INSURANCE LAW

Mortgagor and Mortgagee Insuring The Same Property

Is it alright if both the mortgagor and the mortgagee insure the same property?
YES. The mortgagor and the mortgagee have each an insurable interest in the property
mortgaged, and this interest is separate and distinct from the other. Consequently, insurance
taken by one in his own name only and in his favor alone does not inure to the benefit of the
other. And in case both of them take out separate insurance policies on the same property, or
one policy covering their respective interests, the same is not open to the objection that there is
double insurance.
What is the extent of the insurable interest of the mortgagor?
The mortgagor of the property, as owner has an insurable interest to the extent of the value of
the property, even if the mortgage debt is equal to such value. The reason is that the loss or
destruction of the property insured will NOT extinguish the mortgage debt.
What is the extent of the insurable interest of the mortgagee?
The mortgagee or his assignee has an insurable interest in the mortgaged property to the extent
of the debt secured, such interest continues until the mortgage debt is extinguished.
Up to what extent can each recover?
The mortgagor cannot recover upon the insurance beyond the full amount of the loss, and the
mortgagee cannot recover in excess of the credit at the time of the loss.
Under Sec. 8, what are the effects of insurance when the mortgagor effects insurance
in his own name and provides that the loss be payable to the mortgagee?
The legal effects of this are:
(1)
The contract is deemed to be upon the interest of the mortgagor, hence he does NOT
cease to be a party to the contract;
(2)
Any action of the mortgage prior to the loss which would otherwise avoid the insurance
affects the mortgagee even if the property is in the hands of the mortgagee;
(3)
Any act which under the contract of insurance is to be performed by the mortgagor, may
be performed by the mortgagee;
(4)
In case of loss, the mortgagee is entitled to the proceeds to the extent of his credit; and
(5)
Upon recovery by the mortgagee to the extent of his credit, the debt is extinguished.
What is the effect if the mortgagee effects insurance on behalf of the mortgagor?
Practically the same rules apply. Upon the destruction of the property, then the mortgagee is
entitled to receive the proceeds equal to the amount of the mortgage credit. Such payment
operates to discharge the debt.
INSURABLE INTEREST
Section 10. Every person has an insurable interest in the life and health:
(a) Of himself, of his spouse and of his children;
(b) Of any person on whom he depends wholly in part for education or support, or in whom he
has a pecuniary interest;
(c) Of any person under a legal obligation to him for the payment of money, or respecting
property or services, Of which death or illness might delay or prevent the performance; and
(d) Of any person upon whose life any estate or interest vested in him depends.
What is insurable interest?
Insurable interest is one the most basic of all requirements in insurance. In general, a person is
deemed to have insurable interest in the subject matter insured where he ha a relation or
connection with or concern in it that he will derive pecuniary benefit or advantage from its

preservation and will suffer pecuniary loss or damage from its destruction, termination or injury
by the happening of the event insured against.
Why must there be an insurable interest?
It is essential for validity and enforceability of the contract or policy. A policy issued to a person
without interest in the subject matter is a mere wager policy or contract.
When is there insurable interest in life insurance?
In life insurance, Insurable interest exists where there is reasonable ground founded on the
relations of the parties whether pecuniary, contractual or by blood or affinity, and to expect some
benefit or advantage from the continuance of the life of the insured.
Problem:
A takes an insurance policy on his life and names his friend X as beneficiary, and another
insurance on the life of Y in consideration of love and affection with A as a beneficiary. Which
of the two insurances, if any, is valid and which, if any, is void?
The Insurance taken on A on his life is VALID, because the beneficiary need not have an insurable
interest in the life of the insured. It must be the one insuring who has an insurable interest in the
life of the person he is insuring, and of course, it goes without saying that one has an insurable
interest in his own life and health.
ON the other hand, the insurance taken by A on the life of Y is VOID because love and affection
for the insured n the part of the person insuring is NOT sufficient ground to qualify as insurable
interest.
Differentiate insurable interest in life insurance and insurable interest in property insurance.
Insurable interest in life exists when there is reasonable ground founded on the relation of the
parties, either pecuniary or contractual or by blood or affinity, to expect some benefit or
advantage from the continuance of the life of the insured.
What is misrepresentation?
It is an affirmative defense. To avoid liability, the insurer has the duty to establish such a defense
by satisfactory and convincing evidence. (Ng Gan Zee v. Asian Crusader Life Assn. Corp., G.R. No.
L-30685, May 30, 1983)
Note: In the absence of evidence that the insured has sufficient medical knowledge to enable
him to do distinguish between peptic ulcer and tumor, the statement of deceased that said
tumor was associated with ulcer of the stomach should be considered an expression in good
faith. Fraudulent intent of insured must be established to entitle insurer to rescind the insurance
contract. Misrepresentation, as a defense of insurer, is an affirmative defense which must be
proved. (Ng Gan Zee v. Asian Crusader Life Assn. Corp., G.R. No. L-30685, May 30, 1983).
Representation and Misrepresentation in Insurance
Section 36. A representation may be oral or written.
What is a representation?
A representation is a factual statement made by the insured at the time of, or prior to, the
issuance of the policy to give, information to the insurer and otherwise induce him to enter into
the insurance contract.
What is the difference between a representation and concealment?
A concealment is a negative act, meaning it is the failure to do something which is required
while representation is
positive
act
as
the
insured
volunteers
such
facts. Concealment usually occurs prior to making of the insurance contract, while
arepresentation may be made at the time of the issuance of the contract.

What is a misrepresentation?
A Misrepresentation is a statement:
1.
As a fact of something which is untrue
2.
Which the insured stated with knowledge that it is untrue and with an intent to deceive or
which he states as true without knowing it to be true and which has the tendency to mislead; and
3.
Where such fact in either case is material to the risk.
What is the effect of a misrepresentation?
A misrepresentation by the insured renders the insurance contract voidable at the option of the
insurer, although the policy is not thereby rendered void ab initio.
Is misrepresentation synonymous with concealment?
NO. Misrepresentation is an active form of concealment.
What is the duty of the person applying for insurance?
It is duty to give the insurer all such information concerning the risk as will be of use to the latter
in estimating its character and in determining whether or not to assume it. This information may
be given orally or written in papers not connected with the contract such as in the application or
examiners report. Sometimes, it may appear on the policy itself.
Why is such information important?
The information forms the basis of the contract as made. It describes, marks out and defines the
risk assumed. Hence the untruthfulness of any representation will necessarily avoid the
contract.
Example of misrepresentations such that the insurer avoids any liability to the
insured
If the insurer was made to believe that he was insuring a brick house when in truth and in fact,
the house was made of nipa, or when the insurer insured a man of thirty and it turns out that the
man who dies was a 130.
Section 37. A representation may be made at the time of, or before, issuance of the policy.
Section 41 provides that A representation may be altered or withdrawn before the insurance is
effected, but not afterwards.
Section 38. The language of a representation is to be interpreted by the same rules as the
language of contracts in general.
How are misrepresentations construed?
They are construed liberally in favor of the insured.
Must the representations be literally true?
No. It is sufficient that they be substantially true.
How can a representation be substantially true and not literally true?
De Leon cites two examples:
If one is asked if he drinks, the question will be construed as referring to habitual use. So if you
drink only when there is an occasion, they you can say NO.
If you are asked if you had any illnesses, local disease or injury in any organ, you can still say NO
even if three weeks before you were suffering from LBM because you ate one kaing of avocados.
Section 39. A representation as to the future is to be deemed a promise, unless it appears that
it was merely a statement of belief or expectation.

What are the different kinds of representations?

