the risk by the agent plan offered, and instead, strongly recommended that the
and the giving by him of a receipt are within the company reconsider and approve the insurance application.
scope of his authority, and nothing remains but to
issue the policy, then the receipt will bind the As fate would have it, P’s daughter died. P sought payment of
company. the proceeds of the insurance but the company refused on the
(b) Where an agreement is made between the grounds that there was concealment of a material fact in the
applicant and the agent, whether by signing an insurance application form and that it had rejected the
application containing such condition, or otherwise, application. P contended, on the other hand, that the binding
that no liability shall attach until the principal deposit receipt constituted a temporary contract of life
approves the risk and a receipt is given by the insurance.
agent, such acceptance is merely conditional and
subordinated to the act of the company in How would you resolve this?
approving or rejecting.
A: The insurance company is not liable. The binding deposit
receipt is merely conditional and does not insure outright.
(c) Where the acceptance of the agent is within the
Where an agreement is made between the applicant and the
scope of his authority, a receipt containing a
agent, no liability shall attach until the principal (insurance
contract of insurance for a specified time which is
company) approves the risk. The binding deposit receipt is
not absolute but conditional, upon acceptance or
subordinated to the act of the insurance company in approving
rejection by the principal, covers the specified
or rejecting the application. Thus, in life insurance, a “binding
period unless the risk is declined within the same
slip” or “binding receipt” does not insure by itself. And, when as
period.
in this case, the application was disapproved, before the death
 NOTES ON INSURANCE
From the Lecture Notes of Atty. R. Rondez, Bar Qs & As, and Other Review Materials on Insurance
of the insured, there was no perfected contract of insurance in Did Antarctica Life’s issuance of a cover note result in the
order to make the company liable [Great Pacific Life v CA; perfection of an insurance contract between Quirico and
April 30, 1979 (89 SCRA 549)]. Antarctica Life?

6. A cover note has been held to be binding despite the A: Yes. A cover note has been held to be binding despite the
absence of a premium payment for its issuance as no absence of a premium payment for its issuance as no separate
separate premiums are intended or required to be paid premiums are intended or required to be paid on a cover note.
on a cover note because they do not contain the The cover note should not be treated as a separate policy but
particulars of the property insured that would serve as should be integrated in the regular policy subsequently issued
the basis for the computation of the premiums. The so that premiums on the regular policy should include that for
cover note should not be treated as a separate policy the cover note. The issuance of the cover note is because
but should be integrated in the regular policy there is a delay on the issuance of the policy. The rule on
subsequently issued so that premiums on the regular cover note is that it shall be valid for 60 days whether or not a
policy should include that for the cover note (Pacific premium is paid, but it may be cancelled by either party upon
Timber Export v CA, 112 SCRA 199). at least a 7-day notice to the other party and if not cancelled,
the policy shall be issued.

7. As application for insurance is nothing more than an

offer to enter into a contract of insurance. Such
Bar 2009 application, therefore, shall not become a contract until
accepted by the insurer. Such acceptance cannot be
Q: Antarctica Life publicly offered a specially designed presumed from a delay on the part of the insurer in
insurance policy covering persons between the ages 50 to 75 passing upon the application. On the contrary, such
who may be afflicted with serious and debilitating illnesses. delay for an unreasonable period of time may be
Quirico applied for insurance coverage, stating that he was construed as a rejection of the application.
already 80 years old.
7.1. Acceptance is presumed when the insurer
Nonetheless, Antarctica Life approved his application. Quirico accepts and retains for an unreasonable period
then requested Antarctica Life for the issuance of a cover note of time (30 days) the first premium covered by a
while he was trying to raise funds to pay the insurance cashier’s receipt stating that the policy is
premium. Antarctica Life granted the request. Ten days after effective on the date it is issued, without the
he received the cover note, Quirico had a heart seizure and policy being issued. If loss occurs before the
had to be hospitalized. He then filed a claim on the policy. rejection of the policy, the insurer is liable
[Gloria, et. al. v Philamlife, (CA ) 73 OG 8660].

WHOSE INTEREST IS INSURED?

