BAR QUESTIONS AND ANSWERS COMPILATION FOR

INSURANCE LAW

SUBMITTED BY:
CLASS 4-E, SCHOOL YEAR 2019-2020 SAN BEDA
UNIVERSITY, COLLEGE OF LAW

SUBMITTED TO: ATTY. TIMOTEO B. AQUINO

 BUSINESS OF INSURANCE
2011

Bar Question:

(82) A group of Malaysians wanted to invest in the Philippines’ insurance business.

After negotiations, they agreed to organize "FIMA Insurance Corp." with a group of
Filipino businessmen. FIMA would have a PhP50 Million paid up capital, PhP40 Million
of which would come from the Filipino group. All corporate officers would be Filipinos
and 8 out of its 10-member Board of Directors would be Filipinos. Can FIMA operate an
insurance business in the Philippines?

(A) No, since an insurance company must have at least PhP75 Million paid-up
capital.

(B) Yes, since there is substantial compliance with our nationalization laws respecting
paid-up capital and Filipino dominated Board of Directors.

(C) Yes, since FIMA’s paid up capital more than meets the country’s nationalization
laws.

(D) No, since an insurance company should be 100% owned by Filipinos.

PARTIES
1981

Bar Question:

On July 1, 1979, Crispulo, married to Laura with whom he has two legitimate children,
was issued Policy No. 8008 of the Midland Life Insurance Co. on a whole-life plan for
P10,000. He designated Angie, his common-law wife as the recoverable beneficiary. He
referred to her, in his application and policy, as his wife.

Two years later, Crispulo died. Angie filed her claim for the proceeds of the policy as the
designated beneficiary therein. The widow, Laura, also filed her claim as legal wife.

If you were the Legal Counsel for the Insurance Company, to whom would you adjudicate
the proceeds of the insurance policy? Reason out your answer briefly.
Suggested Answer:

I would adjudicate the proceeds of the insurance policy to Laura, the legal wife.

Pursuant to Article 2011 of the New Civil Code, matters not expressly provided for by the
Insurance Law shall be governed by the general rules of the civil law regulating contracts.
Article 2012 of the same Code provides that any person who is forbidden from receiving
any donation under Article 739 cannot be named beneficiary of a life insurance policy by
the person who cannot make a donation to him. Among those barred from receiving
donations from each other are common-law spouses.

In the case at bar, Crispulo was married to Laura when he designated his concubine
Angie, as the beneficiary. Thus, not being authorized by law to give and receive
donations from each other, Angie is not the proper party to receive the proceeds of
Crispulo’s insurance policy.

1984

Bar Question:

To secure a loan of P10 M, O mortgaged his building to C. in accordance with the loan
arrangements, O had the property insured with Acme Insurance Company for P10M with
C as the beneficiary. C also took an insurance on the building upon his own interest with
Beta Insurance Co. for P5 M.

The building was totally destroyed by fire, a peril insured against in both insurance
policies. It was subsequently determined that the fire had been intentionally started by O
and that, in violation of the loan agreement, O had been storing inflammable materials in
the building.

How much can C recover from either or both insurance companies? What happens to the
P10 M debt of O to C?

Suggested Answer:

a) C cannot recover from Acme Insurance Co. Section 8 of the Insurance Code provides
that unless the policy otherwise provides, where a mortgagor of property effects
insurance in his own name providing that the loss shall be payable to the mortgagee,
the insurance is deemed to be upon the interest of the mortgagor. Any act of the
mortgagor prior to the loss which would otherwise avoid the insurance will have the
same effect. In the case at bar, it was the act of storing inflammable materials by the
owner-mortgagor O which caused the peril insured against. Therefore, the avoidance
of the insurance by said act is binding on the mortgagee C.

With respect to the Beta Insurance Co., C can recover the full amount of P5M since
the act of O in intentionally starting the fire that caused the loss cannot be attributable
 to the mortgagee, C. The act of O in storing inflammable materials in the building
contrary to the loan agreement does not affect the insurance policy effected by C,
unless the said policy itself prohibited the same.

The P10M debt of O to C will be affected by the amount which C will be able to collect
from the insurance companies. As held by the Supreme Court in the case of Palileo
v. Cosio, where a mortgagee independently of the mortgagor, insures the mortgaged
property in his own name and for his own interest, he is entitled to the insurance
proceeds in case of loss. In such case, however, he is not allowed to retain his claim
against the mortgagor but is passed by subrogation to the insurer to the extent of the
money paid. In the case herein, if C is able to recover P5M from Beta Insurance Co.,
the latter will become entitled to collect P5M from O, and O will continue to remain
liable to C for the balance of P5M. But if C is unable to recover any amount, the full
amount of the debt remains.

1998

BAR QUESTION:

Juan de la Cruz was issued Policy No. 8888 of the Midland Life Insurance Co. on a whole
life plan for P20, 000.00 on August 19, 1989. Juan is married to Cynthia with whom he
has three legitimate children. He, however, designated Purita, his common-law wife, as
the revocable beneficiary. Juan referred to Purita in his application and policy as the legal
wife.

Three (3) years later, Juan died. Purita filed a claim for the proceeds of the policy as the
designated beneficiary therein. The widow, Cynthia, also filed a claim as the legal wife,
To whom should the proceeds of the insurance policy be awarded? (5%)

SUGGESTED ANSWER:

Neither. The proceeds of the insurance policy should be awarded to the estate of Juan.

Sec. 53 of the IC provides that insurance proceeds shall be applied exclusively to the
proper interest of the person in whose name or for whose benefit it is made unless
otherwise specified in the policy. Thus, the insured in a life insurance may designate any
person as beneficiary unless disqualified to be so under the provisions of the NCC. In
relation thereto, Art. 2012 of the NCC provides that any person who is forbidden from
receiving any donation under Art. 739 cannot be named beneficiary of a life insurance
policy by the person who cannot make any donation to him.

In this case, Purita cannot be named beneficiary being Juan’s common-law wife. She
clearly falls under the prohibition set by Art. 739 as a person “guilty of adultery or
concubinage at the time of the donation.”

Thus, in the absence of other beneficiaries, the proceeds shall be paid in accordance with
the policy contract. If the policy contract is silent, the proceeds shall ultimately be paid to
the estate of the insured.

2000

Bar Question:

A. May a member of the MILF or its breakaway group, the Abu Sayyaf, be insured with
a company licensed to do business under the Insurance Code of the Philippines?
Explain.

Suggested Answer:

A. YES. A member of the MILF or the Abu Sayyaf may be insured with a company
licensed to do business under the Insurance Code of the Philippines. Section 7 of the
Insurance Code provides, ‘anyone except a public enemy may be insured.’ What is
prohibited to be insured is a public enemy. A public enemy is a citizen or national of a
country with which the Philippines is at war. Such member of the MILF or the Abu
Sayyaf is not a citizen or national of another country, but of the Philippines.

2000
Bar Question:

X Company procured a group accident insurance policy for its construction employees
variously assigned to its provincial infrastructure projects. Y Insurance Company
underwrote the coverage, the premiums of which were paid for entirely by X Company
without any employee contributions. While the policy was in effect, five of the covered
employees perished at sea on their way to their provincial assignments. Their wives
sued Y Insurance Company for payment of death benefits under the policy. While the
suit was pending, the wives signed a power of attorney designating an X Company
executive. PJ as their authorized representative to enter into a settlement with the
insurance company. When a settlement was reached, PJ instructed the insurance
company to issue a settlement check to the order of the X Company, which will
undertake the payment to the individual claimants of their respective shares. PJ
misappropriated the settlement amount and the wives pursued their case against Y
Insurance Company. Will the suit prosper? Explain.

Suggested Answer:

Yes. The suit will prosper. Y insurance Company is liable. X Company, through its
executive, PJ, acted as agent of Y Insurance Company. The latter is thus bound by the
misconduct of its agent. It is the usual practice in the group insurance business that the
employer-policy holder is the agent of the issuer.

2005

Bar Question:

Jacob obtained a life insurance policy for P1 M designating irrevocably Diwata, a friend,
as his beneficiary, Jacob, however, changed his mind and wants Yob and Jojo, his
other friends, to be included as beneficiaries considering that the proceeds of the policy
are sufficient for the three friends.
 1. Can Jacob still add Yob and Jojo as his beneficiaries? Explain.
2. What are the effects of an irrevocable designation of a beneficiary under the
Insurance Code? Explain.

Suggested Answer:

1. No. Jacob cannot add Yob and Jojo as his beneficiaries.

The insured cannot add other beneficiaries as this would diminish the interest of Diwata
who is the irrevocably designated beneficiary. The insured can only do so with the
consent of Diwata.

2. The irrevocable beneficiary has a vested interest in the policy, including its
incident such as the policy loan and cash surrender value.

2014

BAR QUESTION

On July 3, 1993, Delia Sotero (Sotero) took out a life insurance policy from Ilocos Bankers
Life Insurance Corporation (Ilocos Life) designating Creencia Aban(Aban), her niece, as
her beneficiary. Ilocos Life issued Policy No. 747, with a face value of P100,000.00, in
Sotero’s favor on August 30, 1993, after the requisite medical examination and payment
of the premium.

On April 10, 1996, Sotero died. Aban filed a claim for the insurance proceeds on July 9,
1996. Ilocos Life conducted an investigation into the claim and came out withthe following
findings:

1. Soterodid not personally apply for insurance coverage, as she was illiterate.

2. Soterowas sickly since 1990.

3. Soterodid not have the financial capability to pay the premium on the policy.

4. Soterodid not sign the application for insurance.

5. Aban was the one who filed the insurance application and designated herself as
the beneficiary.

For the above reasons and claiming fraud, Ilocos Life denied Aban’s claim on April 16,
1997, but refunded the premium paid on the policy. (6%)

(A) May Sotero validly designate her niece as beneficiary?

 (B) May the incontestability period set in even in cases of fraud as alleged in this
case?

(C) Is Aban entitled to claim the proceeds under the policy?

SUGGESTED ANSWERS: a. Yes. Any person in general can be a beneficiary. The only
persons disqualified from being a beneficiary are those not qualified to receive
donations under Art. 739. They cannot be named beneficiaries of a life insurance policy
by the person who cannot make any donation to him.

b. Yes. The “incontestability clause” is a provision in law that after a policy of life insurance
made payable on the death of the insured shall have been in force during the lifetime of
the insured for a period of 2 years from the date of its issue or of its last reinstatement,
the insurer cannot prove that the policy is void ab initio or is rescindable by reason of
fraudulent concealment or misrepresentation of the insured or his agent. In this case, the
policy was issued on August 30, 1993, and the insured died on April 10, 1996. The
insurance policy was thus in force for a period of 3 years, 7 months and 24 days.
Considering that the insured died after the 2-year period, Ilocos is, therefore, barred from
proving that the policy is void ab initio by reason of the insured’s fraudulent concealment
or misrepresentation or want of insurable interest on the part of the beneficiary.

c. Yes, Aban is entitled to claim the proceeds. After the 2-year period lapse, or when the insured
dies within the period, the insurer must make good on the policy, even though the policy was
obtained by fraud, concealment, or misrepresentation, as in this case, when the insured did not
personally apply for the policy as she was illiterate and that it was the beneficiary who filled up
the insurance application designating herself as beneficiary

TRANSFER OF POLICY

1980

“N” owns a condominium unit presently insured with Holy Insurance Co. for P1
Million. “N” later sells the condominium unit to “O”. Somehow “O” fails to obtain the
transfer of the insurance policy to his name from “N”. Subsequently, fire of unknown
origin destroys completely the condominium unit.

Who may collect the insurance proceeds?

Answer:

Neither N nor O may collect the insurance proceeds.

 The Insurance Code expressly provides that an interest in property must exist when
the insurance takes effect and when the loss occurs, but need not exist in the
meantime. In the case at hand, N’s insurable interest, although it existed at the time
of the insurance policy, was extinguished when it was sold to O, prior to the
occurrence of the loss. Hence, N has no right to recover due to lack of insurable
interest.

Meanwhile, O cannot as well recover since at the time when the insurance policy
took effect, he lacked insurable interest. The latter only existed at the time of the
loss.

1991

BAR QUESTION:

The policy of insurance upon his life, with a face value of P100,000.00, was assigned by
Jose, a married man with two (2) legitimate children, to his nephew, Y, as security for a
loan of P50,000.00. He did not give the insurer any written notice of such assignment
despite the explicit provision to that effect in the policy. Jose died. Upon the claim on the
policy by the assignee, the insurer refused to pay on the ground that it was not notified of
the assignment. Upon the other hand, the heirs of Jose contended that Y is not entitled
to any amount under the policy because the assignment without due notice to the insurer
was void. Resolve the issues.

SUGGESTED ANSWER:

A life insurance is assignable, and may be transferred or assigned even without consent
of or notice to the insurer. Under Sec. 182 of the Insurance Code, however, a provision
in the policy stating that written notice of such an assignment should be given to the
insurer, is valid (Secs. 181-182, Insurance Code). While the failure of the notice of
assignment would thus preclude the assignee from claiming rights under the policy, such
absence of notice would not avoid the policy. Under Sec. 12 of the Insurance Code, the
proceeds would then be payable to the estate of the insured. In this case, since there was
no notice to the insurer of the assignment made in favor of Y, the proceeds would be
payable to the estate, and the estate, in turn, would be liable for the loan of P50,000.00
owing in favor of Y, unless there had been previous payment.
 Policy

2011

(64) If an insurance policy prohibits additional insurance on the property insured without the
insurer's consent, such provision being valid and reasonable, a violation by the insured

(A) reduces the value of the policy.

(B) avoids the policy.

(C) offsets the value of the policy with the additional insurances’s value.

(D) forfeits premiums already paid.

THIRD PARTY LIABILITY

1996

Bar Question:

While driving his car along EDSA, Cesar sideswiped Roberto, causing injuries to the
latter, Roberto sued Cesar and the third party liability insurer for damages and/or
insurance proceeds. The insurance company moved to dismiss the complaint, contending
that the liability of Cesar has not yet been determined with finality.

a)Is the contention of the insurer correct? Explain.

b)May the insurer be held liable with Cesar?

Suggested Answer:

A) No, the contention of the insurer is not correct.

In a case decided by the Supreme Court, where an insurance policy insures directly
against liability, the insurer’s liability accrues immediately upon the occurrence of the
injury or event upon which the liability depends (Sherman Shafer v Judge RTC Olongapo
City Branch 75 GR l-78848, Nov 14 88 167s386)

Here, the occurrence of the injury to Roberto immediately gave rise to the liability of the
insurer under its policy. There is no need to wait for the decision of the court determining
Cesar’s liability with finality before the third party liability insurer could be sued.

Thus, Roberto may proceed against the insurer without awaiting the decision of the court.

B) No. The insurer cannot be held solidarily liable with Cesar.

In a case decided by the Supreme Court, the liability of the insurer is based on contract
while that of insured is based on tort thus the rule on solidary liability does not apply.

Here, the liability of Cesar is based on his tortuous act of sideswiping Roberto causing
injuries to the latter. Meanwhile, the liability of the insurer is based on the contract of
insurance with Cesar. If the insurer were solidarily liable with Cesar, it could be made to
pay more than the amount stated in the policy. This would, however, be contrary to the
principles underlying insurance contracts. On the other hand, if the insurer were solidarily
liable with Cesar and it is made to pay only up to the amount stated in the insurance
policy, the principles underlying solidary obligations would be violated. (Malayan Ins Co
v CA GR L-36413 Sep 26, 88 165s536; Figuracion vda de Maglana v Consolacion GR
60506 Aug 6, 92 212s268)

Thus, the rule on solidary liability does not apply with the insurer and Cesar.