They may either be:
1.
Oral or written;
2.
Made at the time of the issuance of the policy or before;
3.
Affirmative or promissory
What is an affirmative representation?
It is any allegation as to the existence or non-existence of a fact when the contract begins. An
example would be when the insured states that the house subject of the insurance is used only
for residential purposes.
What is a promissory representation?
A promissory representation is any promise to be fulfilled after the contract has come into
existence or any statement concerning what is to happen during the existence of the insurance.
What is the nature of a promissory representation?
First, it used to indicate a parol or oral promise made in connection with the insurance, but NOT
incorporated in the policy. The non-performance of such a promise CANNOT be shown by the
insurer in defense to an action on the policy, but proof that the promise was made with
fraudulent intent and will serve to defeat the insurance.
Second, it is an undertaking by the insured, inserted in the policy, but NOT specifically made a
warranty, is called a promissory representation. It is however in such a case merely an executory
term of the contract, and not properly a representation. A promissory representation, is
therefore, substantially a condition or a warranty.
Examples of promissory representations
1.
An applicant for fire insurance on a building orally promised that the building will be
occupied.
2.
An applicant for fire insurance on a building orally promised to install two fire extinguishers
within the bldg.
3.
A TV hostess saying Will be back.. promise.. saranghameda po
Does a false representation based on an opinion or expectation avoid the policy?
IT DEPENDS. A representation of an expectation, intention, belief opinion or judgment of the
insured, although false, will NOT avoid the policy of insurance if there is NO actual fraud in
inducing the acceptance of the risk or its acceptance at a lower rate of premium and this is
likewise the rule although the statement is material to the risk. In such a case, the insurer is not
justified in relying upon such statement but is obligated to make further inquiry.
What must the insurer then to do to avoid liability?
The insurer must prove both the materiality of the insureds opinion and the latters intent to
deceive. If the representation is one of fact, all the insurer needs to prove is its falsity and
materiality. The intent to deceive is already presumed.
When is a representation deemed a mere expression of opinion?
An oral representation as to a future event, or condition over which the insured has no control,
with reference to property or life insured will be deemed a mere expression of opinion, which will
avoid a contract ONLY when made in bad faith.
Section 40. A representation cannot qualify an express provision in a contract of insurance, but
it may qualify an implied warranty.
Why is it that a representation cannot qualify an express provision in a contract of
insurance?

A representation cannot qualify an express provision or an express warranty in a contract of

insurance because a representation is not a part of the contract but only a collateral inducement
to it.
Examples
1)
If the policy expressly provides that the house insured is used as a warehouse, any
representation made by the insured prior to the issuance of the policy to the effect that the
house was used only as a residence is NOT a defense in the action for the recovery of the
amount of the insurance.
2)
The representation of the insured to the effect that the last time the vessel was drydocked
was six months ago would NOT qualify the implied warranty that the vessel is seaworthy.
Section 41. A representation may be altered or withdrawn before the insurance is effected, but
not afterwards.
What is the reason for this provision?
As representations induce the insurer in assuming the risk insured against and in issuing the
insurance policy, it is but logical that representations may not be altered or withdrawn after the
insurance is affected.
Section 42. A representation must be presumed to refer to the date on which the contract goes
into effect.
To what time does representation refer?
Representations refer only to the time of making the contract. We earlier said that promissory
statements of conditions that exist subsequent to the completion of the contract are conditions
or warranties and not representations (See annotations under Sec. 39). But now, we refer ONLY
to conditions represented as ALREADY EXISTING. These conditions must exist during the making
of the contract.
When is there false representation?
There is NO false representation if the representation was true at the time the contract takes
effect, although it became false at the time it was made.
There is false representation if although the representation was true at the time it was made, it
subsequently became false at the time the contract took effect.
What are the differences and similarities between a concealment and
misrepresentation?
CONCEALMENT

Insured
withholds
information
material facts from the insurer

MISREPRESENTATION
Insured makes erroneous statements of
facts with the intent of inducing the
of insurer to enter into the insurance
contract.

Materiality is determined by the same rules applied in cases of misrepresentation.

Concealment on the part of the insured has the same effect as
misrepresentation and gives the insurer the right to rescind the contract.

Whether intentional or not intentional, the injured party is entitled to rescind

the contract of insurance on ground of concealment or false representation.

Rules on concealment and representation apply likewise to the insurer since the
contracts of insurance is said to be one of utmost good faith on part of both
parties to the agreement.
Concealment of a Non-Material Fact
Category: Law on Insurance
Joanna applied for a non-medical life insurance. Joanna did not inform the insurer that one week
prior to her application for insurance, he was examined and confined at St. Lukes Hospital where
she was diagnosed for lung cancer. The insured soon thereafter died in a plane crash. Is the
insurer liable considering that the fact concealed had no bearing with the cause of death of the
insured? Why?
No. The concealed fact is material to the approval and issuance of the insurance policy. It is well
settled that the insured need not die of the disease she failed to disclose to the insurer. It is
sufficient that his nondisclosure misled the insurer in forming his estimate of the risk of the
proposed insurance policy or in making inquiries.
Insular Life vs. Ebrado
80 SCRA 181
Facts:
> Buenaventura Ebrado was issued al life plan by Insular Company. He designated Capriona as
his beneficiary, referring to her as his wife.
> The insured then died and Carponia tried to claim the proceeds of the said plan.
> She admitted to being only the common law wife of the insured.
> Pascuala, the legal wife, also filed a claim asserting her right as the legal wife. The company
then filed an action for interpleader.
Issue:
Whether or not the common law wife named as beneficiary can collect the proceeds.
Held:
NO.
The civil code prohibitions on donations made between persons guilty of adulterous concubinage
applies to insurance contracts. On matters not specifically provided for by the Insurance Law,
the general rules on Civil law shall apply. A life insurance policy is no different from a civil
donation as far as the beneficiary is concerned, since both are founded on liberality.
Why was the common law wife not ed to collect the proceeds despite the fact that she
was the beneficiary? Isnt this against Sec. 53?
It is true that SC went against Sec. 53. However, Sec. 53 is NOT the only provision that the SC
had to consider. Art. 739 and 2012 of CC prohibit persons who are guilty of adultery or
concubinage from being beneficiaries of the life insurance policies of the persons with whom
they committed adultery or concubinage. If the SC used only Sec. 53, it would have gone
against Art. 739 and 2012.
RCBC v. CA - Insurance Proceeds
289 SCRA 292 (1998)
Facts:
> GOYU applied for credit facilities and accommodations with RCBC. After due evaluation, a
credit facility in the amount of P30 million was initially granted. Upon GOYU's application
increased GOYU's credit facility to P50 million, then to P90 million, and finally to P117 million
> As security for its credit facilities with RCBC, GOYU executed two REM and two CM in favor of
RCBC, which were registered with the Registry of Deeds at. Under each of these four mortgage
contracts, GOYU committed itself to insure the mortgaged property with an insurance company
approved by RCBC, and subsequently, to endorse and deliver the insurance policies to RCBC.
> GOYU obtained in its name a total of 10 insurance policies from MICO. In February 1992,
Alchester Insurance Agency, Inc., the insurance agent where GOYU obtained the Malayan