 NOTES ON INSURANCE
From the Lecture Notes of Atty. R. Rondez, Bar Qs & As, and Other Review Materials on Insurance
1. The insurance proceeds shall be applied exclusively to
the proper interest of the person in whose name or for As when: The insurance company
whose benefit is made. Unless otherwise specified in undertook to indemnify any authorized
the policy driver who was driving the motor vehicle
insured. Coquia, while driving the insured
1.1. As when: motor vehicle, met an accident and died.
(a) The designation of sister as sole beneficiary His heirs were allowed to sue the insurer,
in a life insurance cannot be defeated by the the policy being considered in the nature of
contention of the plaintiff that proceeds a contract pour autrui, and therefore the
belong to the estate of the insured was enforcement thereof may be demanded by
disregarded as insurance is to be governed a 3rd party for whose benefit it was made
by special law, not by the law covering (Coquia v Fieldmen’s Insurance, 26 SCRA
donations or succession (Del Val v Del Val, 179);
29 SCRA 534);
(b) The insurance contract provides for
(b) In an action to recover cost of repairs and indemnity against liability to 3rd persons.
labor to a motor vehicle where they policy
states loss is payable to HS Reyes, the As when: The insured procured insurance
mortgagee of the vehicle who had no that would indemnify him against any and all
knowledge of the fact that Mara had it sums which he may be legally liable to pay
repaired with Bonifacio Bros., the Court in respect to the death or bodily injury to any
ruled that HS Reyes is the one entitled to person. A jeepney covered by the insurance
the proceeds because a policy of insurance had bumped Guingon and had caused his
is a separate and independent contract death. The insurance was held to be one for
between the insured and the insurer, and indemnity against liability to 3rd persons, and
that third persons have no right to the therefore, such 3rd person is entitled to sue
proceeds of the insurance (Bonifacio Bros. v the insurer (Guingon v del Monte, 20 SCRA
Mora; GR No. L-20853; May 29, 1967). 1043).

1.2. Unless otherwise specified in the policy, a 3rd 1.3. The test to determine whether a 3rd person may
person may sue the insurer if: directly sue the insurer of the wrongdoer is: If
(a) The insurance contract contains a the contract provides for indemnity against 3rd
stipulation in favor of a 3rd person, the said persons, then the latter to whom the insured is
3rd though not a party may sue to enforce liable may directly sue the insurer. On the other
before the contract is revoked by the parties. hand, if the insurance is for indemnity against
 NOTES ON INSURANCE
From the Lecture Notes of Atty. R. Rondez, Bar Qs & As, and Other Review Materials on Insurance
actual loss or payment, then the 3rd person 5. When a policy is so framed that it will inure to the
cannot sue the insurer, recourse is against the benefit of whomsoever, during the continuance of the
insured alone. risk, may become the owner of the interest insured
(Sec. 57).
2. If the contract is executed with an agent or trustee as
the insured, the fact that his principal or beneficiary is 5.1. The proceeds become payable to who may be
the real party in interest may be indicated by describing the owner at the time the loss or injury occurs.
the insured as the agent/ trustee or by general words in This is an exception to Sec. 20.
the policy.
6. The mere transfer of a thing insured does not transfer
2.1. If not indicated, it is as if the insurance is taken the policy but it suspends it until the same person
out by the agent/ trustee alone, consequently becomes the owner of both the policy and the thing
the principal has no right against the insurer. insured.

3. If a partner or part owner effects insurance, it is 6.1. Note the exception to this rule as found in Secs.
necessary that the terms of the policy should be such 20-24 and 57.
as are applicable to the joint and common interest so
that it may be applicable to the interest of his co-
partners/ owners.
.
3.1. Consequently, the policy must state that the WHAT ARE THE KINDS OF INSURANCE POLICIES?
interest of all is insured. If not, it is only the
interest of the one getting the policy that is 1. The kinds of policies are:
insured. (a) Open;
(b) Valued;
4. When the description of the insured in the policy is so (c) Running or Floating.
general that it may comprehend any person or any
class of persons, only he who can show that it was 2. An open policy is one in which the value of the thing
intended to include him can claim the benefit of the insured is not agreed upon, but is left to be ascertained
policy. in case of loss.