INSURABLE INTEREST
1978

Bar Question:
 A owns a house worth P500,000.00. He insured it against fire for P250,000.00 for
the period from January 1, 1977 to January 1, 1978. At the instance of B, who is a
judgment creditor of A, the said house was levied upon by the Sheriff and sold at public
auction on March 15, 1977. It was adjudicated to B for P150,000.00 at the auction sale.
B insured the house against fire for P150,000.00 for the period from March 16, 1977 to
March 16, 1978. The house was accidentally burned on April 1, 1977.

a. May A recover under his policy? Give reasons.

SUGGESTED ANSWER:

Yes, A may recover under his insurance policy.

Section 14 of the Insurance Code provides that every interest in property, whether
real or personal, or any relation thereto, or liability in respect thereof, of such nature that
a contemplated peril might directly damnify the insured is an insurable interest. In
addition, Section 15 of the same Code also states that an insurable interest in a property
may consist in: (a) an existing interest; (b) an inchoate interest founded on an existing
interest; or (b) an expectancy coupled with an existing interest in that out of which the
expectancy arises.

A, as a judgment debtor whose property has been levied upon and was sold still holds
an insurable interest over the property, until his right to redeem the property has been set
aside or has been lost. A’s right of redemption may be exercised in 12 months’ time from
the date of the sale. Since the sale was made on March 15, 1977 and the insurance policy
he obtained is valid until January 1, 1978, A has an insurable interest in the house at the
time of the loss, April 1, 1977.

Therefore, A may recover under the insurance policy.

b. May B recover under his policy? Give reasons.

SUGGESTED ANSWER:

Yes, B can recover under the insurance policy he obtained.

Section 14 of the Insurance Code provides that every interest in property, whether
real or personal, or any relation thereto, or liability in respect thereof, of such nature that
a contemplated peril might directly damnify the insured is an insurable interest. In
addition, Section 15 of the same Code also states that an insurable interest in a property
may consist in: (a) an existing interest; (b) an inchoate interest founded on an existing
interest; or (b) an expectancy coupled with an existing interest in that out of which the
expectancy arises.
 B, as the judgment creditor and the purchaser of the house at the judicial sale, he
acquired an insurable interest over the property up to the extent of the amount which he
insured, which shall not exceed his interest in the property.

1980

“L” borrows P50,000 from “M” payable 360 days after date, at 12% interest per annum.
To secure the loan, “L” mortgages his house nd lot in favor of “M”. To protect himself from
certain contingencies, “M” insures the house for the full amount of the loan with Rock
Insurance Company. A fire breaks out and burns the house and “M” collects from the
insurance company the full value of the insurance.

Upon maturity of the loan, the insurance company demands payment from “L”. the latter
refuses to pay on the ground that the loan had been extinguished by the insurance
payment which “M” received from the insurance company. He argues that he has not
entered into any loan or contract of whatever nature with the insurance company. He
further contends that it is bad enough to lose a house but it is worse if one has to pay off
a paid obligation to somebody who has not extended any loan to him. Besides, he states,
that the insurance payment should inure to his benefit because he owns the house.

Pass upon the merits of “L’s” contentions.

Answer:

Neither the loan of L was extinguished by the insurance payment which M received from
the insurance company; nor the insurance payment inures to L’s benefit;

The facts are akin to the a decided case by the Supreme Court, where it was ruled that
what was then insured was the interest the secured creditor, and not the interest of the
debtor, so the proceeds shall be applied exclusively to the proper interest of the former.
L’s argument that he has not entered into any loan or contract of whatever nature with the
insurance company is also untenable. When the secured creditor’s interest in the
mortgaged property of the mortgagor, L, was insured and said property would be burned,
the insurance company had to pay the insured, M, and payment by the insurer to the
insured creates legal subrogation and makes the insurer an assignee on equity to run
after the mortgagor, L. Said right of the insurer is not dependent upon nor does it grow
out of, any privity of contract, or upon written assignment of claim, and payment to insured
makes the insurer an assignee in equity; thus, L’s consent to said subrogation is not
necessary. (Art. 2207, N.C.C.; Fireman’s Fund Insurance Co. v. Jamila & Co., April 7,
1976; 70 SCRA 323)

1982

Bar Question:
“A” owns a house valued at P50,000 which he had insured against fire for P100,000. He
obtained a loan from “B” in the amount of P100,000, and to secure payment thereof, he
executed a deed of mortgage on the house, but without assigning the insurance policy to
the latter. For “A’s” failure to pay the loan upon maturity, “B” initiated foreclosure
proceedings and in the ensuing public sale, the house was sold by the sheriff to “B” as
highest bidder. Immediately upon issuance of the sheriff’s certificate of sale in his favor,
“B” insured the house against fire for P120,000 with another insurance company. In order
to redeem the house, “A” borrowed P100,000 from “C” and, as security device, he
assigned the insurance policy of P100,000 to “C”. However, before “A” could pay “B” his
obligation of P100,000, the house was accidentally and totally burned.

Does “A”, “B” or “C” have any insurance interest in the house? May “A”, “B” and “C”
recover under the policies? If so, how much?

Suggested Answer:

In general, an insurable interest is that interest which a person is deemed to have in the
subject matter insured.

As to A, he has insurable interest in his house, consisting of an existing interest, but only
for P50,000, which is the value of the house. However, when A assigned it to C, A had
no more interest in his insurance policy, and A can no longer recover on said insurance
policy.

As to B, he has insurable interest on A’s house, having an interest founded upon an

existing interest, for P50,000, which is the value of the subject house. Therefore, he can
recover only the amount of P50,000.

As to C, he has no insurable interest on A’s house.

Under Section 14 and 16 of the Insurance Code, expectancy to be insurable must be

coupled with an existing interest or founded on an actual right to the thing or upon any
valid contract for it. In the present case, C’s expectancy is not founded on an actual right
or valid contract to A’s house since the insurance policy was only assigned to him as a
security device. Besides, the assignment to him of A’s insurance policy was not approved
by the insurer. Hence, C cannot recover.

1984

Bar Question:
On January 4, 1983, Mr. P joined Alpha Corporation (ALPHA) as President of the
company. ALPHA took out a life insurance policy on the life of Mr. P with Mutual Insurance
Company, designating ALPHA as the beneficiary. ALPHA also carried a fire insurance
with Beta Insurance Co. on a house owned by it, but temporarily occupied by Mr. P again
with ALPHA as beneficiary.

On September 1, 1983, Mr. P resigned from ALPHA and purchased the company house
he had been occupying. A few days later, a fire occurred resulting in the death of Mr. P
and the destruction of the house.

What are the rights of ALPHA (a) against Mutual Life Insurance Company on the life
insurance policy? (b) against Beta Insurance Company on the fire insurance?

Suggested Answer:

a) ALPHA can recover against Mutual Life Insurance Co. in the life insurance policy.
Section 19 of the Insurance Code provides that insurable interest in the life or health
of a person insured must exist when the insurance takes effect but need not exist
thereafter or when the loss occurs. In the case herein, ALPHA had an existing
insurable interest on the life of its president Mr. P when it took out a life insurance on
him. Thus, notwithstanding the fact that Mr. P was already resigned from the company
at the time of his death, ALPHA can still recover from Mutual Life Insurance.

b) ALPHA cannot recover from Beta Insurance Co. in the fire insurance policy. Section
19 of the Insurance Code provides that insurable interest in property insured must
exist when the insurance takes effect, and when the loss occurs, but need not exist
in the meantime. In this case, although ALPHA initially owned the house insured when
it took out the fire insurance, such interest was extinguished when the company
house was purchased by Mr. P. Hence, ALPHA no longer had existing interest over
the said property when it was destroyed by fire.

1987

Bar Question:

Blanco took out a P1 M life insurance policy naming his friend and creditor,
Montenegro, as his beneficiary. When Blanco died, his outstanding loan obligation to
Montenegro was only P50,000. Blanco’s executor contended that only P50,000 out
of the insurance proceeds should be paid to Montenegro and the balance of
P950,000 should be paid to Blanco’s estate.

Is the executor’s contention correct? Reason out your answer.

 Suggested Answer:
No, the contention of the executor is incorrect. According to Sec.10 of RA. No.
10607, in life insurance policy, the insured has insurable interest over one’s own life.
The beneficiary of a life insurance need not have any insurable interest in the life of
the insured. In the case at bar, it was Blanco himself who took out the life insurance
policy on his own life, naming only Montenegro as the beneficiary. It would have been
TAKEN ON different if it was Montenegro, as creditor, who took out a life insurance policy on the
OWN LIFE
YAN!!
life of Blanco, as a debtor. In that case, Montenegro’s insurable interest in the life of
Blanco would be only to the extent of P50,000, which is the amount of his credit.
Hence, the executor is wrong.

1987

Bar Question:

On July 14, 1985, X, a homosexual, took an insurance policy on the life of his
boyfriend, Y. In the insurance application, X misrepresented that Y was in perfect
health although he knew all the time that Y was afflicted with AIDS. On October 18,
1987, Y died in a motor accident. Shortly thereafter, X filed his insurance claim.

Should the insurer pay? Reasons.

Suggested Answer:
No. The insurer is not obliged to pay. Under Sec. 10 of R.A. No 10607, in life
insurance policies, with respect to insurable interest over the life of another person
(other than one’s own life,wife, or children) , the same must be grounded on
relationship by blood, business relationship, or other pecuniary interest. Friendship
alone is not considered an insurable interest. In the case at, X had no insurable
interest over the life of Y. Thus, X cannot file an insurance claim.

1987

Bar Question:

On February 3, 1987, while Jose Palacio was in the hospital preparatory to a heart
surgery, he called his only son, Boy Palacio, and showed the latter a will naming the son
as sole heir to all the father’s estate including the family mansion in Forbes Park. The
following day, Boy Palacio took out a fire insurance policy on the Forbes Park mansion.
One week later, the father died. After his father’s death, Boy Palacio moved his wife and
children to the family mansion which he inherited. On March 30, 1987, a fire occurred
razing the mansion to the ground. Boy Palacio then proceeded to collect on the fire
insurance he took earlier on the house. Should the insurance company pay? Reasons

Suggested Answer:
 No. According to Sec. 19 of R.A. No. 10607, an interest in the property insured
must exist both at the time of the taking of the insurance and at the time the risk insured
against occurs. The insurable interest must be an existing interest. In the case at bar,
Palacio took out the insurance policy before his father’s death. The fact alone that Boy
Palacio was the expected sole heir of his father’s estate does not give the prospective
heir any existing interest prior to the death of the decedent. Hence, he cannot recover.

1988

Bar Question:

On October 18, 1980, P, took out a life insurance policy and named his only son
Q as beneficiary. The policy was silent with regard to any change of beneficiary. P later
learned that Q was hooked on drugs and immediately notified the insurance company in
writing that he is substituting his sister, R, as his beneficiary in place of Q. P later died of
advanced tuberculosis. In the application form filled up by the agent of the insurance
company prior to the issuance of the life insurance policy by 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 insurance policy
contending that as designated beneficiary, he cannot be changed without his consent, he
having acquired a vested right to the proceeds of the policy.

a) Is Q’s contention correct? Reasons.

SUGGESTED ANSWER:

No, Q’s contention that as the designated beneficiary, he cannot be changed

without his consent, is incorrect.

Section 11 of the Insurance Code clearly provides that the insured shall have the
right to change the beneficiary he designated in the policy, unless he has expressly
waived this right in the policy. Notwithstanding the foregoing, in the event the insured
does not change the beneficiary during his lifetime, the designation shall become
irrevocable.

In this case, upon the making of the policy P did not make any express waiver of
his right to change the beneficiary he designated. In addition during his lifetime, he made
a substitution of the beneficiary, from Q to R. Therefore, the designation of the beneficiary
Q is revocable.

Hence, Q acquired no vested right to the proceeds of the policy.

 b) Can the insurance company refuse liability on the policy? Reasons.

SUGGESTED ANSWER:

No, the insurance company cannot refuse liability based on the insurance policy.

An insurance agent is an agent of the insurance company and not of the insured.
The acts of the agent binds the principal, thus any misconduct of misrepresentation made
by the agent shall render the principal liable.

In this case, the misrepresentation made by the agent that P was in good health
prevents the insurer from asserting the falsity of the information as a defense against
recovery.
1991

BARQUESTION:
A piece of machinery was shipped to Mr. Pablo on the basis of C&F, Manila. Mr. Pablo
insured said machinery with the Talaga Merchants Insurance Corp. (TAMIC) for loss or
damage during the voyage. The vessel sank en route to Manila. Mr. Pablo then filed a
claim with TAMIC which was denied for the reason that prior to delivery, Mr. Pablo had
no insurable interest. Decide the case.

SUGGESTED ANSWER:

The case should be decided in favor of Mr. Pablo. As supported by jurisprudence, a

person has insurable interest in the property, if he derives pecuniary benefit or advantage
from its preservation or would suffer pecuniary loss, damage, or prejudice by its
destruction whether he has or has no title in, or lien upon, or possession of the property.
Additionally, the purchase of goods under a perfected contract of sale already vests
equitable interest on the property in favor of the buyer even while it is pending delivery
(Filipino Merchants Insurance Co. v. CA, G.R. No. 85144, 28 November 1989). Hence,
Mr. Pablo had insurable interest over the machinery even before actual receipt of the
goods.

1994

Bar Question:
 In a civil suit, the Court ordered Benjie to pay Nat P500,000.00. To execute the
judgment, the sheriff levied upon Benjie’s registered property (a parcel of land and the
building thereon), and sold the same at public auction to Nat, the highest bidder. The
latter, on March 18, 1992, registered with the Registry of Deeds the certificate of sale
issued to him by the sheriff. Meanwhile, on January 27, 1993, Benjie insured with Garapal
Insurance for P1,000,000.00 the same building that was sold at public auction to Nat.
Benjie failed to redeem the property by March 18, 1993.

On March 19, 1993, a fire razed the building to the ground. Garapal Insurance
refused to make good its obligation to Benjie under the insurance contract.

1) Is Garapal Insurance legally justified in refusing payment to Benjie?

2) Is Nat entitled to collect on the insurance policy?

Suggested Answer:

1) YES. The law requires in property insurance that a person can recover the
proceeds of the policy if he has insurable interest at the time of the issuance of the
policy and also at the time when the loss occurs. At the time of the loss, Benjie
was no longer the owner of the property insured as he failed to redeem the
property. Thus, Benjie no longer had insurable interest in the property insured.

2) NO. The law requires in property insurance that a person can recover the proceeds
of the policy if he has insurable interest at the time of the issuance of the policy
and also at the time when the loss occurs. While at the time of the loss Nat had
insurable interest in the building, as he was the owner thereof, Nat did not have
any interest in the policy. There was no automatic transfer clause in the policy that
would give him such interest in the policy.