insurance policies, issued nine endorsements in favor of RCBC seemingly upon instructions of
GOYU
> On April 27, 1992, one of GOYU's factory buildings in Valenzuela was gutted by fire.
Consequently, GOYU submitted its claim for indemnity.
> MICO denied the claim on the ground that the insurance policies were either attached
pursuant to writs of attachments/garnishments issued by various courts or that the insurance
proceeds were also claimed by other creditors of GOYU alleging better rights to the proceeds
than the insured.
> GOYU filed a complaint for specific performance and damages. RCBC, one of GOYU's
creditors, also filed with MICO its formal claim over the proceeds of the insurance policies, but
said claims were also denied for the same reasons that AGCO denied GOYU's claims.
> However, because the endorsements do not bear the signature of any officer of GOYU, the
trial court, as well as the Court of Appeals, concluded that the endorsements are defective and
held that RCBC has no right over the insurance proceeds.
Issue:
Whether or not RCBC has a right over the insurance proceeds.
Held:
RCBC has a right over the insurance proceeds.
It is settled that a mortgagor and a mortgagee have separate and distinct insurable interests in
the same mortgaged property, such that each one of them may insure the same property for his
own sole benefit. There is no question that GOYU could insure the mortgaged property for its own
exclusive benefit. In the present case, although it appears that GOYU obtained the subject
insurance policies naming itself as the sole payee, the intentions of the parties as shown by their
contemporaneous acts, must be given due consideration in order to better serve the interest of
justice and equity.
It is to be noted that 9 endorsement documents were prepared by Alchester in favor of RCBC.
The Court is in a quandary how Alchester could arrive at the idea of endorsing any specific
insurance policy in favor of any particular beneficiary or payee other than the insured had not
such named payee or beneficiary been specifically disclosed by the insured itself. It is also
significant that GOYU voluntarily and purposely took the insurance policies from MICO, a sister
company of RCBC, and not just from any other insurance company. Alchester would not have
found out that the subject pieces of property were mortgaged to RCBC had not such information
been voluntarily disclosed by GOYU itself. Had it not been for GOYU, Alchester would not have
known of GOYU's intention of obtaining insurance coverage in compliance with its undertaking in
the mortgage contracts with RCBC, and verify, Alchester would not have endorsed the policies to
RCBC had it not been so directed by GOYU.
On equitable principles, particularly on the ground of estoppel, the Court is constrained to rule in
favor of mortgagor RCBC. RCBC, in good faith, relied upon the endorsement documents sent to it
as this was only pursuant to the stipulation in the mortgage contracts. We find such reliance to
be justified under the circumstances of the case. GOYU failed to seasonably repudiate the
authority of the person or persons who prepared such endorsements. Over and above this, GOYU
continued, in the meantime, to enjoy the benefits of the credit facilities extended to it by RCBC.
After the occurrence of the loss insured against, it was too late for GOYU to disown the
endorsements for any imagined or contrived lack of authority of Alchester to prepare and issue
said endorsements. If there had not been actually an implied ratification of said endorsements by
virtue of GOYU's inaction in this case, GOYU is at the very least estopped from assailing their
operative effects.
To permit GOYU to capitalize on its non-confirmation of these endorsements while it continued to
enjoy the benefits of the credit facilities of RCBC which believed in good faith that there was due
endorsement pursuant to their mortgage contracts, is to countenance grave contravention of
public policy, fair dealing, good faith, and justice. Such an unjust situation, the Court cannot
sanction. Under the peculiar circumstances obtaining in this case, the Court is bound to

recognize RCBC's right to the proceeds of the insurance policies if not for the actual endorsement
of the policies, at least on the basis of the equitable principle of estoppel.
GOYU cannot seek relief under Section 53 of the Insurance Code which provides that the
proceeds of insurance shall exclusively apply to the interest of the person in whose name or for
whose benefit it is made. The peculiarity of the circumstances obtaining in the instant case
presents a justification to take exception to the strict application of said provision, it having been
sufficiently established that it was the intention of the parties to designate RCBC as the party for
whose benefit the insurance policies were taken out. Consider thus the following:
1.
It is undisputed that the insured pieces of property were the subject of mortgage contracts
entered into between RCBC and GOYU in consideration of and for securing GOYU's credit facilities
from RCBC. The mortgage contracts contained common provisions whereby GOYU, as mortgagor,
undertook to have the mortgaged property properly covered against any loss by an insurance
company acceptable to RCBC.
2.
GOYU voluntarily procured insurance policies to cover the mortgaged property from MICO,
no less than a sister company of RCBC and definitely an acceptable insurance company to RCBC.
3.
Endorsement documents were prepared by MICO's underwriter, Alchester Insurance
Agency, Inc., and copies thereof were sent to GOYU, MICO and RCBC. GOYU did not assail, until of
late, the validity of said endorsements.
4.
GOYU continued until the occurrence of the fire, to enjoy the benefits of the credit facilities
extended by RCBC which was conditioned upon the endorsement of the insurance policies to be
taken by GOYU to cover the mortgaged properties.
This Court can not over stress the fact that upon receiving its copies of the endorsement
documents prepared by Alchester, GOYU, despite the absence written conformity thereto,
obviously considered said endorsement to be sufficient compliance with its obligation under the
mortgage contracts since RCBC accordingly continued to extend the benefits of its credit facilities
and GOYU continued to benefit therefrom. Just as plain too is the intention of the parties to
constitute RCBC as the beneficiary of the various insurance policies obtained by GOYU. The
intention of the parties will have to be given full force and effect in this particular case. The
insurance proceeds may, therefore, be exclusively applied to RCBC, which under the factual
circumstances of the case, is truly the person or entity for whose benefit the policies were clearly
intended.
What is the test of materiality?
Category: Law on Insurance
It is determined not by the event, but solely by the probable and reasonable influence of the
facts upon the party to whom the communication is due, in forming his estimate of the
advantages of the proposed contract, or in making his inquiries. (Sec. 31)
Test of Materiality in Insurance
Section 31. Materiality is to be determined not by the event, but solely by the probable and
reasonable influence of the facts upon the party to whom the communication is due, in forming
his estimate of the disadvantages of the proposed contract, or in making his inquiries.
What is the test of materiality?
The test is simply: IF the knowledge of a fact would cause the insurer to reject the risk , or to
accept it only at a higher premium rate, that fact is material, though it may not even remotely
contribute to the contingency upon which the insurer would become liable, or in any wise affect
the risk.
What is the principal question that must be asked?
The principal question in determining whether the concealment is material is: Was the insurer
misled or deceived into entering a contract, obligation or in fixing the premium of insurance by a
withholding of material information or facts within the insureds actual or presumed

knowledge? If so, then the contract is avoided, even if the cause of the loss which subsequently
occurred be unconnected with the fact concealed.
What is marine insurance?
Insurance against risks connected with navigation, to which a ship, cargo, freightage, profits or
other insurable interest in movable property, may be exposed during a certain voyage or fixed
period of time.
What is the effect if unseaworthiness is unknown to the owner of the cargo?
It is immaterial in ordinary marine insurance and may not be used by him as a defense in order
to recover on the marine insurance policy. It becomes the obligation of a cargo owner to look for
a reliable common carrier, which keeps its vessels in seaworthy conditions. The shipper may
have no control over the vessel but he has control in the choice of the common carrier that will
transport his goods. (Roque v. IAC, G.R. No. L-66935, Nov. 11, 1985)
Roque v. IAC,
Inchamaree Clause
Category: Law on Insurance
Inchamaree clause a clause which makes the insurer liable for loss or damage to the hull or
machinery arising from the:
a. Negligence of the captain, engineers, etc.
b. Explosion, breakage of shafts; and
c. Latent defect of machinery or hull. (Thames and Mersey Marine Insurance Co v. Hamilton
Fraser and Co [1887] 12 AC 484)
What is the risk insured against in marine insurance?
General Rule: Only perils of the sea is insured against.
Exception: Unless perils of the ship are covered by an all-risks policy.
What is an all risks marine insurance policy?
General Rule:
It is that which insures against all causes of conceivable loss or damage.
Exception:
1. As otherwise excluded in the policy; or
2. Due to fraud or intentional misconduct on the part of the insured. (Choa Tiek v. CA, G.R. No.
84507, Mar. 15, 1990) This type of policy grants greater protection than that afforded by the
perils clause.
Marine insurance includes:
1. Insurance against loss or damage to:
a. Vessels, goods, freight, cargo, merchandise, profits, money, valuable papers, bottomry and
respondentia, and interest in respect to all risks or perils of navigation;
b. Persons or property in connection with marine insurance;
c. Precious stones, jewels, jewelry and precious metals whether in the course of transportation or
otherwise; and
d. Bridges, tunnels, piers, docks and other aids to navigation and transportation (Sec. 99)
Note: Cargo can be the subject of marine insurance, and once it is entered into, the implied
warranty of seaworthiness immediately attaches to whoever is insuring the cargo, whether he be
the ship owner or not. (Roque v. IAC, G.R. No. L-66935, Nov. 11, 1985)
2. Marine protection and Indemnity insurance which means insurance against, or
against legal liability of the insured for loss, damage, or expense incident to

ownership, operation, chartering, maintenance, use, repair, or construction of any