As when: In a fire insurance policy where the insured is 2.1. What is mentioned as the amount is not the
Dela Cruz & Associates, X to be able to recover his value of the property but merely the maximum
share, must prove that he is a partner. limit of the insurer’s liability. In case of loss, the
 NOTES ON INSURANCE
From the Lecture Notes of Atty. R. Rondez, Bar Qs & As, and Other Review Materials on Insurance
insurer only pays the actual cash value at the 4.1. This is also known as “floating policy” which is
time of loss. usually issued to provide indemnity for property
which cannot be recovered by specific
3. A valued policy is one which expresses on its face that insurance because of a frequent change in
the thing insured shall be valued at a specified sum. location and quantity.

3.1. The valuation of the property insured is As when: Insurance procured by a retail
conclusive between the parties. In the absence establishment to cover its inventory that
of fraud or mistake, such value will be paid in fluctuates in quantity, or is located in several
case of a total loss. areas.

3.2. A valued policy distinguished from an open Bar 1975

policy: Q: In 1964, Jose constructed a house worth P50,000 which he
insured against fire for the same amount. The insurance for
(a) In a valued policy, proof of value of the the same amount was renewed every year. In 1974, when the
thing after the loss is necessary. In an open house was already worth P100,000 on account of inflationary
policy, the insured must prove the value of prices (in case of rebuilding), 1/5 of the house was destroyed
the thing insured; by fire. As nothing illegal about the contract, how much, if any,
(b) In a valued policy, the parties have can Jose successfully recover from the insurance company?
conclusively stipulated that the property
insured is valued at a specified sum. In an A: If the insurance policy is a valued one, then Jose can
open policy, the value is not agreed but left recover 1/5 of P50,000, i.e. P10,000. Under the Insurance
to be ascertained upon loss. This does not Code, the valuation in a valued policy is conclusive between
violate the principle that a contact of the parties in the absence of fraud. So Jose cannot claim that
insurance is a contract of indemnity as long since his house was worth P100,000 at the time of the loss, he
as the valuation is reasonable and is bona should be able to recover P20,000 (actual value of loss – 1/5
fide. of P100,000).

4. A running policy is one which contemplates successive If the policy is an open policy then under the law, appraisal of
insurances and which provides that the object of the loss is made after the fire. Since the house was worth
policy may be from time to time defined especially as to P100,000 at such time, then the loss of Jose is P20,000 and
the subjects of insurance, by additional statements or he can recover this amount under such an open policy.
indorsements.
CANCELLATION OF POLICY
 NOTES ON INSURANCE
From the Lecture Notes of Atty. R. Rondez, Bar Qs & As, and Other Review Materials on Insurance
1. No policy other than life shall be cancelled by the 3. As to form, the notice must be in writing, mailed or
insurer, except upon prior notice thereof to the insured. delivered to the named insured at the address shown in
the policy which shall state:
2. No notice of cancellation shall be effective if not based
on the occurrence, after effective date of one or more (a) The grounds relied upon as per Section 64, and
of the following grounds: (b) That upon written request of the named insured,
the insurer will furnish the facts on which
(a) Non-payment of premium; cancellation is based.
(b) Conviction of a crime arising out of acts increasing
the hazard insured against 3.1. A fire insurance policy is cancelled on October 15,
1981. The insurer’s clerk allegedly sent notice sent
As when: Insured has been convicted of arson or notice of cancellation by mail but there was no
car theft; proof that it was actually mailed and received.
(c) Discovery of fraud or material misrepresentation Insurer relies on the presumption of regularity. It
was held that considering the strict language of the
As when: Insured represents himself as the owner law that no policy can be cancelled without prior
but is not actually the owner; notice, it behoved on the insurer to make sure that
(d) Discovery of willfull or reckless acts or omissions cancellation was actually sent and received by the
increasing the hazard insured against insured (Malayan Insurance v Cruz Arnaldo, 154
SCRA 672).
As when: There is storage of hazardous materials 3.2. A insured his building against fire and made the
in the premises; loss payable to the mortgagee. Upon cancellation,
(e) Physical changes in the property insured which notice was sent to the mortgagee. It was held that
result in the property being uninsurable there was no valid notice of cancellation. The notice
is personal to the insured and not to any
As when: A private vehicle is converted into a unauthorized person (Saura Import v Phil.
racing vehicle. International, 8 SCRA 143).