1999

A businessman in the grocery business obtained from First Insurance an insurance policy
for P5M to fully cover his stocks-in-trade from the risk of fire. Three months thereafter, a
fire of accidental origin broke out and completely destroyed the grocery including his
stocks-in-trade. This prompted the businessman to file with First Insurance a claim for
five million pesos representing the full value of his goods. First Insurance denied the claim
because it discovered that at the time of the loss, the stocks-in-trade were mortgaged to
a creditor who likewise obtained from Second Insurance Company fire insurance
coverage for the stocks at their full value of P5M.

a) May the businessman and the creditor obtain separate insurance coverages over the
same stocks- in-trade? Explain (3%)

b) First Insurance refused to pay claiming that double insurance is contrary to law. Is this
contention tenable? (3%)

c) Suppose you are the Judge, how much would you allow the businessman and the
creditor to recover from their respective insurers. Explain (3%)

SUGGESTED ANSWER:

a) Yes. The businessman, as owner, and the creditor, as mortgagee, have separate
insurable interests in the same stocks-in-trade.
As a rule, both the mortgagor and mortgagee have an insurable interest in
the property mortgaged and this interest in the property mortgaged and this interest
is separate and distinct from the other. They may take out separate policies at the
same or separate times.
In the case given, the businessman, as mortgagor, and the creditor, as
mortgagee, have separate and distinct insurable interest over the grocery
business. Therefore, each may take out separate policies at the same time.

b) The contention of First Insurance that double insurance is contrary to law is

untenable.
There is no law providing that double insurance is illegal per se. It may only
be prohibited if there is an “other insurance clause” provided in the policy.
In the case given, there was no “other insurance clause” provided in the
policy, therefore, double insurance over the property may be allowed.
Moreover, in the problem at hand, there is no double insurance because
the insured with the First Insurance is different from the insured with the Second
Insurance Company. The same is true with respect to the interests insured in the
two policies.
 c) As Judge, I would allow the businessman to recover his total loss of P5M and the
creditor the amount representing the value of his debt.
As a rule, the mortgagor, as owner, has an insurable interest to the extent
of its value and the mortgagee has an insurable interest in the mortgaged property
to the extent of the debt secured.
In the case given, the businessman can recover his total loss of P5M
representing the full value of his goods which were lost through fire. As to the
creditor, I would allow him to recover the amount to the extent of or equivalent to
the value of the credit he extended to the businessman for the stocks-in-trade
which were mortgaged by the businessman.

2000

Bar Question:

IS, is an elderly bachelor with no known relatives, obtained life insurance coverage for
P250,000 from Starbrite Insurance Corporation, an entity licensed to engage in the
insurable business under the Insurance Code of the Philippines. He also insured his
residential house for twice that amount with the same corporation. He immediately
assigned all his rights to the insurance proceeds to BX, a friendcompanion living with
him. 3 years later, IS died in a fire that gutted his insured house 2 days after he had sold
it. There is no evidence of suicide or arson or involvement of BX in these events. BX
demanded payment of the insurance proceeds from the 2 policies, the premiums for
which IS had been faithfully paying during all the time he was alive. Starbrite, refused
payment, contending that BX had no insurable interest and therefore was not entitled to
receive the proceeds from IS’ insurance coverage on his life and also on his property. Is
Starbrite’s contention valid? Explain.

Suggested Answer:
YES. Starbrite is correct with respect to the insurance coverage on the property of IS.
The beneficiary in the property insurance policy or the assignee thereof must have
insurable interest in the property insured. Under Section 14 of the Insurance Code of
the Philippines, an Insurable interest in property may consist in: a) An existing interest;
b) An inchoate interest founded on an existing interest; or, c) an expectancy, coupled
with an existing interest in that out of which the expectancy arises. Here, BX, a mere
friend-companion of IS, has no insurable interest in the residential house of IS. BX is not
entitled to receive the proceeds from IS’ insurance on his property.

As to the insurance coverage on the life of IS, BX is entitled to receive the proceeds.
There is no requirement that BX should have insurable interest in the life of IS. It was IS
himself who took the insurance on his own life.

2000

Bar Question:

B. BD has a bank deposit of half a million pesos. Since the limit of the insurance
coverage of the PDIC is only 1/10 of BD’s deposit, he would like some protection for the
excess by taking out an insurance against all risk or contingencies of loss arising from
any unsound or unsafe banking practices including unforeseen adverse effects of the
continuing crisis involving the banking and financial sector in the Asian region. Does BD
have an insurable interest within the meaning of the Insurance Code of the Philippines?

Suggested Answer:

B. Yes. BD has insurable interest in his bank deposit. Section 13 of the Insurance Code
of the Philippines (ICP) states that, ‘every interest in property, whether real or personal,
or any relation thereto, or liability in respect thereof, of such nature that a contemplated
peril might directly damnify the insured, is an Insurable interest.’ In case of loss of said
deposit, more particularly to the extent of the amount in excess of the limit covered by
the PDIC Act, BD will be damnified. He will suffer pecuniary loss of P400,000, that is,
his bank deposit of half a million pesos minus P100,000 which is the maximum amount
recoverable from the PDIC. Hence, BD has an Insurable interest within the meaning of
the ICP.

2001

Q: JQ, owner of a condominium unit, insured the same against fire with XYZ Insurance
Co., and made the loss payable to his brother, MLQ. In case of loss by fire of the said
condominium unit, who may recover on the fire insurance policy?

A: JQ can recover on the fire insurance policy for the loss of the said condominium unit.

Section 18 of the Insurance Code provides that no contract or policy of insurance

on property shall be enforceable except for the benefit of some person having an
insurable interest in the property insured.

In this case, JQ has the insurable interest as owner-insured. As beneficiary in the

fire 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 must
have insurable interest in the property insured. In this case, MLQ does not have
insurable interest in the condominium unit.

2002

Bar Question:

Distinguish insurable interest in property insurance from insurable interest in life

insurance.

Suggested Answer:

1. As to the extent: In property insurance, insurable interest is limited to the actual

value of the interest thereon as the measure is the extent to which the insured
might be damnified by the loss or injury thereof (Insurance Code, Section 17). In
 life insurance, the insurable interest in life is unlimited except in cases where
insurance is effected by the creditor on the life of the debtor.
2. As to when the insurable interest must exist: In property insurance, it must exist
when the insurance takes effect and when the loss occurs but need not exist in the
meantime. In life insurance, it is enough that the interest exists at the time the
policy takes effect and need not exist at the time of the loss. (Insurance Code,
Section 19)
3. As to the insurable interest of the beneficiary: In property insurance, the beneficiary
must have an insurable interest over the thing insured. In life insurance, if the
insured secured the policy, the beneficiary need not have insurable interest over
the life of the insured; if secured by the beneficiary, the latter must have insurable
interest over the life of the insured.

2010

QUESTION:

To secure a loan of P10 million, Mario mortgaged his building to Armando. In accordance
with the loan arrangements, Mario had the building insured with First Insurance Company
for P10 million, designating Armando as the beneficiary. Armando also took an insurance
on the building upon his own interest with Second Insurance Company for P5 million.

The building was totally destroyed by fire, a peril insured against under both insurance
policies. It was subsequently determined that the fire had been intentionally started by
Mario and that in violation of the loan agreement, he had been storing inflammable
materials in the building.

(1) How much, if any, can Armando recover from either or both insurance companies?
(2%)

(2) What happens to the P10 million debt of Mario to Armando? Explain. (3%)

ANSWERS:
(1) Armando can receive P5 million from Second Insurance Company. As mortgagee, he
had an insurable interest in the building. Armando cannot collect anything from First
Insurance Company. First Insurance Company is not liable for the loss of the building.
First, it was due to a willful act of Mario, who committed arson. Second, fire insurance
policies contain a warranty that the insured will not store hazardous materials within
the insured premises. Mario breached this warranty when he stored inflammable
materials in the building. These two factors exonerate First Insurance Company from
liability to Armando as mortgagee even though it was Mario who committed them

(2) Since Armando would have collected P5 million from Second Insurance Company,
this amount should be considered as partial payment of the loan. Armando can only
collect the balance of P5 million. Second Insurance Company can recover from Mario
the amount of P5 million it paid, because it became subrogated to the rights of
Armando.
2010

QUESTION:

Enrique obtained from Seguro Insurance Company a comprehensive motor vehicle

insurance to cover his top of the line Aston Martin. The policy was issued on March 31,
2010 and, on even date, Enrique paid the premium with a personal check postdated April
6, 2010.

On April 5, 2010, the car was involved in an accident that resulted in its total loss.

On April 10, 2010, the drawee bank returned Enrique’s check with the notation
"Insufficient Funds." Upon notification, Enrique immediately deposited additional funds
with the bank and asked the insurer to redeposit the check.

Enrique thereupon claimed indemnity from the insurer. Is the insurer liable under the
insurance coverage? Why or why not? (3%)

ANSWER:
The insurer is not liable under the insurance policy. Under Article 1249 of the Civil Code,
the delivery of a check produces the effect of payment only when it is encashed. The loss
occurred on April 5, 2010. When the check was deposited, it was returned on April 10,
2010, for insufficiency of funds. The check was honored only after Enrique deposited
additional funds with the bank. Hence, it did not produce the effect of payment (Vitug,
Commercial Laws and Jurisprudence, Vol. I, p.250).

ALTERNATIVE ANSWER:

Yes. The insurer is liable. The insurance policy was issued. In effect, there was a grant
of credit for the payment of the premium. The insurer can deduct the amount of the check
from the proceeds of the insurance.

2010

QUESTION:

Paolo, the owner of an ocean-going vessel, offered to transport the logs of Constantino
from Manila to Nagoya. Constantino accepted the offer, not knowing that the vessel was
manned by an irresponsible crew with deep-seated resentments against Paolo, their
employer.

Constantino insured the cargo of logs against both perils of the sea and barratry. The logs
were improperly loaded on one side, thereby causing the vessel to tilt on one side. On
the way to Nagoya, the crew unbolted the sea valves of the vessel causing water to flood
the ship hold. The vessel sank.

Constantino tried to collect from the insurance company which denied liability, given the
unworthiness of both the vessel and its crew.

Constantino countered that he was not the owner of the vessel and he could therefore
not be responsible for conditions about which he was innocent.
Is the insurance company liable? Why or why not? (3%)

What is "barratry" in marine insurance? (2%)

ANSWERS:

(1) The insurance company is not liable. According to the case of Roque vs.
Intermediate Appellate Court, there is an implied warranty in every marine
insurance that the ship is seaworthy whoever is insuring the cargo, whether it be
the ship-owner or not. There was a breach of warranty in this case because the
logs were improperly loaded and the crew was irresponsible. It is the obligation of
the owner of the cargo to look for a reliable common carrier which keeps its vessel
in seaworthy condition.

(2) 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 owner's interest” (Roque v.
Intermediate Appellate Court, G.R. No. L-66935, [November 11, 1985]).

2011

(22) X has been a long-time household helper of Z. X's husband, Y, has also been Z's long-
time driver. May Z insure the lives of both X and Y with Z as beneficiary?

(A) Yes, since X and Y render services to Z.

(B) No, since X and Y have no pecuniary interest on the life of Z arising from their employment
with him.

(C) No, since Z has no pecuniary interest in the lives of X and Y arising from their
employment with him.

(D) Yes, since X and Y are Z’s employees.

2013
Bar Question:

In 2010, the PNP declared Kaddafy Benjelani “Public Enemy No. 1” because of his
terrorist activities in the country that have resulted in the death of thousands of Filipinos.
A ransom of P15 M was placed on Kaddafy Benjelani’s head.

Worried about the future of their family, Kaddafy Benjelani’s estranged wife, Aurelia,
secured in December 2010 a life insurance policy on his life and designated herself as
beneficiary. Is the policy valid and binding?

A. Yes, the policy is valid and binding because Aurelia has an insurable interest on
the life of Kaddafy Benjelani.
B. No, the policy is not valid and binding because Kaddafy Benjelani has been
officially declared a public enemy;
C. Yes, the policy is valid and binding because it has been in force for more than 2
years;
D. No, the policy is not valid and binding since the spouses’ estrangement removed
Aurelia’s insurable interest in Benjalani’s life;
E. None of the above.

Suggested Answer:

(A) Yes, the policy is valid and binding because Aurelia has an insurable interest on the
life of Kaddafy Benjelani.

Section 7 of the Insurance Code states that: “Anyone except a public enemy may be
insured.”

Public enemy designate a nation at war with the Philippines and includes every member
of such nation. To make a public enemy, the government of the foreign country must be
at war with the Philippines.

In this case, Kaddafy, although labeled as Public Enemy No. 1, does not fall into the
definition of a public enemy as contemplated in the Insurance Code.

Also, Section 10 of the same Code provides that: “Every person has an insurable interest
in the life and health: (a) Of himself, of his spouse and of his children.”

Aurelia, being the wife of Kaddafy has an insurable interest on the life of his husband.
Thus, policy is valid and binding and Aurelia can recover as the beneficiary in the policy.

2014
BAR QUESTION:

Carlo and Bianca met in the La Boracay festivities. Immediately, they fell in love
with each other and got married soon after. They have been cohabiting blissfully as
husband and wife, but they did not have any offspring. As the years passed by, Carlo
decided to take out an insurance on Bianca’slife for P1,000,000.00 with him (Carlo) as
sole beneficiary, given that he did not have a steady source of income and he always
depended on Bianca both emotionally and financially. During the term of the insurance,
Bianca died of what appeared to bea mysterious cause so that Carlo immediately
requested for an autopsy tobe conducted. It was established that Bianca died of a natural
cause. More than that, it was also established that Bianca was a transgender all along –
a fact unknown to Carlo. Can Carlo claim the insurance benefit? (5%)

SUGGESTED ANSWER :

Yes. Carlo can claim the insurance benefit. If a person insures the life or health of
another person with himself as beneficiary, all his rights, title and interests in the policy
shall automatically vest in the person insured. Carlo, as the husband of Bianca, has an
insurable interest in the life of the latter. Also, every person has an insurable interest in
the life and health of any person on whom he depends wholly or in part for support. The
insurable interest in the life of the person insured must exist when the insurance takes
effect but need not exist when the loss occurs. Thus, the subsequent knowledge of Carlo,
upon the death of Bianca, that the latter is a transgender does not destroy his insurable
interest on the life of the insured.

2014

BAR QUESTION:

A person is said to have an insurable interest in the subject matter insured where
he has a relation or connection with, or concern in it that he will derive pecuniary benefit
or advantage from its preservation. Which among the following subject matters is not
considered insurable? (1%)

(A) A partner in a firm on its future profits

(B) A general creditor on debtor’s property

(C) A judgment creditor on debtor’s property

(D) A mortgage creditor on debtor’s mortgaged property

SUGGESTED ANSWER : a. A partner in a firm on its future profits.

A. Novette entered into a contract for the purchase of certain office supplies. The goods
were shipped. While in transit, the goods were insured by Novette. Does she have an
insurable interest over the goods even before delivery of the same to her? Explain. (2%)

Yes. The Insurance Code provides “SEC. 13. Every interest in property, whether real or
personal, or any relation thereto, or liability in respect thereof, of such nature that a
contemplated peril might directly damnify the insured, is an insurable interest.”

The contract of sale was already perfected and Novette acquired interest thereon
although the goods have yet to be delivered. Thus, such interest may be validly insured.

B. Will an insurance policy be binding even if the premium is unpaid? What if it were
partially paid? (3%)

No. The cash and carry rule under the Insurance Code provides that an insurance policy
is not valid and binding unless the premium thereof has been paid. Premium is the
consideration for the undertaking of the insurer to indemnify the insured against a
specified peril.

There are exceptions, however, one of them is when there is an agreement allowing the
insured to pay the premium in installments and partial payment has been made at the
time of the loss. ( Makati Tuscany Condominium Corporation vs Court of Appeals, 215
SCRA 463)

2017

BAR QUESTION:

The newly restored Ford Mustang muscle car was just released from the car restoration
shop to its owner, Seth, an avid sportsman. Given his passion for sailing, he needed to
go to a round-the-world voyage with his crew on his brand-new 180-meter yacht.
Hearing about his coming voyage, Sean, his bosom friend, asked Seth if he could
borrow the car for his next roadshow. Sean, who had been in the business of holding
motor shows and promotions, proposed to display the restored car of Seth in major
cities of the country. Seth agreed and lent the Ford Mustang to Sean. Seth further
expressly allowed Sean to use the car even for his own purposes on special occasions
during his absence from the country. Seth and Sean then went together to Bayad
Agad Insurance Co. (BAIC) to get separate policies for the car in their
respective names.
BAIC consults you as its lawyer on whether separate policies could be issued to Seth
and Sean in respect of the same car.