vessel, craft or instrumentality in use of ocean or inland waterways, including liability
of the insured for personal injury, illness or death or for loss of or damage to the
property of another person. (Sec. 99) Measure of indemnity:
a. Valued policy the parties are bound by the valuation, if the insured had some interest at risk
and there is no fraud (Sec. 156)
b. Open policy the following rules shall apply in estimating a loss: i. value of the ship- value at
the beginning of the risk ii. value of the cargo- actual cost when laden on board or market value
at the time and place of lading iii. value of freightage- gross freightage exclusive of primage iv.
cost of insurance in each case to be added to the estimated value (Sec. 161)
Right to Subrogation
Category: Law on Insurance
Company X procured an open-policy marine insurance from Y Insurance, a foreign corporation.
The insurance was for a transshipment of certain wooden work tools and workbenches purchased
for consignee Z. The cargo, packed inside one container van was shipped from Hamburg,
Germany en route to Manila, Philippines. The ship arrived and docked where cargo was received
by Aboitiz Shipping Corporation, thereafter it issued a bill of lading containing a notation
grounded outside warehouse. It was then shipped to Cebu City and was released to Z. Two days
after its release, Aboitiz received a call from Z informing it that the cargo sustained water
damage. Z then informed the Philippine office of Y Insurance for insurance claims. Y Insurance
got an official weather report from PAGASA, it would appear that heavy rains caused water
damage to the shipment, noticeably the shipment was placed outside the warehouse of Aboitiz
based on the bill of lading containing an notation grounded outside the warehouse. Aboitiz
refused to settle the claim, Y Insurance paid the amount of Php 280, 176.92 to consignee Z, and
a subrogation receipt was thereafter signed.
A case for collection of actual damages with interest and attorneys fees was filed with RTC.
Aboitiz disavowed any liability and asserted that the claim had no factual and legal bases, and
that complaint had no cause of action, plaintiff Y Insurance had no personality to sue, cause of
action was barred, suit was premature there being no claim made upon Aboitiz. RTC rendered
decision against Y Insurance and case was elevated to CA, which reversed RTC decision. Case
was then elevated to SC.
ISSUES:
a. Is Respondent Y Insurance the real party-in-interest that possesses the right of subrogation to
claim reimbursement from Aboitiz?
b. Is this right to subrogation an absolute right?
RESOLUTION:
a. YES. A foreign corporation not licensed to do business in the Philippines is not absolutely
incapacitated from filing a suit in local courts. Only when that foreign corporation is transacting
or doing business in the country will a license be necessary before it can institute suits. It may,
however, bring suits on isolated business transactions, which is not prohibited under Philippine
law. Thus, this Court has held that a foreign insurance company may sue in the Philippine courts
upon the marine insurance policies issues by it abroad to cover international-bound cargoes
shipped by a Philippine carrier, even if it has no license to do business in this country. It is the act
of engaging in business without the prescribed license, and not the lack of license per se, which
bars a foreign corporation from access to our courts. Thus, the payment by the insurer to the
assured operates as an equitable assignment of all remedies the assured may have against the
third party who caused the damage. Subrogation is not dependent upon, nor does it grow out of,
any privity of contract or upon written assignment of claim. It accrues simply upon payment of

the insurance by the insurer. (Aboitiz Shipping Corporation vs. Insurance Company of North
America, G.R. No. 168402, August6, 2008, [Reyes, R.T.,J.])
b. NO. This Right of Subrogation has its limitations, to wit:
1. Both the insurer and the consignee are bound by the contractual stipulations under the bill of
lading;
2. The insurer can be subrogated only to the rights as the insured may have against the
wrongdoer.
Pacific Timber v. CA
112 SCRA 199
Facts:
> On March 13, 1963, Pacific secured temporary insurance from the Workemens Insurance Co.
for its exportation of logs to Japan. Workmen issued on said date Cover Note 1010 insuring said
cargo.
> The regular marine policies were issued by the company in favor of Pacific on Apr 2, 1963.
The 2 marine policies bore the number 53H01032 and 53H01033.
> After the issuance of the cover note but BEFORE the issuance of the 2 policies, some of the
logs intended to be exported were lost due to a typhoon.
> Pacific filed its claim with the company, but the latter refused, contending that said loss may
not be considered as covered under the cover note because such became null and void by virtue
of the issuance of the marine policies.
Issue:
Whether or not the cover not was without consideration, thus null and void.
Held:
It was with consideration.
SC upheld Pacifics contention that said cover not was with consideration. The fact that no
separate premium was paid on the cover note before the loss was insured against occurred does
not militate against the validity of Pacifics contention, for no such premium could have been
paid, since by the nature of the cover note, it did not contain, as all cover notes do not contain,
particulars of the shipment that would serve as basis for the computation of the premiums. As a
logical consequence, no separate premiums are required to be paid on a cover note.
If the note is to be treated as a separate policy instead of integrating it to the regular policies
subsequently issued, its purpose would be meaningless for it is in a real sense a contract, not a
mere application.
ROQUE VS. INTERMEDIATE APPELLATE COURT
Read more in Autos
Delsan Transport Lines, INC. vs.. Court of Appeals
Magellan Mftg. Marketing Corp. vs.. Court of Appeals
139 SCRA 596 (G.R. No. L-66935)
November 11, 1985
Petitioner:
Isabela Roque, doing busines under the name and style of Isabela Roque Timber
Enterprises and Ong Chiong
Respondent:
Intermediate Appelate Court and Pioneer Insurance And Surety Corporation
J. Gutierrez, Jr.:
FACTS:
Manila Bay Lighterage Corporation (Manila Bay) a common carrier, entered into a contract with
petitioners whereby the former would load and cary on board its barge Marble 10 about 422.18
cubic meters of logs from Malampaya Sound, Palawan to North Harbor Manila. The petitioners
insured the logs against loss for 100,000.00 with respondent Pioneer Insurance and Surety
Corporation (Pioneer).

The petitioner loaded on the barge, 811 pieces of logs at Malampaya Sound, Palawan for carriage
and delivery to North Harbor, Port of Manila, but the shipment never reached its destination
because Marble 10 sank with the 811 pieces of logs somewhere off Cabuli Point in Palawan on its
way to Manila. As alleged by the petitioners in their complaint and as found by both the trial and
appellate courts, the barge where the logs were loaded was not seaworthy such that it developed
a leak. The appellate court further found that one of the hatches was left open causing water to
enter the barge and because the barge was not provided with the necessary cover or tarpauline,
the ordinary splash of seawaves brought more water inside the barge.
Respondent ignored the petitioner demand for payment of 150,000.00 for the loss of the
shipment plus 100,000.00 as unrealized profits.
Respondent Pioneer denied the claim of petitioner for the full amount of 100,000.00 on the
ground that its liability depended upon the total loss of vessel only.
The trial court decided in favor of the plaintiff (petitioner).
The appellate court modified the trial courts decision and absolved Pioneer from liability after
finding that there was a breach of implied warranty of seaworthiness on the part of the
petitioners and that the loss of the insured cargo was caused by the perils of the ship and not
by the perils of sea. It ruled that the loss is not covered by the marine insurance policy.
ISSUE:
Whether or not the implied warranty of seaworthiness in marine insurance attaches to the
shipper who is not the shipowner.
HELD:
Section 113 of the Insurance Code provides:
In every marine insurance upon a ship or freight, or freightage, or upon any thing which is the
subject of marine insurance, a warranty is implied that the ship is seaworthy.
Section 99 of the same Code also provides in part.
Marine insurance includes:
(1) Insurance against loss of or damage to:
(a) Vessels, craft, aircraft, vehicles, goods, freights, cargoes, merchandise,
From the above-quoted provisions, there can be no mistaking the fact that the term cargo can
be the subject of marine insurance and that once it is so made, the implied warranty of
seaworthiness immediately attaches to whoever is insuring the cargo whether he be the
shipowner or not.
Moreover, the fact that the unseaworthiness of the ship was unknown to the insured is
immaterial in ordinary marine insurance and may not be used by him as a defense in order to
recover on the marine insurance policy.
Since the law provides for an implied warranty of seaworthiness in every contract of ordinary
marine insurance, it becomes the obligation of a cargo owner to look for a reliable common
carrier which keeps its vessels in seaworthy condition. The shipper of cargo may have no control
over the vessel but he has full control in the choice of the common carrier that will transport his
goods. Or the cargo owner may enter into a contract of insurance which specifically provides that
the insurer answers not only for the perils of the sea but also provides for coverage of perils of
the ship.
There is no doubt that the term perils of the sea extends only to losses caused by sea damage,
or by the violence of the elements, and does not embrace all losses happening at sea. They
insure against losses from extraordinary occurrences only, such as stress of weather, winds and
waves, lightning, tempests, rocks and the like. These are understood to be the perils of the sea
referred in the policy, and not those ordinary perils which every vessel must encounter. Perils of
the sea has been said to include only such losses as are of extraordinary nature, or arise from
some overwhelming power, which cannot be guarded against by the ordinary exertion of human
skill and prudence. Damage done to a vessel by perils of the sea includes every species of
damages done to a vessel at sea, as distinguished from the ordinary wear and tear of the
voyage, and distinct from injuries suffered by the vessel in consequence of her not being
seaworthy at the outset of her voyage (as in this case). It is also the general rule that everything
which happens thru the inherent vice of the thing, or by the act of the owners, master or shipper,
shall not be reputed a peril, if not otherwise borne in the policy.