(f) Determination by the Insurance Commissioner that DOES THE INSURED HAVE THE RIGHT TO RENEW HIS
a continuation of the policy would place the insurer POLICY?
in violation of the Code 1. In insurance other than life, the named insured, may
renew the policy upon payment of the premium due on
As when: Policy was issued absent insurable the effective date of the renewal, if, he has not been
interest. given notice by the insurer of the intention not to renew
or to condition renewal upon reduction of limits or
 NOTES ON INSURANCE
From the Lecture Notes of Atty. R. Rondez, Bar Qs & As, and Other Review Materials on Insurance
elimination of coverages by mail or delivery at least 45 3. As a rule, the obligation to pay the premium when due
days in advance of the end of the policy. is considered an indivisible obligation. Consequently,
forfeiture is not prevented by a part payment unless
2. For reckoning the end date of a policy: any policy payment by instalment has been agreed upon or is the
written for a term of less than one year shall be established practice.
considered as if written for a term of one year. If written
for a term of more than one year or any policy with no WHEN IS THE INSURER ENTITLED TO A PREMIUM?
fixed expiration date, it shall be considered as if written 1. The insurer is entitled to the payment of a premium as
for successive periods or terms of one year. soon as the thing insured is exposed to the peril
insured against.
HOW IS REINSTATEMENT OF THE POLICY EFFECTED?
2. Notwithstanding any agreement to the contrary, no
1. Reinstatement can be permitted within 3 years, or a policy or contract of insurance issued by an insurance
stipulated longer period, from the date of default. company is valid and binding unless and until the
premium is paid, except in:
2. This is not an absolute right as it is conditioned on the
insurability of the insured or evidence of good health
and the payment of all overdue premiums and (a) In case of life or industrial life where the premium is
indebtedness, if any. payable monthly or oftener, whenever the grace
period applies;
(b) When the insurer makes a written acknowledgment
of the receipt of a premium, such is conclusive
PREMIUM evidence of the payment of the premium to make it
DEFINED binding notwithstanding any stipulation therein that
it shall not be binding until the premium is paid.
1. The agreed price for assuming and carrying the risk Hence, the effect of an acknowledgment in a policy
which the insurer is entitled to the payment of a or contract of insurance of the receipt of the
premium as soon as the thing insured is exposed to the premium, is that it is conclusive evidence of its
peril insured against. payment so far as to make the policy binding,
however it is not conclusive for the purpose of
2. The payment of a premium is essential to the validity of avoiding collection of the premium; and
an insurance policy, known as the “cash and carry
basis” or “no premium payment, no policy” rule. (c) Where the oblige has accepted the bond or
suretyship contract in which case such bond or
suretyship contract becomes valid and enforceable
 NOTES ON INSURANCE
From the Lecture Notes of Atty. R. Rondez, Bar Qs & As, and Other Review Materials on Insurance
irrespective of whether or not the premium has is completely abrogated. It would be unjust to allow the
been paid by the obligor to the surety. insurer to retain the reserve value of the policy, which
is the excess of the premium paid over the actual risk
3. There is no excuse for non-payment of the premium carried during the years when the policy had been in
since payment on time is of the essence. The only force in time of war [Constantino v Asia Life (1950)].
recognized exception is when failure is due to the
wrongful conduct of the insurer. WHAT IS THE EFFECT OF PARTIAL PAYMENT?

As when: There is a baseless refusal to accept a validly 1. As a rule, the obligation to pay the premium when
tendered payment of the premium (Gonzales v Asia due is considered an indivisible obligation.
Life, 92 Phil 197). Consequently, forfeiture is not prevented by a part
payment unless payment by instalment has been
NOTE: Non-payment of premiums agreed upon or is the established practice (Gulf
Non-payment of first premium, unless waived, Resorts v Philippine Charter Insurance, 458 SCRA
prevents the contract from becoming binding 550).
notwithstanding the acceptance of the application nor
the issuance of the policy. 1.1. Payment made to an insurance agent or
Non-payment of subsequent premiums does broker is payment to the insurance
not affect the validity of the contracts, unless by company.
express stipulation, it is provided that the policy shall in
that event be suspended or shall lapse. In case of
individual life insurance, the policy holder is entitled a 1.2. A payment by check or a promissory note
grace period of either 30 days or one month within will be sufficient to make the policy binding
which payment of any premium after the first may be when it is encashed (Art. 1249, Civil Code).
made. In cases of industrial life insurance, the grace
period is 4 weeks, and where premiums are paid NOTE: The payment of premium by a
monthly, either 30 days or one month. postdated check at a stated maturity
subsequent to the loss is insufficient to put
NO EXCUSES the insurance into effect. But payment by a
check bearing a date prior to the loss,
Fortuitous events which render payment by the assuming availability of funds, would be
insured wholly impossible will not prevent forfeiture of sufficient, even if it remains unencashed at
the policy when the premium remains unpaid. the time of the loss. The subsequent effects
Non-payment of premiums occasioned by war of encashment would retroact to the date of
causes an insurance to be not merely suspended, but the instrument and its acceptance by the
 NOTES ON INSURANCE
From the Lecture Notes of Atty. R. Rondez, Bar Qs & As, and Other Review Materials on Insurance
creditor [Vitug, Commercial Law and based on Sec. 72 of the old Insurance Act. It can therefore not
Jurisprudence (2006)]. be made applicable to the given case.