(a) What is insurable interest? (2%)

SUGGESTED ANSWER

Insurable interest is that interest which a person is deemed to have in the subject matter
of the insured where he has a relation or connection to it such that the person will derive
pecuniary benefit or advantage from the preservation of the subject matter or will suffer
pecuniary loss or damage from its destruction, termination or injury by the happening of
the event insured against it. (44 CJS 870)

This is in consonance with the Sections 10, 13 and 14 of the Insurance Code of the
Philippines.

Sec. 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 or 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.

Sec. 13. Every interest in property, whether real or personal, or any relation thereto, or
liability in respect thereof, of such nature that a contemplated peril might directly damnify
the insured, is an insurable interest.

Sec. 14. An insurable interest in property may consist in:

(a) An existing interest;

(b) An inchoate interest founded on an existing interest; or

(c) An expectancy, coupled with an existing interest in that out of which the expectancy
arises.

BAR QUESTION:

(b) Do Seth and Sean have separate insurable interests? Explain briefly your answer.
(3%)

SUGGESTED ANSWER:

Yes. Seth and Sean have separate insurable interests. Seth’s insurable interest in the
property is his legal and/or equitable interest over the vehicle as an owner while Sean’s
insurable interest in the property pertains to the safety of the vehicle which if lost or
damaged would give rise to a liability against him.

Pursuant to Section 13 of the Insurance Code of the Philippines, every interest in

property, whether real or personal, or any relation thereto, or liability in respect thereof,
of such nature that a contemplated peril might directly damnify the insured, is an
insurable interest.

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 (Filipino Merchants Insurance Co., Inc. v.
Court of Appeals, G.R. No. 85141, November 28, 1989).

Therefore, Seth and Sean may be given different policies involving the same property –
the car, but pertaining to different insurable interests.

2018

Shortly after Yin and Yang were wed, they each took out separate life insurance policies
on their lives, and mutually designated one another as sole beneficiary. Both life
insurance policies provided for a double indemnity clause, the cost for which was added
to the premium rate. During the last 10 years of their marriage, the spouses had faithfully
paid for the annual premiums over the life policies from both their salaries. Unfortunately,
Yin fell in love with his officemate, Yessel, and they carried on an affair. After two years,
their relationship bore them a daughter named Yinsel. Without the knowledge of Yang,
Yin changed the designation of the beneficiary to an "irrevocable designation" of Yinsel
and Yessel jointly. When Yang learned of the affair, she was so despondent that, having
chanced upon Yin and Yessel on a date, she rammed them down with the car she was
driving, resulting in Yin's death and Yessel's complete loss of mobilization. Yang was
sued for parricide, and while the case was pending, she filed a claim on the proceeds of
the life insurance of Yin as irrevocable beneficiary, or at least his legal heir, and opposed
the claims on behalf of Yessel and her daughter Yinsel. Yang claimed that her designation
as beneficiary in Yin's life insurance policy was irrevocable, in the nature of one "coupled
with interest," since it was made in accordance with their mutual agreement to designate
one another as sole beneficiary in their respective life policies. She also claimed that the
beneficiary designation of Yessel and the illegitimate minor child Yinsel was void being
the product of an illicit relationship, and therefore without "insurable interest."

(a) Is Yang correct in saying that her designation as beneficiary was irrevocable? (2.5%)

No. Section 11 of the Insurance Code provides that the insured shall have the right
to change the beneficiary he designated in the policy, unless he has expressly waived
this right in the said policy. In the case at bar, there is nothing in the life insurance
policy taken by Yang which indicated that the designation of Yin as beneficiary is
irrevocable. As such, it is deemed to be revocable.

(b) Do Yessel and Yinsel have "insurable interest" on the life of Yin? (2.5%)

Yessel has no insurable interest on the life of Yin. Article 2012 of the New Civil Code
provides that any person who is forbidden from receiving any donation under Article
739 cannot be named beneficiary of a life insurance policy by the person who cannot
make any donation to him, according to said article. Here, Yessel cannot be lawfully
designated as beneficiary since one of the prohibitions under Article 739 are those
guilty of adultery or concubinage such as in the case of Yin and Yessel. However,
Yinsel has an insurable interest on the life of Yin since there is no proscription in
naming an illegitimate child as a beneficiary. Therefore, Yessel has no insurable
interest on the life of Yin, while Yessel has.

2019

Bar Question:
Insurance interest in property

Suggested Answer:

Under section 13 of the Insurance Code, every interest in property, whether real
or personal, or any relation thereto, or liability in respect thereof, of such nature that a
contemplated peril might directly damnify the insured, is an insurable interest.

Section 14 of the same code provides that an insurable interest in property may
consist in: a) an existing interest; b) an inchoate interest founded on an existing interest;
or c) an expectancy, coupled with an existing interest in that out of which the ex[ectancy
arises.

PARTIES
1980

“P” filed an application with an insurance company for a 20-year endowment policy in the amount
of P50,000.00 on the life of his one-year-old daughter, supplying all the essential data in the
application form, but without disclosing that his daughter was a mongoloid child. Upon “P’s”
payment of the annual premium, a binding deposit receipt was issued to “P” by the insurance
agent, subject to processing by the company. The insurance company disapproved the insurance
application stating that the plan applied for was not available for minors below seven years old,
and offered another plan. The insurance agent did not inform “P” of the disapproval nor of the
alternative plan offered, and instead, strongly recommended that the company reconsider and
approve the insurance application.

As fate would have it, “P’s” daughter died. “P” sought payment of the proceeds of the insurance
but the company refused on the grounds that there was concealment of a material fact in the
insurance application form and that it had rejected the application. “P” contended, on the other
hand, that the binding deposit receipt constituted a temporary contract of life insurance.

How would you resolve the issue?

Answer:
The insurance company is not liable. As it was held in the case of Great Pacific Life
Assurance Co v CA, the deposit receipt is merely an acknowledgment, on behalf of the
company, that the latter’s branch received from the applicant’s insurance premium and had
accepted the application subject for processing by the insurance company. It is merely
conditional and does not insure outright. Since the application in question was disapproved,
 the deposit receipt in question had never become in force at any time. (Great Pacific Life
Assurance Co. v CA, GR. No. L-31845, April 30, 1979)

2003

Josie Gatbonton obtained from Warranty Insurance Corporation a comprehensive motor vehicle
insurance to cover her brand new automobile. She paid, and the insurer accepted payment in
check. Before the check could be encashed, Josie was involved in a motor vehicle accident
where her car became a total wreck. She sought payment from the insurer. Could the insurer be
made liable under the insurance coverage? (6%)

SUGGESTED ANSWER:

Yes, the insurer can be made liable under the insurance coverage.

An insurance contract is a consensual contract. Article 1315 of the Civil Code states that
"contracts are perfected by mere consent, and from that moment on the parties are bound..."
There is already a perfected contract the moment there is a meeting of minds with respect to the
object and the cause of consideration.

In the case at hand, payment has already been completed despite non-encashment of the
check of the insurer.

Hence, Warranty Insurance Corporation is liable.

2009

Antarctica Life Assurance Corporation (ALAC) publicly offered a specially designed insurance
policy covering persons between the ages of 50 to 75 who may be afflicted with serious and
debilitating illnesses. Quirico applied for insurance coverage, stating that he was already 80 years
old. Nonetheless, ALAC approved his application.

Quirico then requested ALAC for the issuance of a cover note while he was trying to raise funds
to pay the insurance premium. ALAC granted the request. Ten days after he received the cover
note, Quirico had a heart seizure and had to be hospitalized. He then filed a claim on the policy.

a. Can ALAC validly deny the claim on the ground that the insurance coverage, as publicly
offered, was available only to persons 50 to 75 years of age? Why or why not? (2%)

SUGGESTED ANSWER:
No. ALAC cannot deny the claim on the ground that the insurance coverage, as publicly
offered, was available only to persons 50 to 75 years of age. As held in Perez v. Court of
Appeals (G.R. No. 112329, January 28, 2000), a contract of insurance, like other contracts
must be assented to by both parties either in person or by their agents. There can be no
contract of insurance unless the minds of the parties have been in agreement.
In this case, the application of Quirico has been accepted by ALAC. There has been the
meeting of minds despite non-compliance with the age limit as stated in the public offer.
 Such proval of Quirico’s application is deemed a waiver of the age limit imposed. Thus,
ALAC cannot deny the claim on the ground that the insurance coverage was available only
to persons 50 to 75 years of age.
b.
c. Did ALAC’s issuance of a cover note result in the perfection of an insurance
contract between Quirico and ALAC? Explain. (3%)
No. A cover note is a preliminary contract of present insurance. It is a way of getting
protection before the insurance contract is perfected. As held in Great Pacific Life
Assurance Corp. v. Court of Appeals(89 SCRA 543, 1979), In life insurance, a cover note
does not insure itself. There is no perfected insurance until the insurer approves the risk.
In this case, the issuance of the cover note did not result in the perfection of the contract. It
is the approval of Quirico’s application that resulted to the perfection of the insurance
contract and not the issuance of the cover note.

2011

(44) On June 1, 2011, X mailed to Y Insurance, Co. his application for life insurance, with
payment for 5 years of premium enclosed in it. On July 21, 2011, the insurance company
accepted the application and mailed, on the same day, its acceptance plus the cover note. It
reached X's residence on August 11, 2011. But, as it happened, on August 4, 2011, X figured in
a car accident. He died a day later. May X's heirs recover on the insurance policy?

SUGGESTED ANSWER:

(A) Yes, since under the Cognition Theory, the insurance contract was perfected upon
acceptance by the insurer of X's application.
(B) No, since there is no privity of contract between the insurer and X’s heirs.
(C) No, since X had no knowledge of the insurer's acceptance of his application before he
died.
(D) Yes, since under the Manifestation Theory, the insurance contract was perfected upon
acceptance of the insurer of X's application.

2014

On September 25, 2013, Danny Marcial (Danny) procured an insurance on his life with a face
value of P5,000,000.00 from RN Insurance Company (RN), with his wife Tina Marcial(Tina) as
sole beneficiary. On the same day, Danny issued an undated check to RN for the full amount of
the premium. On October 1, 2013, RN issued the policy covering Danny’s life insurance. On
October 5, 2013, Dannymet a tragic accident and died. Tina claimed the insurance benefit, but
RN was quick to deny the claim because at the time of Danny’s death, the check was not yet
encashed and therefore the premium remained unpaid.

Is RN correct? Will your answer be the same if the check is dated October 15, 2013? (4%)

SUGGESTED ANSWER:
No. RN is not correct. After the issuance of the check by Danny for the full amount of the
premium, the unconditional delivery of an insurance policy of RN to Danny corresponding to the
terms of the application ordinarily consummates the contract, and the policy as delivered becomes
the final contract between the parties. Where the parties, so intend, the insurance becomes
effective at the time of the delivery of the policy notwithstanding the fact that the check was not
yet encashed. My answer will still be the same even if the check is dated October 15, 2013 since
an acknowledgment in a policy of the receipt of premium is conclusive evidence of its payment
for the purpose of making the policy binding.

2014

BAR QUESTION

On September 25, 2013, Danny Marcial (Danny) procured an insurance on his life with a face value
of P5,000,000.00 from RN Insurance Company (RN), with his wife Tina Marcial(Tina) as sole beneficiary.
On the same day, Danny issued an undated check to RN for the full amount of the premium. On October
1, 2013, RN issued the policy covering Danny’s life insurance. On October 5, 2013, Dannymet a tragic
accident and died. Tina claimed the insurance benefit, but RN was quick to deny the claim because at the
time of Danny’s death, the check was not yet encashed and therefore the premium remained unpaid.

Is RN correct? Will your answer be the same if the check is dated October 15, 2013? (4%)

SUGGESTED ANSWER: No. RN is not correct. After the issuance of the check by Danny for the full amount
of the premium, the unconditional delivery of an insurance policy of RN to Danny corresponding to the terms
of the application ordinarily consummates the contract, and the policy as delivered becomes the final
contract between the parties. Where the parties, so intend, the insurance becomes effective at the time of
the delivery of the policy notwithstanding the fact that the check was not yet encashed. My answer will still
be the same even if the check is dated October 15, 2013 since an acknowledgment in a policy of the receipt
of premium is conclusive evidence of its payment for the purpose of making the policy binding.

2016

Jason is the proud owner of a newly-built house worth PS million. As a protection against any
possible loss or damage to his house, Jason applied for a fire insurance policy thereon with Shure
Insurance Corporation (Shure) on October 11, 2016 and paid the premium in cash. It took the
company a week to approve Jason's application. On October 18, 2016, Shure mailed the
approved policy to Jason which the latter received five (5) days later. However, Jason's house
had been razed by fire which transpired a day before his receipt of the approved policy. Jason
filed a written claim with Shure under the insurance policy. Shure prays for the denial of the claim
on the ground that the theory of cognition applies to contracts of insurance.

Decide Jason's claim with reasons.

SUGGESTED ANSWER:
Jason cannot claim under the insurance policy.

What governs insurance contract is the cognition theory whereby the insurance contract
is perfected only from the time the applicant came to know of the acceptance of the offer by the
insurer.
 In this case, the loss occurred a day prior to Jason’s knowledge of the acceptance by
Shure of Jason’s application. There being no perfected insurance contract, Jason is not entitled
to recover from Shure.

CONCEALMENT
1975

1. In a non-medical insurance contract (one where the company waives medical

examination) the insured failed to disclose that she had once been operated on,
although the information on this matter was supposed to have been supplied the
company. Within the proper period, may the Insurance Company have the contract
rescinded? Reasons.

Answer: Yes. According to Sec. 31 of the Insurance Code, Materiality in concealment 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. For instance, in
the said problem, matters relating to the health of the insured are material and relevant.
Hence, the waiver of a medical examination in a non-medical insurance contract renders
even more material the information required of the applicant concerning previous
conditions of health and diseases suffered as provided by Sunlife Assurance Company
of Canada vs. CA and Bacani. Matters relating to the health would affect the insurer either
by approving it with the corresponding adjustment for a higher premium or rejecting the
same. Thus, under section 27 of the Insurance Code, which provides that a concealment
whether intentional or unintentional entitles the injured party to rescind a contract of
insurance, entitles the Insurance Company to rescind.

1976

BAR QUESTION: A, an agent of life insurance company X, induced B who has been
suffering from advance tuberculosis to apply for P10,000.00 life insurance which B did
and he (B) requested A to fill the application form. Thru the connivance of the physician,
it was made to appear in the application that B is in good health and the P10,000.00 life
insurance policy was issued by X to B. If B dies of tuberculosis, may his beneficiaries
recover?
SUGGESTED ANSWER: It depends. The insurer is bound when its agent writes a
false answer into the application without the knowledge of the insured, in which case his
(insured) beneficiaries may recover, but a collusion between the agent and the insured
in misrepresenting the facts will vitiate the policy; thus, in the instant case, if A obtained
from B a correct and truthful answer to interrogatories contained in the application but
without the knowledge of B filed in false answer and thru the connivance with the
company physician, it was made to appear that B is in good health, the insurer cannot
assert the falsity of such answers as a defense to liability on the policy. (BAR 1976)

1983

Bar Question:

In June 1981, Juan applied for a life insurance policy with a double indemnity provision in
case of death by accident. Despite an express inquiry in the application form for
insurance, he did not mention the fact that he had suffered from viral hepatitis the previous
year. As Juan had fully recovered from the disease, the medical examination performed
by the insurance company’s physician did not reveal such previous illness, and showed
that Juan was healthy and was an insurable risk. The policy was issued forthwith.