On the contention of the petitioners that the trial court found that the loss was occasioned by the
perils of the sea characterized by the storm and waves which buffeted the vessel, the records
show that the court ruled otherwise. It stated: x x x The other affirmative defense of defendant
Lighterage, That the supposed loss of the logs was occasioned by force majeure was not
supported by the evidence. At the time Mable 10 sank, there was no typhoon but ordinary strong
wind and waves, a condition which is natural and normal in the open sea. The evidence shows
that the sinking of Mable 10 was due to improper loading of the logs on one side so that the
barge was tilting on one side and for that it did not navigate on even keel; that it was no longer
seaworthy that was why it developed leak; that the personnel of the tugboat and the barge
committed a mistake when it turned loose the barge from the tugboat east of Cabuli point where
it was buffeted by storm and waves, while the tugboat proceeded to west of Cabuli point where it
was protected by the mountain side from the storm and waves coming from the east direction. x
x x
lt must be considered to be settled, furthermore, that a loss which, in the ordinary course of
events, results from the natural and inevitable action of the sea, from the ordinary wear and tear
of the ship, or from the negligent failure of the ships owner to provide the vessel with proper
equipment to convey the cargo under ordinary conditions, is not a peril of the sea. Such a loss is
rather due to what has been aptly called the peril of the ship. The insurer undertakes to insure
against perils of the sea and similar perils, not against perils of the ship. As was well said by Lord
Herschell in Wilson, Sons & Co. v. Owners of Cargo per the Xantho ([1887], 12 A. C., 503, 509),
there must, in order to make the insurer liable, be some casualty, something which could not be
foreseen as one of the necessary incidents of the adventure. The purpose of the policy is to
secure an indemnity against accidents which may happen, not against events which must
happen.
Barratry as defined in American Insurance Law is any willful misconduct on the part of master or
crew in pursuance of some unlawful or fraudulent purpose without the consent of the owners,
and to the prejudice of the owners interest, (Sec. 171, U.S. Insurance Law, quoted in Vance,
Handbook on Law of Insurance, 1951, p. 929.) Barratry necessarily requires a willful and
intentional act in its commission. No honest error of judgment or mere negligence, unless
criminally gross, can be barratry. (See Vance on Law of Insurance, p. 929 and cases cited
therein.)
In the case at bar, there is no finding that the loss was occasioned by the willful or fraudulent
acts of the vessels crew. There was only simple negligence or lack of skill. Hence, the second
assignment of error must likewise be dismissed.
What vessels are contemplated in marine insurance?
Those used, or at least, intended for navigation. E.g., one for shipping, chartering, voyage and
the like. Vessels which are used as museums or those that are stationary are not entitled to be
insured under this a marine insurance.
Gonzalez Lao v. Yek Tong Lin Fire & Marine Insurance - Insurance Premiums
55 PHIL 386
Facts:
> Gonzales was issued 2 fire insurance policies by Yek for 100T covering his leaf tobacco
prducts.
> They were stored in Gonzales building on Soler St., which on Jan. 11, 1928, burned down.
> Art. 3 of the Insurance policies provided that: Any insurance in force upon all or part of the
things unsured must be declared in writing by the insured and he (insured) should cause the
company to insert or mention it in the policy. Without such requisite, such policy will be regarded
as null and void and the insured will be deprived of all rights of indemnity in case of loss.
> Notwithstanding said provision, Gonzales entered into other insurance contracts. When he
sought to claim from Yek after the fire, the latter denied any liability on the ground of violation of
Art. 3 of the said policies.

> Gonzales however proved that the insurer knew of the other insurance policies obtained by
him long efore the fire, and the insurer did NOT rescind the insurance polices in question but
demanded and collected from the insured the premiums.
Issue:
Whether or not Yek is still entitled to annul the contract.
Held:
NO.
The action by the insurance company of taking the premiums of the insured notwithstanding
knowledge of violations of the provisions of the policies amounted to waiver of the right to annul
the contract of insurance.
Communication in Good Faith of All Material Facts - Contract of Insurance
Section 28.
Each party to a contract of insurance must communicate to the other, in good
faith, all facts within his knowledge which are material to the contract and as to which he makes
no warranty, and which the other has not the means of ascertaining.
According to Sec. 28, what are the matters that must be communicated by the party
to the other?
This section makes it the duty of each party to a contract of insurance to communicate in good
faith all facts that are material to the contract within his knowledge when:
1.
the party with the duty to communicate makes no warranty; and
2.
the other party has no means of ascertaining the facts
Any exceptions to the duty to communicate?
Those falling under Sec. 30.
What is the test to determine whether or not one must communicate the facts to the
other party?
The test is: If the applicant is aware of the existence of some circumstance which he knows
would influence the insurer in acting upon his application, GOOD FAITH requires him to disclose
that circumstance, though unasked.
Problem.
If A consulted Dr. B for treatment of syphilis and gonorrhea when must A disclose the fact?
He must disclose such fact even if not inquired into, if such fact is material to the risk assumed
by the insurer.
In the problem above, how will A know if the fact is material or not?
The fact must be related to the insurance applied for. In the above example, such fact is
material in cases of life or health insurance and may even be material up to a certain extent for
accident insurance. It is far-fetched to require disclosing such information if he is applying for
fire or marine insurance.
What if the insurer with reasonable diligence could have known or discovered such
facts for himself, can the Insured be excused for his concealment and deny the
remedy of rescission to the insurer?
NO. The effect of the material concealment cannot be avoided by the allegation that the insurer
could have known and discovered a fact which the insured had concealed. An allegation like this
implies that there is an obligation on the part of the insurance company to verify all the
statements made by the insured in his application. No such obligation exists on the part of the
insurer. The insurer has the right to rely upon the statements of the insured for he knows the
facts and the insurer does not.
What is deemed material?
See sec. 31.