Bar 1976 Answer from UST Golden Notes:

Q: A insured his house against loss by fire for P100,000. The Yes, the insurer is liable because there has been a perfected
policy provides that the insurer shall be liable “if the property insurance contract. The insurer accepted the promise of the
insured shall be damaged or destroyed by fire after payment of applicant to pay the insurance premium within 30 days from
premium, at any time from June 15, 1976 to June 15, 1977.” the effective date of policy. By so doing, it has implicitly agreed
The policy was delivered to A on June 15, 1976. Instead of to modify the tenor of the insurance policy and in effect,
paying the premium in cash, A issued a promissory note dated waived any provision therein that it would only pay for the loss
June 15, 1976, for the amount of premium, payable within 30 or damage in case the same occurs after the payment of the
days. The note was accepted. On June 29, 1976, the property premium.
insured was burned. The insurer refused to pay on the ground
that the premium had not been paid, and the note did not have Considering that the insurance policy is silent as to the mode
the effect of payment as its valued had not been realized at of payment, insurer is deemed to have accepted the
the time the house was burned. Decide. promissory note in payment of the premium. This rendered the
policy immediately operative on the date it was delivered
A: Since the case given took place after the effectivity of the [Capital Insurance v Plastic Era; GR No. L-22375; July 18,
Insurance Code, it must be governed by its provisions. Section 1975].
77 thereof provides: “Notwithstanding any agreement to the
contrary, no policy or contract of insurance issued by an Bar 1978
insurance company is valid and binding unless and until the Q: On December 17, 1975, a fire policy, insuring a building
premium thereof has been paid…” Considering that this cited and its contents, was delivered to the insured company. By
provision replaced Sec. 72 of the old Insurance Act expressly agreement, it was allowed to pay the premium within 30 days.
by permitting the granting of credit extension, the only On January 8, 1976, it paid the premium by means of a check
conclusion is that the law-making power intended by the postdated January 16, 1976. The check was deposited by the
amendment to disallow any agreement postponing payment of insurance company only on February 20, but the check
premium, including a grant of credit extension. The issuance of bounced, although on January 19, the insured had sufficient
a promissory note postpones payment by granting credit bank balance. On January 18, two days after the premium
extension. Therefore, the insurer is not liable under this became due, the insured property was burned and became a
express provision of the new Insurance Code. The case of total loss.
Capital Insurance v Plastic Era which held that acceptance of
a promissory note constitutes waiver of the stipulation as to Can the insurance company cancel the policy for non-payment
mode of payment, a promissory note constitutes payment, took of premium?
place before the Insurance Code came into effect and was
 NOTES ON INSURANCE
From the Lecture Notes of Atty. R. Rondez, Bar Qs & As, and Other Review Materials on Insurance
A: Yes, the insurance company can cancel the policy for non- Martin. The policy was issued on March 31, 2010 and, on even
payment of the premium. The new Insurance Code provides date, Enrique paid the premium with a personal check
that notwithstanding any agreement to contrary, no policy or postdated April 6, 2010.
contract of insurance is valid and binding unless and until the
premium thereof has been paid. On April 5, 2010, the car was involved in an accident that
resulted in its total loss. On April 10, 2010, the drawee bank
Bar 2006 returned Enriques’s check with the notation “insufficient funds.”
Upon notification, Enrique immediately deposited additional
Q: The Peninsula Insurance Co. offered to insure Francis’ funds with the bank and asked the insurer to redeposit the
brand new car against all risks in the sum of P1,000,000 per check. Enrique thereupon claimed indemnity from the insurer.
year. The policy was issued with the premium fixed at P60,000
in 6 months. Francis only paid the first two months instalments. Is the insurer liable under the insurance coverage?
Despite demands, he failed to pay the subsequent instalments,
five months after the issuance of the policy, the vehicle was A: No. Under Art. 1249 of the Civil Code, the delivery of a
carnapped. Francis filed with the insurance company a claim check produces the effect of payment only when it is encashed.
for its value. However, the company denied his claim on the The loss occurred on April 5, 2010. When the check was
ground that he failed to pay the premium resulting in the deposited, it was returned on April 10, 2010, for insufficiency of
cancellation of the policy. funds. The check was honoured only after Enrique deposited
additional funds with the bank. Hence, it did not produce the
Can Francis recover from Peninsula Insurance? effect of payment.