In March 1983, Juan died in an automobile accident. Subsequent investigation revealed

that Juan was negligent in not having his brakes checked.

The insurance company refused to pay Juan’s wife, the designated beneficiary, on two
grounds: that Juan was guilty of fraudulent concealment of his liver ailment, and that
Juan’s death was caused by his own negligence.

The policy is silent as to the effect of the insured’s negligence on the right to recover
thereunder. Juan’s wife insists that she has a right to recover because Juan’s death was
caused by an accident which had nothing to do whatsoever with his liver ailment. She
therefore insists on double indemnity.

a) Is she entitled to any indemnity? Explain.

b) If Juan’s accident occurred in July 1983, would your answer be the same?

Suggested Answer:

a) No, she is not entitled to any indemnity.

Although Juan did not die of a liver ailment, the fact of his concealment vitiated
the insurer’s consent to the contract of insurance. Under Section 27 of the
Insurance Code, a concealment whether intentional or unintentional entitles the
injured party to rescind the contract of insurance. Section 31 of the same Code
further provides that 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.
 If the insurer had known of Juan’s previous liver ailment, it would in all probabilities
have at least made more detailed inquiries about it or make a special examination
of his liver function, or perhaps even charge a higher premium because of the
greater risk involved. The concealment was therefore of a material fact, relieving
the insurer from any liability on the policy, regardless of the cause of death. Since
the insurer is relieved from liability, the question as to whether the event was an
accident or not becomes moot. In any case, under the Insurance Code,
negligence of the insured or of others does not exonerate the insurer.

b) My conclusion would be different. Under Section 48 of the Insurance Code, after

a policy of life insurance made payable on the death of the insured shall have
been in force during the lifetime of the insured for a period of two (2) years from
the date of its issue or of its last reinstatement, the insurer cannot prove that the
policy is void ab initio or is rescindable by reason of the fraudulent concealment
or misrepresentation of the insured or his agent. The insurer would be liable
despite the fraudulent concealment because the policy has become
uncontestable since more than 2 years had elapsed from the date thereof.

1989

Bar Question #3:

(2) X applied for life insurance with Metropolitan Life Insurance Company. The application
contained this question: “have you ever had any ailment or disease of x x x (b) the
stomach or intestines, liver, kidney or genitourinary organ?” X, a laundry woman who has
no medical knowledge answered “No.” The application was approved, premium was paid
and six months later, X died from cancer of the stomach. The post medical examination
of X shows that she had the cancer at the time she applied for a policy. Can the beneficiary
of X collect on the policy? Reasons.

Suggested Answer:

(2) The beneficiary of X cannot collect on the policy. Section 27 of the Insurance Code,
as amended, provides that concealment, as a defense against liability by the insurer, may
either be intentional or unintentional. X’s concealment entitles the Insurance company to
rescind the insurance contract as the law does not make any distinction whether such
concealment is intentional or unintentional. Therefore, the beneficiary of X cannot collect
on the policy.

1996

Bar Question:

Juan procured a “non-medical” life insurance from Good Life Insurance. He designated
his wife, Petra, as the beneficiary. Earlier, in his application in response to the question
as to whether or not he had ever been hospitalized, he answered in the negative. He
forgot to mention his confinement at the Kidney Hospital.

After Juan died in a plane crash, Petra filed a claim with Good Life. Discovering Juan’s
previous hospitalization, Good Life rejected Petra’s claim on the ground of concealment
and misrepresentation. Petra sued Good Life, invoking good faith on part of Juan.

Will Petra’s suit prosper? Explain.

Suggested Answer:

No, Petra’s suit will not prosper, assuming that the policy of life insurance has been in
force for a period of less than 2 years from the date of its issue.

Under Sec. 27 of the Insurance Code, a concealment whether intentional or unintentional

entitled the injured party to rescind a contract of insurance.

Here, the matters which Juan failed to disclose was material and relevant to the approval
and issuance of the insurance policy. They would have affected Good Life’s action on his
application, either by approving it with the corresponding adjustment for a higher premium
or rejecting the same. Moreover, a disclosure may have warranted a medical examination
of Juan by Good Life in order for it to reasonably assess the risk involved in accepting the
application. In any case, good faith is no defense in concealment. The waiver of a medical
examination in the ‘non-medical’ life insurance from Good Life makes it even more
necessary that Juan supply complete information about his previous hospitalization for
such information constitutes an important factor which Good Life takes into consideration
in deciding whether to issue the policy or not. (See Sunlife Assurance Co of Canada v CA
GR 105135, June 22, 1995 245 s 268)

Under the Insurance Code, after a policy of life insurance made payable on the death of
the insured shall have been in force during the lifetime of the insured for a period of two
(2) years from the date of its issue or of its last reinstatement, the insurer cannot prove
that the policy is void ab initio or is rescindible by reason of the fraudulent concealment
or misrepresentation of the insured or his agent.

On the other hand, if the policy of life insurance has been in force for a period of 2 years
or more from the date of its issue, then Good Life can no longer prove that the policy is
void ab initio or is rescindible by reason of the fraudulent concealment or
misrepresentation of Juan.

1997

Bar Question: The assured answers “No” to the question in the application for a life
policy: “Are you suffering from any form of heart illness?” In fact, the assured has been a
heart patient for many years. On September 7, 1991, the assured is killed in a plane
crash. The insurance company denies the claim for insurance proceeds and returns the
premium paid.

Suggested Answer:

Yes. The insurance company can deny the claim for insurance proceeds and return the
premium paid by reason of the Test of Materiality.
In accordance to Sec. 31 of The Insurance Code (R.A. 10607), materiality 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 disadvantages
of the proposed contract, or in making his inquiries or in fixing the premium rate (Vda. De
Canilang vs CA). The matters concealed (or misrepresented) refers to those facts
occurring at or before the time the policy becomes effective not thereafter.

In this case and as dictated in the case of Florendo vs Philam Plans, Inc., the decision of
the insurance company not to pay is justified. There was fraudulent concealment. It is not
material that the insured died of a different cause than the fact concealed. The fact
concealed, that is the heart ailment, is material to the determination by the insurance
company whether or not to accept the application for insurance and to require the medical
examination of the insured. However, if the incontestability clause applies to the insurance
policy covering the life of the insured issuance thereof, the insurance company would not
be justified in denying the claim for the proceeds of the insurance and in returning the
premium paid. In that case, the insurer cannot prove the policy void ab initio or rescindable
issuance thereof, the insurance company would not be justified in denying the claim for
the proceeds of the insurance and in returning the premium paid. In that case, the insurer
cannot prove the policy void ab initio or rescindable.

Thus, matters relating to health would affect the insurer either by approving it with the
corresponding adjustment for a higher premium or rejecting the same and is tantamount
to concealment.

2001

Q: “A” applied for a non-medical life insurance. The insured did not inform the insurer that
one week prior to his application for insurance, he was examined and confined at St.
Luke’s Hospital where he 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?
A: No, the insurer is not liable.

Section 28 of the Insurance Code provides that 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. Further, Section 31 provides that 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.

Here, 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 he failed to disclose to the
insurer. It is sufficient that his non- disclosure misled the insurer in forming his estimate
of the risks of the proposed insurance policy or in making inquiries.

2011

(26) An insured, who gains knowledge of a material fact already after the effectivity of the
insurance policy, is not obliged to divulge it. The reason for this is that the test of concealment of
material fact is determined

(A) at the time of the issuance of the policy.

(B) at any time before the payment of premium.

(C) at the time of the payment of the premium.

(D) at any time before the policy becomes effective.

2014

BAR QUESTION

On May 13, 1996, PAM, Inc. obtained a P15,000,000.00 fire insurance policy from Ilocano
Insurance covering its machineries and equipment effective for one (1) yearor until May
14, 1997. The policy expressly stated that the insured properties were located at "Sanyo
Precision Phils. Building, Phase III, Lots 4 and 6, Block 15, PEZA, Rosario, Cavite."
Before its expiration, the policy was renewed on "as is" basis for another year or until May
13, 1998. The subject properties were later transferred to Pace Factory also in PEZA. On
October 12, 1997, during the effectivity of the renewed policy, a fire broke out at the Pace
Factory which totally burned the insured properties.

The policy forbade the removal of the insured properties unless sanctioned by Ilocano.
Condition 9(c) of the policy provides that "the insurance ceases to attach as regards the
property affected unless the insured, before the occurrence of any loss or damage,
obtains the sanction of the company signified by endorsement upon the policy x x x (c) if
the property insured is removed to any building or place other than in that which is herein
stated to be insured." PAM claims that it has substantially complied with notifying Ilocano
through its sister company, the RBC, which, in fact, referred PAM to Ilocano for the
insurance coverage. Is Ilocano liable under the policy? (4%)

SUGGESTED ANSWER: A: Ilocano is not liable under the policy. With the transfer of the
location of the subject properties, without notice and without insurer’s consent, after the
renewal of the policy, the insured clearly committed concealment, misrepresentation and
a breach of material warranty. The Insurance Code provides that a neglect to
communicate that which a party knows and ought to communicate, is called concealment.
Concealment entitles the injured party to rescind a contract of insurance in case of an
alteration in the use or condition of the thing insured. An alteration in the use or condition
of a thing insured from that to which it is limited by the policy made without the consent
of the insurer, by means within the control of the insured, and increasing the risks, entitles
the insurer to rescind the contract of fire insurance.

2016

Bar Question:

X insured his life for P20 million. X, plays golf and regularly exercises everyday, hence is
considered in good health. He did not know, however, that his frequent headache is really
caused by his being hypertensive. In his application form for a life insurance for himself,
he did not put a check to the question if he is suffering from hypertension, believing that
because of his active lifestyle, being hypertensive is a remote possibility. While playing
golf one day, X collapsed at the fairway and was declared dead on arrival at the hospital.
His death certificate stated that X suffered a massive heart attack.

a) Will the beneficiary of X be entitled to the proceeds of the life insurance under the
circumstances, despite the non-disclosure that he is hypertensive at the time of
application?
b) If X died in an accident instead of a heart attack, would the fact of X's failure to disclose
that he is hypertensive be considered as material information?

Suggested Answer:

a) No, the beneficiary of X is not entitled to the proceeds of the life insurance.

Sec. 31 of the Insurance Code provides that, 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.

The fact concealed must be material to entitle the other to rescind the policy. A fact is
material where the knowledge or ignorance of it will naturally influence the judgment of
the insurer in deciding whether he will enter into the contract or in estimating the degree
and character of the risk, or in fixing the rate of the premium.

In the given problem, the hypertension of X is a material fact that should have been
disclosed to the insurer. The concealment of such material fact entitles the insurer to
rescind the insurance policy.

Hence, the beneficiary of X is not entitled to the proceeds of the life insurance for the
concealment of a material fact.

b) Yes, it is still a material information.

Sec. 31 of the Insurance Code provides that, 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.
The fact concealed must be material to entitle the other to rescind the policy. However,
concealment, need not, in order to be material, be of facts which bring about, or contribute
to, or connected with, insured’s loss. It is immaterial that there is no causal relationship
between the fact concealed and loss sustained. It is sufficient that his non-revelation has
misled the insurer in forming its estimate of the disadvantages of the proposed policy or
in making its inquiries in order to entitle the insurance company to avoid the contract.

Therefore, it is settled that the insured cannot recover even though the material fact not
disclosed is not the cause of the loss. The beneficiary is not entitled to the proceeds of
the life insurance.

RISKS INSURED AGAINST

1995

Question:
Sun-Moon Insurance issued a Personal Accident Policy to Henry Dy with a face value of
P500. A provision in the policy states that ―the company shall not be liable in respect of
―bodily injury‘ consequent upon the insured person attempting to commit suicide or
willfully exposing himself to needless peril except in an attempt to save human life. Six
months later Henry Dy died of a bullet wound in his head. Investigation showed that one
evening Henry was in a happy mood although he was not drunk. He was playing with
his handgun from which he had previously removed its magazine. He pointed the gun at
his sister who got scared. He assured her it was not loaded. He then pointed the gun at
his temple and pulled the trigger. The gun fired and Henry slumped on the floor.
Henry‘s wife Beverly, as the designated beneficiary, sought to collect under the policy.
Sun-Moon Insurance rejected her claim on the ground that the death of Henry was not
accidental. Beverly sued the insurer. Decide and Discuss fully.

Suggested Answer:
Henry’s wife is entitled to recover from the policy.
In Sun Insurance Office v. CA, GR No. 92383, a case involving similar facts as the
problem, the Court stated the incident was an accident. The Court defined an accident
as an event which happens without any human agency or, if happening through human
agency, an event which, under the circumstances, is unusual to and not expected by the
person to whom it happens.
In view of the circumstances of the case, the firing of the gun was an unexpected,
independent and unforeseen occurrence that led to the insured person's death. Henry
had removed the magazine from the gun and believed it was no longer dangerous. He
expressly assured his sister that the gun was not loaded. Henry did not willfully expose
himself to needless peril when he pointed the gun to his temple because the fact is that
he thought it was not unsafe to do so. The act was precisely intended to assure his
sister that the gun was indeed harmless.

Hence, the incident was an accident, and Henry did not willfully expose himself to
needless peril. Henry’s wife may recover.

2019

Bar Question:

In January 2016, Mr. H was issued a life insurance policy by XYZ Insurance Co.,
wherein his wife, Mrs. W, was designated as the sole beneficiary. Unbeknownst to XYZ
Insurance Co., however, Mr. H had been previously diagnosed with colon cancer, the fact
of which Mr. H had concealed during the entire time his insurance policy was being
processed.

In January 2019, Mr. H unfortunately committed suicide. Due to her husband's

death, Mrs. W, as beneficiary, filed a claim with XYZ Insurance Co. to recover the
proceeds of the late Mr. H's life insurance policy. However, XYZ Insurance Co. resisted
the claim, contending that: 1. the policy is void ab initio because Mr. H fraudulently
concealed or misrepresented his medical condition, i.e., his colon cancer; and 2. as an
insurer in a life insurance policy, it cannot be held liable in case of suicide. Rule on each
of XYZ Insurance Co.'s contentions. (5%)

Rule on XYZ Insurance Co.’s contentions.

Suggested answer:
 XYZ Insurance erred in its contention that the policy is void ab initio by reason of
concealment. Section 26 of the Insurance Code provides that concealment is a neglect
to communicate that which a party knows and ought to communicate. A concealment
whether intentional or unintentional entitles the injured party to rescind a contract of
insurance as provided by section 27 of the same code.

In the case at bar, the concealment of Mr. H of his illness does not render the policy
void ab initio, It is merely rescissible. Therefore, the contention of XYZ Insurance is wrong.

With respect to its second contention, XYZ Insurance also erred in claiming that,
as an insurer, it cannot be held liable in case of suicide. Section 183 of the Insurance
Code states that the insurer in a life insurance contract shall be liable in case of suicide
only when it is committed after the policy has been in force for a period of two (2) years
from the date of its issue or of its last reinstatement, unless the policy provides a shorter
period.

In the present case, the policy of Mr. H has been enforced for 3 years, from 2016
to 2019. Therefore, XYZ Insurance may be held liable in case of suicide. Mrs. W may
claim the proceeds of Mr. H’s life insurance policy.

WARRANTIES

Bar Question

1. Pabaya paid for a fire insurance policy on his multi storey building. At the time he
applied for the insurance, he told the representative of the insurance company that he
planned to assign a security guard on every floor of the building right away. Except for
the ground floor, no security guards were assigned. 11 months after the policy was
issued, the building was gutted by fire which started on the third floor. Unknown to
Pabaya, the insurance company had incorporated his planned undertaking in the
policy.