Filipino Merchants v. CA- Insurable Interest

179 SCRA 638
Facts:
> The Chao Tiek Seng a consignee of the shipment of fishmeal loaded on board the vessel SS
Bougainville and unloaded at the Port of Manila on or about December 11, 1976 and seeks to
recover from Filipino the amount of P51,568.62 representing damages to said shipment which
has been insured by Filipino.
> Filipino brought a third party complaint against Compagnie Maritime Des Chargeurs Reunis
and/or E. Razon, Inc. seeking judgment against the third party defendants in case judgment is
rendered against it.
> It appears from the evidence presented that Chao insured said shipment with Filipino for the
sum of P267,653.59 for the goods described as 600 metric tons of fishmeal in gunny bags of 90
kilos each from Bangkok, Thailand to Manila against all risks under warehouse to warehouse
terms.
> Actually, what was imported was 59.940 metric tons not 600 tons at $395.42 a ton.
> The fishmeal in 666 gunny bags were unloaded from the ship on December 11, 1976 at Manila
unto the arrastre contractor E. Razon, Inc. and Filipinos surveyor ascertained and certified that in
such discharge 105 bags were in bad order condition as jointly surveyed by the ship's agent and
the arrastre contractor.
> Based on said computation the Chao made a formal claim against the Filipino for P51,568.62.
A formal claim statement was also presented by the plaintiff against the vessel, but the Filipino
refused to pay the claim.
Issues & Resolutions:
Filipino contends that an "all risks" marine policy has a technical meaning in insurance in that
before a claim can be compensable it is essential that there must be "some fortuity," "casualty"
or "accidental cause" to which the alleged loss is attributable and the failure of herein private
respondent, upon whom lay the burden, to adduce evidence showing that the alleged loss to the
cargo in question was due to a fortuitous event precludes his right to recover from the insurance
policy.
SC did not uphold this contention. An "all risks policy" should be read literally as meaning all risks
whatsoever and covering all losses by an accidental cause of any kind. The terms "accident" and
"accidental", as used in insurance contracts, have not acquired any technical meaning. They are
construed by the courts in their ordinary and common acceptance. Thus, the terms have been
taken to mean that which happens by chance or fortuitously, without intention and design, and
which is unexpected, unusual and unforeseen. An accident is an event that takes place without
one's foresight or expectation; an event that proceeds from an unknown cause, or is an unusual
effect of a known cause and, therefore, not expected.
Coverage under an "all risks" provision of a marine insurance policy creates a special type of
insurance which extends coverage to risks not usually contemplated and avoids putting upon the
insured the burden of establishing that the loss was due to the peril falling within the policy's
coverage; the insurer can avoid coverage upon demonstrating that a specific provision expressly
excludes the loss from coverage. A marine insurance policy providing that the insurance was to
be "against all risks" must be construed as creating a special insurance and extending to other
risks than are usually contemplated, and covers all losses except such as arise from the fraud of
the insured. The burden of the insured, therefore, is to prove merely that the goods he
transported have been lost, destroyed or deteriorated. Thereafter, the burden is shifted to the
insurer to prove that the loss was due to excepted perils. To impose on the insured the burden of
proving the precise cause of the loss or damage would be inconsistent with the broad protective
purpose of "all risks" insurance.
In the present case, there being no showing that the loss was caused by any of the excepted
perils, the insurer is liable under the policy

Filipino contends that Chao does not have insurable interest, being only a consignee of the
goods.
Anent the issue of insurable interest, SC upheld the ruling of the CA that Chao, as consignee of
the goods in transit under an invoice containing the terms under "C & F Manila," has insurable
interest in said goods.
Section 13 of the Insurance Code defines insurable interest in property as every interest in
property, whether real or personal, or any relation thereto, or liability in respect thereof, of such
nature that a contemplated peril might directly damnify the insured. In principle, anyone has an
insurable interest in property who derives a benefit from its existence or would suffer loss from
its destruction whether he has or has not any title in, or lien upon or possession of the property.
Insurable interest in property may consist in (a) an existing interest; (b) an inchoate interest
founded on an existing interest; or (c) an expectancy, coupled with an existing interest in that
out of which the expectancy arises.
Chao, as vendee/consignee of the goods in transit has such existing interest therein as may be
the subject of a valid contract of insurance. His interest over the goods is based on the perfected
contract of sale. The perfected contract of sale between him and the shipper of the goods
operates to vest in him an equitable title even before delivery or before he performed the
conditions of the sale. The contract of shipment, whether under F.O.B., C.I.F., or C. & F. as in this
case, is immaterial in the determination of whether the vendee has an insurable interest or not in
the goods in transit. The perfected contract of sale even without delivery vests in the vendee an
equitable title, an existing interest over the goods sufficient to be the subject of insurance
What is a cover note?
The cover note is merely a written memorandum of the most important terms of the preliminary
contract of insurance, intended to give temporary protection pending the investigation of the risk
by the insurer, or until the issuance of a formal policy, provided that it is later determined that
the applicant was insurable at the time it was given.
By its nature, it is subject to all conditions in the policy expected even though that policy may
never issue. In life insurance, where an agreement is made between an applicant and the
insurers agent, no liability shall attach until the insurer approves the risk. Thus, in life
insurance, a binding slip or binding receipt DOES NOT insure itself.
Can you explain a preliminary executory contract of insurance?
By a preliminary executory contract of insurance, the insurer makes a contract to insure the
subject matter at some subsequent time which may be definite or indefinite. Under such an
executory contract, the right acquired by the insured is merely to demand the delivery of the
policy in accordance with the terms agreed upon and the obligation assumed by the insurer is to
deliver the said policy.

What are the rules governing cover notes?

1)
Insurance companies doing business in the Philippines may issue cover notes to bind
insurance temporarily pending the issuance of the policy
2)
A cover not shall e deemed to be a contract of insurance within the meaning of Sec. 1(1)
of IC.
3)
NO cover note shall be issued or renewed unless in the form previously approved by the
Insurance Commission.

4)
A cover not shall be valid and binding for a period NOT exceeding 60 days from the date of
its issuance, whether or not the premium therefore has been paid or not, BUT such cover note
may be canceled by either party upon at least 7 days notice to the other party.
5)
If a cover not is not so canceled, a policy of insurance shall, within 60 days after the
issuance of the cover not be issued in lieu thereof. Such policy shall include within its terms the
identical insurance bound under the cover note and the premiums therefore.
6)
A cover note may be extended or renewed beyond the aforementioned period of 60 days
with the written approval of the Insurance Commissioner, provided that such written approval
may be dispensed with upon the certification of the Pres, VP or General Mgr of the Insurance
company concerned, that the risks involved, the values of such risks, and the premiums
therefore have not as yet been determined or established and that such extension or renewal is
NOT contrary to and is not for the purpose of violating any provision of the Insurance Code.
7)
The insurance companies may impose on cover notes a deposit premium equivalent to at
least 25% of the estimated premium of the intended insurance coverage but in no case less than
P500.
Binding Receipt
What is a binding receipt according to Glora v. Philamlife?
A binding receipt or slip is ordinarily a document, slip or memorandum given to the insured,
which binds the insurance company to pay insurance should a loss occur pending action upon
the application and actual issuance of a policy.
The purpose of a binder is to provide temporary insurance pending an inquiry by the insurer as to
the character of the risk and to take the place of the policy until the latter can be issued.
The issuance of a binder evidences, a complete, temporary or preliminary contract of insurance
effective from that time until the issuance of the formal policy or until rejection of the risk. Under
a life policy, it would establish liability upon the insurer if death occurred prior to the issuance of
the policy.
A binder receipt would be misnamed if it does NOT bind the insurer. If the insurer issues a binder
receipt with terms which will negate, or neutralize the binding result of the receipt, then the
insurer would have actually practiced fraud on the applicant for insurance.
What are the kinds of insurable risks?
1)
Personal risks life or health risks
2)
Property risks loss or damage to property
3)
Liability risks involve liability of the insured for an injury caused to the person or property
of another
What are the requirements in order that a risk be insurable?
1)
The loss to be insured against must be important enough to warrant the existence of an
insurance contract
2)
Risk must permit a reasonable statistical estimate of the chance of loss in order to
determine the amount of premium to be paid
3)
The loss should be definite as to cause, time, place and amount
4)
The loss is not catastrophic
5)
Risk is accidental in nature
Perils or Risks That May Be Insured
The following risks may be insured:
Any contingent or unknown event whether past or future which may cause damage to a person
having an insurable interest; or
Any contingent or unknown event, whether past or future, which may create liability against the
person insured.

May a married woman take out an insurance? If so, on what?