A: Yes, considering that his car was carnapped before the 6- Bar 2007
month period to pay the premium installments expired. An
insurance premium can be paid in instalments, and the Q: Alfredo took out a policy to insure his commercial building
insurance contract became valid and binding upon payment of against fire. The broker for the insurance company agreed to
the first premium. When the insurer granted a credit term for give a 15-day credit within which to pay the insurance premium.
the payment of the premium, it is liable when the loss occurred Upon delivery of the policy on May 15, 2006, Alfredo issued a
before the expiration of such term. It could not deny liability on postdated check payable on May 30, 2006. On May 28, 2006,
the ground that payment was not made in full, for the reason a fire broke out and destroyed the building owned by Alfredo.
that it agreed to accept instalment payments. For the same May Alfredo recover on the insurance policy?
reason, it could not validly cancel the policy, more so, without
giving notice to the insured for its cancellation. A: Yes. It is valid to stipulate that the insured will be granted
credit term for payment of premium. Payment by means of a
Bar 2010 check which was accepted by the insurer, bearing a date prior
Q: Enrique obtained from Seguro Insurance a comprehensive to the loss, would be sufficient. The subsequent effects of
motor vehicle insurance to cover his top of the line Aston
 NOTES ON INSURANCE
From the Lecture Notes of Atty. R. Rondez, Bar Qs & As, and Other Review Materials on Insurance
encashment retroact to the date of the check [UCPB General v issued an undated check to RN Insurance for the full amount
Masagana Telamart, 356 SCRA 307 (2001)]. of the premium. On October 1, 2013, RN Insurance issued the
policy covering Danny’s life insurance. On October 5, 2013,
Bar 2013 Danny met a tragic accident and died. Tina claimed the
Q: Stable Insurance and St. Peter Manufacturing have had a insurance benefit, but RN Insurance was quick to deny the
long-standing insurance relationship with each other: St. Peter claim because at the time of Danny’s death, the check was not
secures the comprehensive fire insurance on its plant and yet encashed and therefore, the premium remained unpaid.
facilities from Stable Insurance. The standing business Is RN Insurance correct? Will your answer be the same if the
practice between them has been to allow St. Peter a credit check is dated October 15, 2013?
period of 90 days from the renewal of the policy with which to
pay the premium. Soon after the new policy was issued and A: No, RN Insurance is not correct. After the issuance of the
before premium payments could be made, a fire gutted the check by Danny for the full amount of the premium, the
covered plant and facilities to the ground. The day after the fire, unconditional delivery of an insurance policy of RN Insurance
St. Peter issued a manager’s check to Stable Insurance for the to Danny corresponding to the terms of the application
fire insurance premium, for which it was issued a receipt. A ordinarily consummates the contract, and the policy as
week later, St. Peter issued its notice of loss. Stable Insurance delivered becomes the final contract between the parties.
responded by issuing its own manager’s check for the amount Where the parties, so intend, the insurance becomes effective
of the premiums St. Peter has paid, and denied St. Peter’s at the time of the delivery of the policy notwithstanding the fact
claim on the ground that under the cash and carry principle that the check was not yet encashed.
governing fire insurance, no coverage existed at the time the
fire occurred because the insurance premium had not been My answer will still be the same even if the check is dated
paid. Is St. Peter entitled to recover from the loss from Stable October 15, 2013 since an acknowledgment in a policy of the
Insurance? receipt of premium is conclusive evidence of its payment for
the purpose of making the policy binding.
A: St. Peter is entitled to recover for the loss from Stable
Insurance. Stable Insurance granted a credit term to pay the 2. Basic principles of equity and fairness would not
premiums. This is not against the law, because the standing allow the insurer to collect and accept instalments
business practice of allowing St. Peter to pay the premiums and later deny liability as premiums were not paid
after 60 days or 90 days, was relied upon in good faith by St. in full (Philippine Phoenix Surety v Woodworks, 20
Peter. Stable Insurance is in estoppel. SCRA 1272).