Can Pabaya recover on the fire insurance policy?

Suggested Answer:
 No. Warranty is a statement or promise set forth in the policy or by reference
incorporated therein, the truth or non-fulfillment of which in any respect, and without
reference to whether the insurer was in fact prejudiced by such untruth or non-
fulfillment, renders the policy voidable.

The statement of Pabaya that he planned to assign a security guard on every floor of
the insured building, whether incorporated in the policy or not, did not amount to firm
commitment so as to constitute an express warranty or representation. The facts
indicate that it was simply planned, not obligatory or promissory, undertaking.

Hence, Pabaya can recover under the insurance policy.

PREMIUM

1976

BAR QUESTION: A insured his house against loss by fire for P100,000.00. The policy
provides that the insurer shall be liable “if the property insured shall be damaged or
destroyed by fire after payment of premium, at anytime from, from June 15, 1976 to
June 15, 1977.” The policy was delivered to A on June 14, 1976. Instead of paying the
premium in cash, A issued a promissory note dated June 15, 1976, for the amount of
premium, payable within 30 days. The note was accepted. On June 29, 1976, the
property insured was burned. The insurer refused to pay on the ground that the
premium had not been paid, and the note did not have the effect of payment as its value
had not been realized at the time the house was burned. Decide with reasons.
SUGGESTED ANSWER: Since the case given took place after the effectivity of the
Insurance Code, it must be governed by its provisions. Section 77 thereof provides:
“Notwithstanding any agreement to the contrary, no policy or contract of insurance
issued by an insurance company is valid and binding unless and until the premium
thereof has been paid…” Considering that this cited provision replaces Section 72 of old
Insurance Act expressly permitting the granting of credit extension, the only conclusion
is that the law-making power intended by the amendment to disallow any agreement
postponing payment of premium, including a grant of credit extension. The issuance of
a promissory note postpones payment by granting credit extension. Therefore, the
insurer is not liable under this express provision of the new Insurance Code. The case
of Capital Insurance & Surety Co. v. Plastic Era Co which held that acceptance of a
promissory note constitutes waiver of the stipulation that the insurer will be liable only
after the payment of premium and that in the absence of stipulation as to mode of
payment, a promissory note constitutes payment, took place before the Insurance Code
came into effect and was based on Section 72 of the old Insurance Act. It can therefore
not be made applicable to the given case. (BAR 1976)
 1978

Bar Question:

On December 17, 1975, a fire policy, insuring a building and its contents, was delivered
to the insured company. By agreement, it was allowed to pay the premium within 30 days.
On January 8, 1976, it paid the premium by means of a check postdated January 16,
1976. The check was deposited by the insurance company only on February 20, but the
check bounced, although January 19, the insured has a sufficient bank balance. On
January 18, two days after the premium became due; the insured property was burned
and became a total loss. Can the insurance company cancel the policy for non-payment
of premium? Give reasons for your answers.

Suggested Answer:

Yes, the insurance company can cancel the policy for nonpayment of the premium.
Sec. 77 of RA. No. 10607, provides that notwithstanding any agreement to contrary, no
policy or contract of insurance is valid and binding unless and until the premium thereof
has been paid. In addition, Art. 1249 of the NCC states that the delivery of promissory
notes payable to order, or bills of exchange or mercantile documents shall produce the
effect of payment only when they have been cashed or when through the fault of the
creditor they have been impaired. In the case at bar, even though the check was delivered
as early as January 16, 1976 it did not produced the effect of payment since the check
bounced. Hence, for failure to pay the insurance premium when it was due, the insurance
company can cancel the policy.

2000

Bar Question:

Name at least 3 instances when an insured is entitled to a return of the premium paid.

Suggested Answer:

Three instances when an insured is entitled to a return of premium paid are:

A. To the whole premium, if no part of his interest in the thing insured be exposed to any
of the perils insured against (Sec. 80, Insurance Code of the Philippines);

B. Where the insurance is made for a definite period of time and the insured surrenders
his policy, to such portion of the premium as corresponds with the unexpired time at a
pro rata rate, unless a short period rate has been agreed upon and appears on the face
of the policy, after deducting from the whole premium any claim for loss or damage
under the policy which has previously accrued (Sec. 80, Insurance Code of the
Philippines); and,

C. When the contract is voidable on account of the fraud or misrepresentation of the

insurer or of his agent or on account of facts the existence of which the insured was
ignorant without his fault; or when, by any default of the insured other than actual fraud,
the insurer never incurred any liability under the policy.

2003

Insurance; Cash & Carry Basis (2003)

What is meant by “cash and carry” in the business of insurance?

SUGGESTED ANSWER: The “cash and carry rule “ in a contract of insurance states
that there is no valid and binding insurance contract unless premium is paid. The
payment of premium is imperative for the validity of the policy. It is a condition
precedent to, and essential for, the efficaciousness of the contract. (Sec 77, RA 10607)

2013

Bar Question:

Stable Insurance Co. (SIC) and St. Peter Manufacturing Co. (SPMC) have had a long-
standing insurance relationship with each other; SPMC secured the comprehensive fire
insurance on its plant and facilities from SIC. The standing business practice between
them has been to allow SPMC a credit period of 90 days from the renewal of the policy
within which to pay the premium.

Soon after the new policy was issued and before premium payments could be made, a
fire gutted the covered plant and facilities to the ground. The day after the fire, SPMC
issued a manager’s check to SIC for the fire insurance premium, for which it was issued
a receipt; a week later SPMC issued its notice of loss.

SIC responded by issuing its own manager’s check for the amount of the premiums SPMC
had paid, and denied SPMC’s claim on the ground that under the “cash and carry”
principle governing fire insurance, no coverage existed at the time the fire occurred
because the insurance premium had not been paid.

Is SPMC entitled to recover for the loss from SIC?

Suggested Answer:

Yes. SPMC is entitled to recover for the loss from SIC.

Section 77 of RA 10607 states that: “An insurer is entitled to payment of the premium as
soon as the thing insured is exposed to the peril insured against. Notwithstanding any
agreement to the contrary, no policy or contract of insurance issued by an insurance
company is valid and binding unless and until the premium thereof has been paid, except
in the case of a life or an industrial life policy whenever the grace period provision applies,
or whenever under the broker and agency agreements with duly licensed intermediaries,
a ninety (90)-day credit extension is given. No credit extension to a duly licensed
intermediary should exceed ninety (90) days from date of issuance of the policy.”

In this case, SPMC may recover as the insurer has granted credit extension for the
payment of the premium. SIC should be made liable even if the premiums were not paid
as of the time of the loss since the said loss occurred before the expiration of the credit
term that was practiced by the parties. It would be unjust and inequitable if recovery on
the policy would not be permitted against SIC, which had consistently 90 day credit term
for the payment of renewal premiums despite its full awareness of Section 77. Estoppel
bars it from taking refuge under said section since the insured relied in good faith on such
practice.

Thus, SPMC can recover against SIC pursuant to their fire insurance contract with a 90-
day credit extension.

REPRESENTATION
1978

Bar Question:
 A, an agent of life insurance company X, induced B who has been suffering from
advance tuberculosis to apply for P10,000.00 life insurance which B did and he (B)
requested A to fill the application form. Thru the connivance of the physician, it was made
to appear in the application that B is in good health and the P10,000.00 life insurance
policy was issued by X to B. If B dies of tuberculosis, may his beneficiaries recover?

SUGGESTED ANSWER:
If B has no knowledge of the misrepresentation of material a fact made by A, his
beneficiaries may recover. However, if B has knowledge of the said misrepresentation,
his beneficiaries will not be able to recover.

Section 44 of the insurance Code states that a representation is deemed false

when the facts fail to correspond with its assertions or stipulations. Section 46 provides
that the materiality of a representation is determined by the same rules as the materiality
of a concealment.

In this case, the representation that B was in good health at the time he obtained
the policy is a ground to rescind the contract on the part of the injured party. Thus, X, the
insurance company is bound if A, its agent wrote the false answer in the application
without the knowledge of B, in which case, the beneficiaries of B may recover. However,
a collusion between the agent A and the insured B in misrepresenting the facts will vitiate
the policy, thus depriving the beneficiaries the right to recover.

Therefore. if A obtained true and correct information from B but without the
knowledge of B he filed a false answer and made to appear that the insured was in good
health, the insurer cannot assert the falsity of the answers as a defense against recovery.

1984

Bar Question:

On May 5, 1982, Juan applied for a life insurance policy with Acme Life Insurance Co.
The policy was issued to Juan on June 30, 1982 but the date of issue, as appearing on
the policy was May 15, 1982, the date of his application. Juan subsequently realized that
some of his answers in the insurance application were erroneous. Accordingly, he
supplied the insurance company with the correct replies. However, his letter to the
insurance company was lost in the mails. Juan died June 1, 1984.

The insurance company now refuses to pay Juan’s beneficiary contending that Juan
misrepresented the state of his health at the time of his application. Is the insurance
company liable? State your reason.

Suggested Answer:

Yes, the insurance company is liable.

Section 48 of the Insurance Code provides for the incontestability clause applicable in
cases of life insurance. It states that after a policy of life insurance made payable on the
death of the insured shall have been in force during the lifetime of the insured for a period
of 2 years from the date of its issue, the insurer can no longer prove that said policy is
void or rescindable by reason of the fraudulent concealment or misrepresentation of the
insured.

In the case herein, the date of issue provided for in the policy is May 15, 1982. Since the
policy of life insurance had been in force during the lifetime of the insured, Juan, for a
period of 2 years from said date, the policy has become incontestable. Therefore,
insurance company can no longer prove that the policy is void ab initio or rescindable by
reason Juan’s misrepresentation as to his health.

INCONTESTABILITY CLAUSE
1991

BAR QUESTION:

Atty. Roberto took out a life insurance policy from the Dana Insurance Corp. on 1
September 1989. On 31 August 1990, Roberto died. DIC refused to pay his beneficiaries
because it discovered that Roberto had misrepresented certain material facts in his
application. The beneficiaries sued on the basis that DIC can contest the validity of the
insurance policy within two (2) years from date of issue and during the lifetime of the
insured. Decide the case.

SUGGESTED ANSWER:

The case should be decided in favor of the insurance company. The incontestability
clause applies only if the policy had been in effect for at least two (2) years. The 2-year
period is counted from the time the insurance becomes effective until the death of the
insured and not thereafter (Tan v. CA, G.R. No. 48044, 29 June 1989). There is also no
requirement under Section 227 of the Insurance Code that the rescission is done during
the lifetime of the insured. Since Atty. Roberto died less than 2 years from the insurance
policy, the incontestability clause is not applicable.

1994
Bar Question:

On September 23, 1990, Tan took a life insurance policy from Philam. The policy
was issued on November 6, 1990. He died on April 26, 1992 of hepatoma. The insurance
company denied the beneficiaries’ claim and rescinded the policy by reason of alleged
misrepresentation and concealment of material facts made by Tan in his application. It
returned the premiums paid.

The beneficiaries contend that the company had no right to rescind the contract as
rescission must be done “during the lifetime” of the insured within 2 years and prior to the
commencement of the action. Is the contention of the beneficiaries tenable?

Suggested Answer:

No, the incontestability clause does not apply. Under the incontestability clause,
after a policy of life insurance made payable on the death of the insured shall have been
in force during the lifetime of the insured for a period of 2 years from the date of its issue
or of its last reinstatement, the insurer cannot prove that the policy is void ab initio or is
rescindable by reason of the fraudulent concealment or misrepresentation of the insured
or his agent.

Here, the insurance policy was issued on November 6, 1990. The insurer has until
November 6, 1992 to rescind the insurance policy and prove fraudulent concealment or
misrepresentation of the insured. Here, the insured died on April 26, 1992, which less
than 2 years from November 6, 1990. Thus, the beneficiaries are incorrect since the
insurer still has the right to rescind the contract.

1998

BAR QUESTION:

Renato was issued a life insurance policy on January 2, 1990. He concealed the fact that
3 years prior to the issuance of his life insurance policy, he had been seeing a doctor
about his heart ailment.
On March 1, 1992, Renato died of heart failure. May the heirs file a claim on the proceeds
of the life insurance policy of Renato? (5%)

SUGGESTED ANSWER:

YES.

Sec. 27 of the IC provides that a concealment whether intentional or unintentional entitles

the injured party to rescind a contract of insurance. However, in life insurance, the right
to rescind may be exercised only within two years from the date of issue or last
reinstatement of the policy. According to Sec. 48 of the IC, when the policy has been in
force for such period, the insurer can no longer prove that the policy is void ab initio or
rescindable by reason of fraudulent concealment.

In this case, the life insurance policy has been in effect for more than two years. It has
become incontestable.

Thus, with the application of the “incontestability clause”, Renato’s heirs may rightfully
claim.

PRESCRIPTION
1996

Bar Question:

Robin insured his building against fire with EFG Assurance. The insurance policy
contained the usual stipulation that any action or suit must be filed within one year after
the rejection of the claim.
After his building burned down, Robin filed his claim for fire loss with EFG. On Feb 28,
1994, EFG denied Robin’s claim. On April 3, 1994, Robin sought reconsideration of the
denial, but EFG reiterated its position. On March 20, 1995, Robin commenced judicial
action against EFG.

Should Robin’s action be given due course? Explain.

Suggested Answer:

No, Robin’s action should not be given due course.

In a case decided by the Supreme Court, the filing of the request for reconsideration does
not suspend the running of the prescriptive period of one year stipulated in the insurance
policy.

Here, when robin commenced the judicial action against EFG Assurance on March 20,
1995, his ability to do so had already prescribed. The one-year period is counted from
Feb 28, 1994 when EFG denied Robin’s claim, not from the date when EFG reiterated its
position denying Robin’s claim. The reason for this rule is to insure that claims against
insurance companies are promptly settled and that insurance suits are brought by the
insured while the evidence as to the origin and cause of the destruction has not yet
disappeared. (See Sun Ins Office Ltd v CA gr 89741, Mar 13 91 195s193)

Thus, given that the prescriptive period has already lapsed, the judicial action shall not
be granted.

1994

Bar Question:
 Raul’s truck bumped the car owned by Luz. The car was insured by Cala
Insurance. For the damage,caused, Cala paid Luz P5,000 in amicable settlement. Luz
executed a release of claim, subrogating Cala to all her rights against Raul, the latter
refused saying that he had already paid Luz P4,500 for the damage to the car as
evidenced by a release of claim executed by Luz discharging Raul.

So Cala demanded reimbursement from Luz, who refused to pay, saying that the
total damage to the car was P9,500.00. Since Cala paid P5,000 only, Luz contends that
she was entitled to go after Raul to claim the additional P4,500.

1) Is Cala, as subrogee of Luz, entitled to reimbursement from Raul?

2) May Cala recover what it has paid Luz?

Suggested Answer:

1) NO. In the case of Manila Mahogany Manufacturing Corp. vs. Court of Appeals
and Zenith Insurance Corporation, the Supreme Court ruled that “should the
insured, after receiving payment from the insurer, release the wrongdoer who
caused the loss, the insurer loses his rights against the latter. But in such a case,
the insurer will be entitled to recover from the insured whatever it has paid to the
latter, unless the release was made with the consent of the insurer.” Here, Luz
executed a release of claim in favor of Raul, negating Cala’s right of
reimbursement.

2) YES. In the case of Manila Mahogany Manufacturing Corp. vs. Court of Appeals
and Zenith Insurance Corporation, the Supreme Court ruled that “should the
insured, after receiving payment from the insurer, release the wrongdoer who
caused the loss, the insurer loses his rights against the latter. But in such a case,
the insurer will be entitled to recover from the insured whatever it has paid to the
latter, unless the release was made with the consent of the insurer.” Here, Cala
lost its right against Raul because of the release executed by Luz. Since the
release was made without the consent of Cala, Cala may recover the amount of
P5,000 from Luz.