Yes. A married woman may take out an insurance on her life or that of her children even without
the consent of her husband. She may likewise take out an insurance on the life of her husband,
her paraphernal property, or on property given to her by her husband.
May a minor take out an insurance?
Third par of Sec. 3 is no longer applicable, since the age of majority is now 18 years old (RA
8809, Dec. 13, 1989).
Section 3 Insurance Code:
Any contingent or unknown event, whether past or future, which may damnify a person having
an insurable interest, or create a liability against him, may be insured against, subject to the
provisions of this chapter.
The consent of the husband is not necessary for the validity of an insurance policy taken out by
the married woman on her life or that of her children.
Any minor of the age of eighteen years or more, may notwithstanding such minority, contract for
life, health and accident insurance, with any insurance company duly authorized to do business
in the Philippines, provided the insurance is taken on his own life and the beneficiary appointed is
the minors estate or the minors father, mother, husband, wife, child, brother or sister.
The married woman or the minor herein allowed to take out an insurance policy may exercise all
the rights and privileges of an owner under a policy.
All rights, title and interest in the policy of insurance taken out by an original owner on the life or
health of a minor shall automatically vest in the minor upon the death of the original owner,
unless otherwise provided in the policy.
Related Provisions:
Art. 1174 (NCC). Except in cases expressly specified by the law, or when it is otherwise declared
by stipulation, or when the nature of the obligation requires the assumption of risk, no person
shall be responsible for those events which, could not be foreseen, or which, though foreseen,
were inevitable.
Art. 110 (FC). The spouses retain the ownership, possession, administration and enjoyment of
their exclusive properties.
Either spouse may during the marriage, transfer the administration of his or her exclusive
property to the other by means of a public instrument, which shall be recorded in the registry of
property of the place where the property is located.
Art. 1327 (NCC). The following cannot give consent to a contract:
(1) Unemancipated minors;
(2) Insane or demented persons, and deaf-mutes who do not know how to write.
Art. 1390 (NCC). The following contracts are voidable or annullable, even though there may
have been no damage to the contracting parties:
(1) Those where one of the parties is incapable of giving consent to a contract;
(2) Those where the consent is vitiated by mistake, violence, intimidation, undue influence or
fraud.
These contracts are binding, unless they are annulled by a proper action in court. They are
susceptible of ratification.
Problem:

A, wanted to open a medicinal herb shop. He placed a long distance phone call to Taiwan and
talked to an exporter who willingly agreed to consign several tons of ginsengs with him on the
condition that he will come and pick the goods up. A then sent 5 of his cargo vessels to Taiwan.
The ships left on August 9. On August 14, A insured the 5 vessels against perils of the South
China Sea Lost or Not Lost with B Insurance Co. Without the knowledge of both parties, the
ships had already sunk on Aug. 14. Is B Insurance Co. liable for the ships?
Yes. This is an example of a past unknown event because the sinking of the ship is a past event
at the time that the policy took effect. The contract is valid and B Insurance Co. is liable because
he agreed to pay even though the ship be already lost. An insurance against an unknown past
event is peculiar only to marine insurance. However, Atty. Quimson said in class that nowadays,
most if not all insurance companies no longer insure a past event since technology has
progressed in such a manner that a ships current status can easily be known while the
application is being processed.
What are pre-need plans?
They are contracts which provide for the performance of future services of the payment of future
monetary considerations at the time of actual need, for which planholders pay in cash or
installment at stated prices, with or without interest or insurance coverage and includes life,
pension, education, interment, and other plans which the Commission may from time to time
approve. (Sec. 3.9. R.A. 8799)
Garcia v. HongKong Fire and Marine Insurance Co. - Wrong Policy
45 PHIL 122
Facts:
> Garcia had his merchandise insured by Hongkong Fire and Marine Insurance Co.
> The insurance company however made a mistake and issued a policy covering the building
where the merchandise was stored. (The building was not owned by Garcia)
> The policy was written in English, of which Garcia was ignorant, so he could not have noticed
the error of the insurance company.
> Said policy was later on assigned by Garcia to PNB to secure a loan. PNB acknowledged
receipt of said policy, referring to it as a policy covering the merchandise.
> The insurance company made the necessary endorsements to PNB.
> The building which housed the merchandise was later razed by fire. The insurance company
refused to pay due to the fact that the policy indicates insurance on the building and not on the
merchandise.
Issue:
Whether or not Garcia can collect.
Held:
YES.
The defense of the insurer is purely technical. The mistake was obviously on the part of the
insurer when it issued a wrong policy. It cannot deny such allegation due to the fact that it even
confirmed with PNB the nature of said policy when it was endorsed. Garcia could not have
noticed the mistake due to his ignorance of the English language.
Fieldmans Insurance v. Songco - Disclosure of Material Facts in Insurance
25 SCRA 70
Facts:
> In 1960, Sambat, an agent of Fieldmans Insurance, induced Songco, a man of scant education
to enter into a common carrier insurance contract with Fieldman.
> During the inducement, a son of Songco butted in and said that they could not accept the
type of insurance offered because theirs was an owner-type jeepney and not a common carrier.
> Sambat answered that it did not matter because the insurance company was not owned by
the government and therefore had nothing to do with rules and regulations of the latter
(Fieldman).

> The insurance was executed and approved for a year from Sept. 1960-1961. It was renewed
in 1961 for another year.
> In Oct. 1961, the jeepney collided with a car in Bulacan and as a result, Sonco died. The
remaining members of the family claimed the proceeds of the insurance with the company but it
refused to pay on the ground that the vehicle was not a common carrier.
Issue:
Whether or not the Songcos can claim the insurance proceeds despite the fact that the vehicle
concerned was an owner and not a common carrier.
Held:
Yes.
The company is estopped from asserting that the vehicle was not covered. After it had led
Federico Songco to believe that he could qualify under the common carrier liability insurance
policy, and to enter into a contract of insurance paying the premiums due, it could not thereafter
be permitted to change its stand to the detriment of the heirs of the insured. It knew all along
that Frederico owned a private vehicle. Its agent Sambat twice exerted the utmost pressure on
the insured, a man of scant education, and the company did not object to this.
Gercio v. Sun Life - Insurance Beneficiary
48 PHIL 53
Facts:
> Sunlife issued a life insurance policy to Gercio, the former agreeing to insure the life of Gercio
for 2T to be paid to him on Feb. 1, 1930 or if he should die before said date, then to his wife
Andrea, should she survive him; otherwise to the executor, administrator of Gercio.
> The policy did not include any provision reserving to Gercio the right to change the
beneficiary.
> The wife was convicted of adultery and a decree of divorce was issued.
> Gercio notified Sunlife that he had revoked his donation in favor of Andrea and that he had
designated his present wife Adela as his beneficiary.
> Sunlife refused to change the beneficiary.
Issue:
Whether or not Gercio may change the beneficiary in the policy.
Held:
NO.
If the policy contains no provision authorizing a change of beneficiary without the beneficiarys
consent, the insured cannot make such change. It is held that a life insurance policy of a
husband made payable to his wife as a beneficiary is the separate property of the beneficiary
and beyond the control of the husband. (NOTE: this case is based on the old rule under the
Insurance Act)
Court also held that the designation of a beneficiary that is originally valid does NOT render it
invalid dut to a subsequent cessation of the interests between the beneficiary and insured.
Lincoln National Life v. San Juan - Life Insurance
CA GR 34588-88, Nov. 27, 1971
Facts:
> An employer insured the life of the employee with two insurance companies.
> The insurance totaled 200T and the only beneficiaries were the employer and his wife.
> A severed head was later found, purportedly that of the insured employee.
> The insurance companies refused to pay on the ground that the employer had no insurable
interest in the life of the employee.
Issue:

Whether or not the employer can recover the proceeds of a life insurance policy of his employee.
Held:
NO.
The insured was a tenant in a coconut land owned by the employer and his earning were barely
that of a farm laborer. It was established that the insured could not have afforded the insurance
policies drawn on his life. Many more policies were found to have been issued with the
employee/tenant as insured and the employer and his wife as beneficiaries.
The policies were also found to have been acquired in quick succession. It was found that the
various postal money orders issued in payment of the premiums were made by the employer. It
appears that, based on the circumstances and evidence, the insurance was really taken out by
the employer.