Bar 2014 2.1. Should any partial payment be made when

there is an agreement that the policy shall
Q: On September 25, 2013, Danny procured a n insurance on not be effective pending payment of full
his life with a face value of P5,000,000 from RN Insurance,
with his wife Tina as sole beneficiary. On the same day, Danny
 NOTES ON INSURANCE
From the Lecture Notes of Atty. R. Rondez, Bar Qs & As, and Other Review Materials on Insurance
premium was in the concept of a deposit
(Tibay v CA, 257 SCRA 126). (b) The policy is a life insurance policy as the
same is indivisible but the insured is entitled
REFUND OF PREMIUM to a cash surrender value.
WHEN IS THE INSURED ENTITLED TO A RETURN
(REFUND) OF THE PREMIUMS PAID? NOTE: Cash Surrender Value
It is the amount that the insured is entitled to
1. The insured will be entitled to a return of the premiums receive if he surrenders the policy and
paid when: releases his claims upon it. The right to
CSV accrues only after three full annual
1.1. To the whole premium, when no part of the premium payments. The insured is given
interest in the thing insured is exposed to any of the right to claim the amount less than the
the perils insured against. reserve, reduced by surrender surcharge.

As when: Insurance is taken on a vessel for a The CSV is an amount which the insurance
voyage that did not take place. company hold in trust for the insured to be
delivered to him upon demand. When the
1.2. Where the insurance is made for a definite company’s credit for advances is paid out of
period of time and the insured surrenders his the cash value or CSV, that value and the
policy before the expiration of the period. Here company’s liability is diminished
the insured only recovers a portion of the policy [Manufacturer’s Life v Meer (1951)].
premiums corresponding to the unexpired time, 1.3. When the contact is voidable on account of
but it does not apply if: fraud or misrepresentation of the insurer or the
agent.
(a) A short period rate has been agreed upon.
What will be recoverable is the agreed As when: The insurer makes a representation
percentage of premiums as stated in the regarding a loan provision which is not
policy. contained in the policy that is issued.

As when: The policy is returned after a 1.4. Where the contract is voidable on account of
month, the insurer retains 20% of the facts, the existence of which the insured was
premium because it has been agreed upon, ignorant without his fault.
the insured then receives 80%, not the
premiums equivalent to the 11 months As when: The insurance is taken by the insured,
remaining on the term; or who is ignorant of the fact that he did not have
 NOTES ON INSURANCE
From the Lecture Notes of Atty. R. Rondez, Bar Qs & As, and Other Review Materials on Insurance
insurable interest or a person, not knowing that
his car has been totally damaged, procured
insurance over it.

1.5. When by default of the insured other than actual

fraud, the insurer never incurred any liability
under the policy.

As when: A person insured his vessel for a trip,

but the vessel is destroyed before the trip.

1.6. In case of over-insurance. Here, the insurance

is in excess of the amount of the insurable
interest of the insured and it is insured by
several insurers, the insured is entitled to a
ratable return of premium, proportional to the
amount by which the aggregate sum insured in
all the policies, exceeds the insurable value.

As when: The insured’s property is valued at

P1,500,000. He obtains a policy from 1st Co. for
P1,000,000, paying P10,000 and a policy from
the 2nd Co. for P2,000,000, paying P20,000.
Since the value of the property is ½ the value of
the insurance, the insured is entitled to recover
½ of the premiums paid from each of the
insurers.

2. Unless otherwise stated, the premiums shall be

returned to the insured who paid them.