SUBROGATION
1978

Bar Question:
A helicopter of ABC Co. collided with XYZ’s tramway steel cables in its logging area in
Surigao resulting in the destruction of the helicopter and death of two pilots. ABC Co.
insured at its expense the helicopter and death of two pilots. ABC Co. insured at its
expense the helicopter for P80,000.00 and the two pilots (life insurance) for P50,000.00
each, and as a result of the crash, the insurer paid ABC Co. a total indemnity of
P180,000.00. Nevertheless, ABC Co sustained additional damages of about P100,000.00
which were not covered by insurance.

1) ABC Co. sued XYZ to recover not only the additional damages, but also the
P180,000 which was already compensated by the insurer. Decide. Give
reasons.

2) What right/recourse, if any, has the insurer in order to be reimbursed for the
amount it paid to ABC Co? Give reasons.

Suggested Answer:

1) Yes, ABC Co may bring the action against XYZ for its claim for the additional
damages not covered by insurance, but not for the amount paid by the
insurance company. According to Art. 2207 of the NCC, if a property is insured
and the owner received indemnity from the insurer, the latter is deemed
subrogated to the rights of the insured against the wrongdoer, and if the amount
paid by the insurer does not fully cover the loss, then the aggrieved party is the
one entitled to recover the deficiency. In the case at bar, after payment to ABC
Co., the right to proceed against XYZ for was acquired by the insurance
company. Hence, ABC Co may only sue XYZ for the additional damage
sustained not covered by the insurance policy.

2) Yes, the insurer is deemed subrogated to the rights of ABC Co against XYZ to
the extent of P80, 000 insurance paid for the damaged helicopter, but not for
the life insurance of the two dead pilots. According to Art.2207 of the NCC, if a
property is insured and the owner received indemnity from the insurer, the latter
is deemed subrogated to the rights of the insured against the wrongdoer.
However, this provision only applies to loss of insured property and not on
damages resulting to loss or injury to human life. Here, upon payment by the
insurance company to the insured, it is deemed subrogated to the right to sue
XYZ for the damage of the helicopter. Hence, the insurer can sue XYZ for
P80,000 but not to the life insurance.
 MARINE INSURANCE

2. Jacob, the owner of a barge, offered to transport the logs of Esau from Palawan to
Manila. Esau accepted the offer not knowing that the barge was manned by an
irresponsible crew with deep-seated resentments against Jacob, their employer.

Esau inured his cargo of logs against both perils of the sea and barratry.

The logs were improperly loaded on one side, thereby causing the barge to tilt and to
navigate on an uneven keel. When the strong winds and high waves, normal for that
season, started to pound the barge, the crew took advantage of the situation and
unbolted the sea valves of the barge, causing sea water to come in. the barge sank.

When Esau tried to collect from the insurance firm, the latter stated that it could not
be held responsible considering the unworthiness of both the barge and its crew. Esau
countered that he was not the owner of the barge and he could not be held responsible
for conditions about which he was innocent.

Is the insurance company liable? Decide with reasons.

Suggested Answer:

No. The Insurer in not liable as to the unseaworthiness of the barge. In marine
insurance, the implied warranty of seaworthiness of the vessel applies also to the
insurance of the cargo. In an insurance against perils of the sea, it is the responsibility
of the insured rather than the insurer to see to it that the vessel is seaworthy. That
responsibility, however, shifts to the insurer where the covered risks include perils of
the ship. Accordingly, the insurance company in the problem can be held liable.

(Transportation Law)
However, as to Barratry, Art. 809 of the Code of Commerce provides that particular
averages include: (9) Any loss suffered by the cargo through the fault, negligence, or
barratry of the captain or of the crew, without prejudice to the right of the owner to
recover corresponding indemnity from the captain, the vessel, and the freightage.

The Insurer is liable without prejudice to the right to recover under the principle of
subrogation the corresponding indemnity from the captain, the vessel, and the
freightage.

1982

Bar Question:
An inter-island vessel, insured for P2 M against “total and constructive total loss,” sank in
150 ft of water one mile off Paranaque during a typhoon. After the typhoon, the ship owner
gave written notice of abandonment of his interest in the entire sunken ship to the
insurance company. Refusing to accept the offer of abandonment, the insurer hired
salvors to refloat the vessel at a total cost of P40,000. Because the refloated vessel
needed repairs, the insurer issued invitations to bid for repairs. Several firms submitted
separate sealed bids ranging from P1.2 M to P1.3 M for the complete refurbishing and/or
restoration of the vessel to its original condition. On the basis of the following facts, the
insurance company rejected the claim of the ship owner for payment of total loss on the
ground that there was no constructive total loss.

a) Was the notice of abandonment given by the owner properly made? Reason.
b) Is the position of the insurance company as to the absence of constructive total
loss well taken? Reason.
c) Assuming that the ship owner failed to give the proper notice of abandonment, may
he still recover from the insurer? Why?

Suggested Answer:
a) First Suggested Answer: The notice of abandonment made in writing by the
insured to the insurer was sufficient, had the loss been a constructive total loss of
the vessel, meaning the loss is more than ¾ of the value of the vessel.

Second Suggested Answer: The notice of abandonment made in writing was not
proper, since the existence of the constructive total loss of the vessel had not yet
been determined. (Sec. 141, Insurance Code)

b) Yes, the position of the insurance company as to the absence of constructive total
loss is well taken.

Under Section 141 of the Insurance Code, a person insured by a contract of marine
insurance may abandon the thing insured, or any particular portion thereof
separately valued by the policy, or otherwise separately insured, and recover for a
total loss thereof, when the cause of the loss is a peril insured against: “(a) If more
than three-fourths (¾) thereof in value is actually lost, or would have to be
expended to recover it from the peril…”

The sum total of the damage to the vessel was only P1,340,000.00 (P40,000 for
the salvors, and P1,300,000 for the restoration of the vessel to its original
condition) which amount is not more than ¾ of the value of the vessel (P2 M).

c) Yes, the shipowner may still recover from the insurer his actual loss. Under Section
159 of the Insurance Code, a marine insurer is liable upon a partial loss, only for
such proportion of the amount insured by him as the loss bears to the value of the
whole interest of the insured in the property insured. The amount of P1,340,000.00
is now only partial loss. Since the said amount was already spent by the insurer
 on the vessel, the insurer is no longer liable to the shipowner, except to deliver the
vessel.

1983

Bar Question:

A shipped 100 pieces of plywood from Davao City to Manila. He took a marine insurance
policy to insure the shipment against loss or damage due to “perils of the sea, barratry,
fir, jettison, pirates and other such perils”.

When the ship left the port of Davao, the shipman in charge forgot to secure one of the
portholes, thru which sea water seeped during the voyage, damaging the plywood. A filed
a claim against the insurance company which refused to pay on the ground that the loss
or damage was not due to a peril of the sea or any of the risks covered by the policy. It
was admitted that the sea was reasonably calm during the voyage and that no strong
winds or waves were encountered by the vessel.

How would you decide the case? Explain.

Suggested Answer:

I would decide in favor of the insured A because the insurer was guilty of breach of the
implied warranty of seaworthiness.

Under Section 115 of the Insurance Code, in every marine insurance upon a ship or
freight, or freightage, or upon anything which is the subject of marine insurance, a
warranty is implied that the ship is seaworthy. Seaworthiness refers not only to the
structure of the ship but also as to its being properly laden. In other words, a ship which
is seaworthy for the insurance on the ship, may, by reason of being unfit to receive the
cargo, be unseaworthy for the purpose of insurance upon the cargo. In this case, the fact
that the porthole was not secured at the port of departure made the ship unseaworthy as
far as the cargo of plywood was concerned. Thus, the insurer should be liable for the
damage thereto although the loss was not one due to perils insured against.

1992

QUESTION:
An insurance company issued a marine insurance policy covering a shipment by sea from
Mindoro to Batangas of 1,000 pieces of Mindoro garden stones against “total loss only.”
The stones were loaded in two lighters, the first with 600 pieces and the second with 400
pieces. Because of rough seas, damage was caused the second lighter resulting in the
loss of 325 out of the 400 pieces. The owner of the shipment filed claims against the
insurance company on the ground of constructive total loss inasmuch as more than 3⁄4
of the value of the stones had been lost in one of the lighters. Is the insurance company
liable under its policy? Why?

SUGGESTED ANSWER:

NO. The insurance company is not liable under its policy covering against “total loss only”
the shipment of 1,000 pieces of Mindoro garden stones. The Supreme Court, in the case
of Oriental Assurance Co. v Court of Appeals, ruled that for there to be constructive loss,
the right to abandon must be given to the person insured, following the requirements of
Sec. 139 (now, Sec. 141) of the Insurance Code. The provision provides: a person insured
by a contract of marine insurance may abandon the thing insured, or any particular portion
thereof separately valued by the policy, or otherwise separately insured, and recover
for a total loss thereof, when the cause of the loss is a peril insured against: (a) If more
than three-fourths (¾) thereof in value is actually lost, or would have to be expended to
recover it from the peril; (b) If it is injured to such an extent as to reduce its value more
than three-fourths (¾); (c) If the thing insured is a ship, and the contemplated voyage
cannot be lawfully performed without incurring either an expense to the insured of more
than three-fourths (¾) the value of the thing abandoned or a risk which a prudent man
would not take under the circumstances; or (d) If the thing insured, being cargo or
freightage, and the voyage cannot be performed, nor another ship procured by the
master, within a reasonable time and with reasonable diligence, to forward the cargo,
without incurring the like expense or risk mentioned in the preceding subparagraph. But
freightage cannot in any case be abandoned unless the ship is also abandoned.
Moreover, the High Court elaborated that for the said provision to apply, the separate
vessels must be insured separately, not to be insured as one indivisible unit. Here, the
marine insurance policy covered the entire 1,000 pieces of Mindoro garden stones. Since
the same are not separately insured, no right to abndon is given to the person insured.
There is no constructive loss, making the insurance company not liable under its policy.

1996
Bar Question:

RC Corporation purchased rice from Thailand, which it intended to sell locally. Due to
stormy weather, the ship carrying the rice became submerged in sea water, and with it
the rice cargo. When the cargo arrived in Manila, RC filed a claim for total loss with the
insurer, because the rice was no longer fit for human consumption. Admittedly, the rice
could still be used as animal feed. Is RC’s claim for total loss justified? Explain.

Suggested Answer:

Yes, RC’s claim for total loss is justified.

In a case decided by the Supreme Court, the complete physical destruction of the rice is
not essential to constitute an actual total loss. Loss exists when the thing insured has
become totally useless for the purpose for which it was intended.

Here, the rice, which was imported from Thailand for sale locally, is obviously intended
for consumption by the public. The complete physical destruction of the rice is not
essential to constitute an actual total loss. Such a loss exists in this case since the rice,
having been soaked in sea water and thereby rendered unfit for human consumption, has
become totally useless for the purpose for which it was imported (Pan Malayan Ins Co v
CA gr 95070 Sep 5, 1991)

1998

BAR QUESTION:

A marine insurance policy on a cargo states that “the insurer shall be liable for losses
incident to perils of the sea.” During the voyage, seawater entered the compartment
where the cargo was stored due to the defective drainpipe of the ship. The insured filed
an action on the policy for recovery of the damages caused to the cargo. May the insured
recover damages? (5%)

SUGGESTED ANSWER:

NO.

‘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.

In this case, the proximate cause of the damage was the defective drainpipe, a result of
ordinary wear and tear. Ordinary wear and tear pertains to ‘perils of the ship.’

Thus, since the proximate cause of the damage falls under ‘perils of the ship’ and not
‘perils of the sea,’ the insured cannot recover under the policy.

2000

Bar Question:

What warranties are implied in marine insurance?

Suggested Answer:

The following warranties are implied in marine insurance:

a. That the ship is seaworthy to make the voyage and/or to take in certain cargoes;
b. That the ship shall not deviate from the voyage insured;

c. That the ship shall carry the necessary documents to show nationality or neutrality
and that it will not carry document which will cast reasonable suspicion thereon;

d. That the ship shall not carry contraband, especially if it is making voyage through
belligerent waters.

2005

Bar Question:

MV Pearly Shells, a passenger and cargo vessel, was insured for P40 M against
“constructive total loss”. Due to typhoon, it sank near Palawan. Luckily, there were no
casualties, only injured passengers. The shipowner sent a notice of abandonment of his
interest over the vessel to the insurance company which then hired professionals to
afloat the vessel for P900,000. When re-floated, the vessel needed repairs estimated at
P2 M. the insurance company refused to pay the claim of the shipowner, stating that
there was “no constructive total loss.”

A. Was there “constructive total loss” to entitle the shipowner to recover from the
insurance company? Explain.

B. Was it proper for the shippowner to send a notice of abandonment to the insurance
company? Explain.

Suggested Answer:
A. There was constructive total loss. Section 133, in relation to Section 141, ICP
provides of the circumstances where a person insured by an contract of Marine
Insurance may abandon the thing insured when the cause of the loss is a peril insured
against. When the vessel sank, it was likely that it would be totally lost because of the
improbability of recovery. Thus, there is constructive total loss.

B. Yes. It was proper for the ship owner to send a notice of abandonment to the
insurance company. Abandonment is defined in Section 140, ICP as the act of the
insured by which, after a constructive total loss, he declares the relinquishment to the
insurer of his interest in the things insured. Abandonment is made by giving notice
thereof to the insurer as provided in Section 145, ICP. Since there was reliable
information of the loss of the vessel, it is therefore proper to send notice to the
insurance company

2005

Bar Question:

On a clear weather, MV Sundo, carrying insured cargo, left the port of Manila bound for
Cebu. While at sea, the vessel encountered a strong typhoon forcing the captain to
steer the vessel to the nearest island where it stayed for 7 days. The vessel ran out of
provisions for its passengers. Consequently, the vessel proceeded to Leyte to replenish
its supplies.

A. Assuming that the cargo was damaged because of such deviation, who between the
insurance company and the owner of the cargo bears the loss? Explain.

B. Under what circumstances can a vessel properly proceed to a port other than its port
of destination? Explain.

Suggested Answer:
 A. The insurance company should bear the loss.
Departure of vessel from course of voyage or an unreasonable delay in pursuing
voyage, or the commencement of an entirely different voyage. (Sec. 125 ICP)
The Deviation is proper if it one of those enumerated in Section 126 of the
Insurance Code of the Philippines.Since the deviation was caused by a strong
typhoon, it was caused by circumstances beyond the control of the captain, and
also to avoid a peril whether or not insured against.
Thus, such deviation was proper and the Insurance company shall bear the loss.

B. A vessel can properly proceed to a port other than its port of destination in the
following cases (Section 126, ICP):

1. When caused by circumstances over which neither the master or the owner of the
ship has any control;

2. When necessary to comply with a warranty, or to avoid a peril, whether or not the
peril is insured against;

3. When made in good faith, and upon reasonable grounds of belief in the necessity to
avoid peril;

4. When made in good faith for the purpose of saving human life or relieving another
vessel in distress.

2011

(21) T Shipping, Co. insured all of its vessels with R Insurance, Co. The insurance policies
stated that the insurer shall answer for all damages due to perils of the sea. One of the insured's
ship, the MV Dona Priscilla, ran aground in the Panama Canal when its engine pipes leaked
and the oil seeped into the cargo compartment. The leakage was caused by the extensive
mileage that the ship had accumulated. May the insurer be made to answer for the damage to
the cargo and the ship?