Col. C. Castro v. Insurance Commissioner - Insurable Interest

GR. 55836, Feb. 16, 1981

Facts:
> Castro applied for insurance on the life of his driver. On the basis of such application, Insular Life issued
policy No. 934943 effective July 18, 1979.
> The policy applied for and issued was on a 20-yr endowment plan for the sum of P25T with double
indemnity in case of accidental death.
> Castro paid the first quarterly premium of P309.95. About 3 months later, on Oct. 16, 1959, the insured
driver was allegedly shot to death by unknown persons. (hmmm sounds fishy)
> Castro then filed a claim for the total benefits of 50T under the policy.
> Insular life denied the claim on the ground that the policy was VOID. Insular instead refunded to Castro
the premiums he had paid.
Issue:
Whether or not Castro has an insurable interest in his driver.
Held:
NO.
The requirement of insurable interest to support a contract of insurance is based upon consideration of
public policy which renders wager policies INVALID. To sustain a contract of this character it must appear
that there is a real concern in the life of the party whose death would be the cause of substantial loss to
those who are named as a beneficiary.
Mere relationship of uncle and nephew, employer and employee is NOT sufficient to provide an insurable
interest on the life of the insured. It must be shown that the destruction of the life of the insured would
cause pecuniary loss to the complainant. This, Castro failed to prove.

Ang Ka Yu v. Phoenix Assurance - Insurable Interest

1 CARA 704
Facts:
> Ang Ka Yu had a piece of property in his possession. He insured it with Phoenix.
> The property was lost, so Ang Ka Yu sought to claim the proceeds.
> Phoenix denied liability on the ground that Ang was not the owner but a mere
possessor and as such, had no insurable interest over the property.
Issue:
Whether or not a mere possessor has insurable interest over the property.
Held:
Yes.
A person having a mere right or possession of property may insure it to its full value and
in his own name, even when he is not responsible for its safekeeping. The reason is that
even if a person is NOT interested in the safety and preservation of material in his

possession because they belong to 3rd parties, said person still has insurable interest,
because he stands either to benefit from their continued existence or to be prejudiced by
their destruction.
Filipino Merchants v. CA- Insurable Interest
179 SCRA 638
Facts:
> The Chao Tiek Seng a consignee of the shipment of fishmeal loaded on board the
vessel SS Bougainville and unloaded at the Port of Manila on or about December 11,
1976 and seeks to recover from Filipino the amount of P51,568.62 representing damages
to said shipment which has been insured by Filipino.
> Filipino brought a third party complaint against Compagnie Maritime Des Chargeurs
Reunis and/or E. Razon, Inc. seeking judgment against the third party defendants in case
judgment is rendered against it.
> It appears from the evidence presented that Chao insured said shipment with Filipino
for the sum of P267,653.59 for the goods described as 600 metric tons of fishmeal in
gunny bags of 90 kilos each from Bangkok, Thailand to Manila against all risks under
warehouse to warehouse terms.
> Actually, what was imported was 59.940 metric tons not 600 tons at $395.42 a ton.
> The fishmeal in 666 gunny bags were unloaded from the ship on December 11, 1976
at Manila unto the arrastre contractor E. Razon, Inc. and Filipinos surveyor ascertained
and certified that in such discharge 105 bags were in bad order condition as jointly
surveyed by the ship's agent and the arrastre contractor.
> Based on said computation the Chao made a formal claim against the Filipino for
P51,568.62. A formal claim statement was also presented by the plaintiff against the
vessel, but the Filipino refused to pay the claim.
Issues & Resolutions:
Filipino contends that an "all risks" marine policy has a technical meaning in insurance in
that before a claim can be compensable it is essential that there must be "some
fortuity," "casualty" or "accidental cause" to which the alleged loss is attributable and
the failure of herein private respondent, upon whom lay the burden, to adduce evidence
showing that the alleged loss to the cargo in question was due to a fortuitous event
precludes his right to recover from the insurance policy.
SC did not uphold this contention. An "all risks policy" should be read literally as meaning
all risks whatsoever and covering all losses by an accidental cause of any kind. The
terms "accident" and "accidental", as used in insurance contracts, have not acquired any
technical meaning. They are construed by the courts in their ordinary and common
acceptance. Thus, the terms have been taken to mean that which happens by chance or
fortuitously, without intention and design, and which is unexpected, unusual and
unforeseen. An accident is an event that takes place without one's foresight or
expectation; an event that proceeds from an unknown cause, or is an unusual effect of a
known cause and, therefore, not expected.
Coverage under an "all risks" provision of a marine insurance policy creates a special
type of insurance which extends coverage to risks not usually contemplated and avoids
putting upon the insured the burden of establishing that the loss was due to the peril
falling within the policy's coverage; the insurer can avoid coverage upon demonstrating
that a specific provision expressly excludes the loss from coverage. A marine insurance
policy providing that the insurance was to be "against all risks" must be construed as
creating a special insurance and extending to other risks than are usually contemplated,
and covers all losses except such as arise from the fraud of the insured. The burden of

the insured, therefore, is to prove merely that the goods he transported have been lost,
destroyed or deteriorated. Thereafter, the burden is shifted to the insurer to prove that
the loss was due to excepted perils. To impose on the insured the burden of proving the
precise cause of the loss or damage would be inconsistent with the broad protective
purpose of "all risks" insurance.
In the present case, there being no showing that the loss was caused by any of the
excepted perils, the insurer is liable under the policy
Filipino contends that Chao does not have insurable interest, being only a consignee of
the goods.
Anent the issue of insurable interest, SC upheld the ruling of the CA that Chao, as
consignee of the goods in transit under an invoice containing the terms under "C & F
Manila," has insurable interest in said goods.
Section 13 of the Insurance Code defines insurable interest in property as every interest
in property, whether real or personal, or any relation thereto, or liability in respect
thereof, of such nature that a contemplated peril might directly damnify the insured. In
principle, anyone has an insurable interest in property who derives a benefit from its
existence or would suffer loss from its destruction whether he has or has not any title in,
or lien upon or possession of the property. Insurable interest in property may consist in
(a) an existing interest; (b) an inchoate interest founded on an existing interest; or (c) an
expectancy, coupled with an existing interest in that out of which the expectancy arises.
Chao, as vendee/consignee of the goods in transit has such existing interest therein as
may be the subject of a valid contract of insurance. His interest over the goods is based
on the perfected contract of sale. The perfected contract of sale between him and the
shipper of the goods operates to vest in him an equitable title even before delivery or
before he performed the conditions of the sale. The contract of shipment, whether
under F.O.B., C.I.F., or C. & F. as in this case, is immaterial in the determination of
whether the vendee has an insurable interest or not in the goods in transit. The
perfected contract of sale even without delivery vests in the vendee an equitable title,
an existing interest over the goods sufficient to be the subject of insurance
Fire insurance policy
Angela, owner of a condominium unit, insured the same against fire with the ELM
Insurance Co., and made the loss payable to his sister, Antonette. In case of loss by fire
of the said condominium unit, who may recover on the fire insurance policy?
Angela can recover on the fire insurance policy for the loss of said condominium unit. He
has the insurable interest as owner-insured. As beneficiary in the fire insurance policy,
Antonette cannot recover on the fire insurance policy. For the beneficiary to recover on
the fire or property insurance policy, it is required that she must have insurable interest
in the property insured. In this case, Antonette does not have insurable interest in the
condominium unit. (2001 Bar Question)
when the defects in the notice or proof of loss are considered waived?

When the insurer:

1. Writes to the insured that he considers the policy null and void as the furnishing of notice or proof of loss
would be useless;
2. Recognizes his liability to pay the claim; 3. Denies all liability under the policy
4. Joins in the proceedings for determining the amount of the loss by arbitration, making no objections on
account of notice and preliminary proof; or
5. Makes Objection on any ground other than the formal defect in the preliminary proof.