(A) Yes, because the insurance policy covered any or all damage arising from perils of the sea.
(B) Yes, since there appears to have been no fault on the part of the shipowner and shipcaptain.
(C) No, since the proximate cause of the damage was the breach of warranty of seaworthiness
of the ship.

(D) No, since the proximate cause of the damage was due to ordinary usage of the ship,
and thus not due to a peril of the sea.
 2011

(27) T, the captain of MV Don Alan, while asleep in his cabin, dreamt of an Intensity 8
earthquake along the path of his ship. On waking up, he immediately ordered the ship to return
to port. True enough, the earthquake and tsunami struck three days later and his ship was
saved. Was the deviation proper?

(A) Yes, because the deviation was made in good faith and on a reasonable ground for
believing that it was necessary to avoid a peril.

(B) No, because no reasonable ground for avoiding a peril existed at the time of the
deviation.

(C) No, because T relied merely on his supposed gift of prophecy.

(D) Yes, because the deviation took place based on a reasonable belief of the captain.

2011

(54) For a constructive total loss to exist in marine insurance, it is required that the person
insured relinquish his interest in the thing insured. This relinquishment must be

(A) actual.

(B) constructive first and if it fails, then actual.

(C) either actual or constructive.

(D) constructive.

2011

(69) Perils of the ship, under marine insurance law, refer to loss which in the ordinary course of
events results from

(A) natural and inevitable actions of the sea.

(B) natural and ordinary actions of the sea.

(C) unnatural and inevitable actions of the sea.

(D) unnatural and ordinary actions of the sea.

2011

(89) X Shipping, Co., insured its vessel MV Don Teodoro for Php100 Million with ABC
Insurance, Co. through T, an agent of X Shipping. During a voyage, the vessel accidentally
caught fire and suffered damages estimated at Php80 Million. T personally informed ABC
Insurance that X Shipping was abandoning the ship. Later, ABC insurance denied X Shipping’s
claim for loss on the ground that a notice of abandonment through its agent was improper. Is
ABC Insurance right?

(A) Yes, since X Shipping should have ratified its agent’s action.

(B) No, since T, as agent of X Shipping who procured the insurance, can also give notice
of abandonment for his principal.

(C) Yes, since only the agent of X Shipping relayed the fact of abandonment. (D) No, since in
the first place, the damage was more than ¾ of the ship's value.

2014

BAR QUESTION:

On December 1, 2010, Kore A Corporationshipped from South Korea to LT Corporation

in Manila some 300,000 sheets of high-grade special steel. The shipment was insured
against all risks by NA Insurance(NA). The carrying vessel arrived at the Portof Manila on
January 10, 2011. When the shipment was discharged, it was noted that 25,000 sheets
were damaged and in bad order. The entire shipment was turned over to the custody of
ATI, the arrastre operator, on January 21, 2011 for storage and safekeeping, pending its
withdrawal by the consignee’s authorized customs broker, RVM.

On January 26 and 29, 2011, the subject shipment was withdrawn by RVM from the
custody of ATI. On January 29, 2011, prior to the withdrawal of the last batch of the
shipment, a joint inspection of the cargo was conducted per the Request for Bad Order
Survey (RBO) dated January 28, 2011. The examination report showed that 30,000
sheets of steel were damaged and in bad order.

NA Insurance paid LT Corporationthe amount of P30,000,000.00 for the 30,000 sheets

that were damaged, as shown in the Subrogation Receipt dated January 13, 2013.
Thereafter, NA Insurance demanded reparation against ATI for the goods damaged in its
custody, in the amount of P5,000,00.00. ATI refused to pay claiming that the claim was
already barred by the statute of limitations. ATI alleged that the Carriage of Goods by Sea
Act (COGSA) applies in this case since the goods were shipped from a foreign port to the
Philippines. NA Insurance claims that the COGSA does not apply, since ATIis not a
shipper or carrier. Who is correct? (5%)

SUGGESTED ANSWER: NA Insurance is correct. ATI should be ordered to pay NA

Insurance notwithstanding the lapse of the one year prescriptive period for filing a suit
under the COGSA. The term “carriage of goods” under Section 1 in COGSA, covers the
period from the time when the goods are loaded to the time when they are discharged
from the ship infer that the period of time when the goods have been discharged from the
ship and given to the custody of the arrastre operator is not covered by the COGSA. The
COGSA does not mention that an arrastre operator may invoke the prescriptive period of
one year; hence, it does not cover the arrastre operator.

2014

BAR QUESTION

ELP Insurance, Inc. issued Marine Policy No. 888 in favor of FCL Corp. to insure
the shipment of 132 bundles of electric copper cathodes against all risks. Subsequently,
the cargoes were shipped on board the vessel "M/V Menchu" from Leyte to Pier 10, North
Harbor, Manila.

Upon arrival, FCL Corp. engaged the services of CGM, Inc. for the release and withdrawal
of the cargoes from the pier and the subsequent delivery to its warehouses/plants in
Valenzuela City. The goods were loaded on board twelve (12) trucks owned by CGM,
Inc., driven by its employed drivers and accompanied by its employed truck helpers. Of
the twelve (12) trucks en routeto Valenzuela City, only eleven (11) reached the
destination. One (1) truck, loaded with eleven (11) bundles of copper cathodes, failed to
deliver its cargo.

Because of this incident, FCL Corp. filed with ELP Insurance, Inc. a claim for insurance
indemnity in the amount of P1,500,000.00. After the requisite investigation and
adjustment, ELP Insurance, Inc. paid FCL Corp. the amount of P1,350,000.00 as
insurance indemnity.

ELP Insurance, Inc., thereafter, filed a complaint for damages against CGM, Inc. before
the Regional Trial Court (RTC), seeking reimbursement of the amount it had paid to FCL
Corp. for the loss of the subject cargo. CGM, Inc. denied the claim on the basis that it is
not privy to the contract entered into by and between FCL Corp. and ELP Insurance, Inc.,
and hence, it is not liable therefor. If you are the judge, how will you decide the case?
(4%)

SUGGESTED ANSWER:
 CGM, Inc. should be held liable for damages against ELP Insurance, Inc. The
insurer, upon happening of the risk insured against and after payment to the insured is
subrogated to the rights and cause of action of the latter. As such, the insurer has the
right to seek reimbursement for all the expenses paid.

2017

BAR QUESTION:

Absolute Timber Co. (ATC) has been engaged in the logging business in Isabela. To
secure one of its shipments of logs to be transported by Andok Shipping Co., ATC
purchased a marine policy with an all-risk provision, Because of a strong typhoon then
hitting Northern Luzon, the vessel sank and the shipment of logs was totally lost. ATC
filed its claim, but the insurer denied the claim on several grounds, namely: (1) the
vessel had not been seaworthy; (2) the vessel’s crew had lacked sufficient training; (3)
the improper loading of the logs on only one side of the vessel had led to the tilting of
the ship to that side during the stormy voyage; and (4) the extremely bad weather had
been a fortuitous event.

ATC now seeks your legal advice to know if its claim was sustainable. What is your
advice? Explain your answer. (3%)

SUGGESTED ANSWER:

ATC’s claim is sustainable because the policy procured by ATC is an all-risk policy.

As held in the case of New World International Development v. NYK FilJapan Shipping
Corporation, G.R. No. 171468, August 24, 201, an all-risk policy is one which covers all
causes of conceivable loss or damage except when otherwise excluded or when the
loss or damage was due to fraud or intentional misconduct committed by the insured.
The policy covered all losses during the voyage whether or not arising from a marine
peril.
In the case at bar, ATC availed a marine policy with an all-risk provision without any list
of excluded risks. Absent any showing that ATC committed fraud or intentional
misconduct, the all-risk policy covers the insured.

Therefore, ATC may claim or recover under the marine policy with an all-risk provision
against the insurer.

DOUBLE INSURANCE
2005

Bar Question:

A. When does double insurance exist?

B. What is the nature of the liability of the several insurers in double insurance? Explain.

Suggested Answer:

A. A Double insurance exists where the same person is insured by two or more insurers
separately with respect to the same subject matter and interest (Section 95, ICP)

B. In double insurance, the insurers are considered as co-insurers. Each one is bound
to contribute ratably to the loss in proportion to the amount for which he is liable under
his contract. (Sec. 96 (e), ICP)

2017

BAR QUESTION:
TRUE or FALSE – EXPLAIN BRIEFLY YOUR ANSWER.

(e) The law on life insurance prohibits double insurance. (2%)

SUGGESTED ANSWER

False. There is no general prohibition against double insurance. It should be noted that
there can be double insurance in life insurance but there can never be over-insurance.
The life of a person can be insured for any amount and it would still be inadequate
because of the intrinsic value of life.

CO-INSURANCE; RE-INSURANCE
1994

Bar Question:

Distinguish co-insurance from re-insurance.

Suggested Answer:

Co-insurance is the percentage in the value of the insured property which the
insured himself assumes or undertakes to act as insurer to the extent of the deficiency in
the insurance of the insured property. In case of loss or damage, the insurer will be liable
only for such proportion of the loss or damage as the amount of insurance bears to the
designated percentage of the full value of the property insured.

Re-insurance is where the insurer procures a third party, called the reinsurer, to
insure him against a liability by reason of such original insurance. Basically, a reinsurance
is an insurance against liability which the original insurer may incur in favor of the original
insured.
 LIFE INSURANCE
2008

Q: On January 1, 2000, Antonio Rivera secured a life insurance from SOS Insurance
Corp. for P1 Million with Gemma Rivera, his adopted daughter, as the beneficiary. Antonio
Rivera died on March 4, 2005 and in the police investigation, it was ascertained that
Gemma Rivera participated as an accessory in the killing of Antonio Rivera. Can SOS
Insurance Corp. avoid liability by setting up as a defense the participation of Gemma
Rivera in the killing of Antonio Rivera? Discuss with reasons. (4%)

Suggested Answer:

No. SOS Insurance Corp. cannot avoid liability by setting up as defense the participation
of Gemma Rivera in the killing of Antonio Rivera. Although the Insurance Code provides
that the interest of the beneficiary in a life insurance policy shall be forfeited when the
beneficiary is the principal, accomplice, or accessory in willfully bringing about the death
of the insured, the same law also provides that in such an event, the nearest relative of
the insured shall receive the proceeds of said insurance if not otherwise disqualified. The
facts of the case reveal that Gemma Rivera's participation as accessory is only based on
the findings of a police investigation. In other words, there is yet no final judgment of
conviction. But assuming arguendo that a mere police investigation is enough to disqualify
Gemma, the fact remains that the law itself provides that the insurance proceeds shall
pertain to the nearest relatives of the insured. Hence, all premises considered, the insurer
cannot therefore escape liability by simply raising the defense of Gemma's participation
as an accessory to the crime.

CASUALTY INSURANCE
1975

1. In a course of a voluntary boxing content, B who had an accident insurance policy,

slid and slipped, enabling his opponent boxer to hit him with a blow that threw him
 to the ropes, hitting his head against the canvass, causing B’s eventual death.
There is nothing in the insurance contract appertaining to boxing. Is the Insurance
Company liable? Reasons.

Answer: Yes. This is similar to the case of De la Cruz vs. Capital Insurance and Surety
Co. The Supreme Court in said case defined accident as 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. Thus, for one to be able
to claim from such accident insurance policy, the injury sustained should be within the
meaning of an accident. In said case, it was established that while the participation of the
insured in the boxing contest is voluntary, the injury was sustained when he slid, giving
occasion to the infliction by his opponent of the blow that threw him to the ropes of the
ring. Without this unfortunate incident, that is, the unintentional slipping of the deceased,
perhaps he could not have received that blow in the head and would not have died. The
fact that boxing is attended with some risks of external injuries does not make any injuries
received in the course of the game not accidental. In boxing as in other equally physically
rigorous sports, such as basketball or baseball, death is not ordinarily anticipated to result.
If, therefore, it ever does, the injury or death can only be accidental or produced by some
unforeseen happening or event as what occurred in this case. Thus, the Insurance
company is liable.

2. Luis was the holder of an accident insurance policy effective November 1, 1988 to
October 31, 1989. At a boxing contest held on January 1, 1989 and sponsored by
his employer, he slipped and was hit on the face by his opponent so he fell and his
head hit one of the posts of the boxing ring. He was rendered unconscious and
was dead on arrival at the hospital due to “intracranial hemorrhage.”

Can his father who is a beneficiary under said insurance policy successfully claim
indemnity from the insurance company? Explain your answer.

Yes. This is similar to the case of De la Cruz vs. Capital Insurance and Surety Co. The
Supreme Court in said case defined accident as 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. Thus, for one to be able to
claim from such accident insurance policy, the injury sustained should be within the
meaning of an accident. In said case, it was established that while the participation of the
insured in the boxing contest is voluntary, the injury was sustained when he slid, giving
occasion to the infliction by his opponent of the blow that threw him to the ropes of the
ring. Without this unfortunate incident, that is, the unintentional slipping of the deceased,
perhaps he could not have received that blow in the head and would not have died. The
fact that boxing is attended with some risks of external injuries does not make any injuries
received in the course of the game not accidental. In boxing as in other equally physically
rigorous sports, such as basketball or baseball, death is not ordinarily anticipated to result.
If, therefore, it ever does, the injury or death can only be accidental or produced by some
unforeseen happening or event as what occurred in this case. Thus, the father, being the
beneficiary or the person designated to receive proceeds of policy when the risk attaches,
may successfully claim from the Insurance Company.

1978

Bar Question:

Mr. Gonzales was the owner of a car insured with Masagana Insurance Company
for “Own Damage”, “Theft”, and “Third Party Liability” effective May 14, 1986 to May 14,
1987. On May 2, 1987, the car was brought to a machine ship for repairs. On May 11,
1987, while in the custody of the machine shop, the car was taken by one of the
employees (of the machine shop) to show off to his girlfriend. While on the way to his
girlfriend’s house, the car smashed into a parked truck and was extensively damaged.
Mr. Gonzales filed a claim for recovery under the policy but was refused payment. The
insurance company averred that the car was not stolen, and therefore was not covered
by the “Theft Clause”.

Decide the merits of the insurer’s contention, with reasons.

SUGGESTED ANSWER:

The insurance company should answer for the damage of the car and allow Mr.
Gonzales to claim recovery under the policy.

The coverage of the policy was rather comprehensive than limited in scope. The
“Theft Clause” particularly, by the intendment of the parties should cover all situations of
the loss of the property occasioned by the taking or use by another without the authority
of the insured. In the case of Villacorta v. Insurance Commission the Supreme Court held
that “when a person, either with the object of going to a certain place, or learning how to
drive, or enjoying a free ride, and takes possession of the vehicle belonging to another,
without the consent of the owner, he is already guilty of theft because by taking
possession of the property belonging to another and using it, his intent to gain is evident
since he derives therefrom utility, satisfaction, enjoyment, and pleasure.”

In this case, although the car was taken not within the strict meaning of the word
“theft,” at the time of the accident it was driven by one who had no authority to drive the
car, and the use thereof was without authority of the owner, therefore, it is within the
coverage of the insurance policy.

Hence, Masagana Insurance Company should be liable for the damages.

 1981

Bar Question:

“A” was the owner of a car insured with Fortune Insurance Company for “Own Damage”,
“Theft”, and “Third-Party-Liability” effective May 16, 1977 to May 16, 1978. On May 9,
1978, the car was brought to a machine shop for repairs. On May 11, 1978, while in the
custody of the machine shop, the car was taken by one of the employees to be driven out
to a certain place. While travelling along the highway, the car smashed into parked truck
and suffered extensive damage.

“A” filed a claim for recovery under the policy but was refused payment. The insurance
company averred that the car was not stolen and, therefore, was not covered by the “Theft
Clause.”

Decide the merits of the insurer’s contention, with reasons.

Suggested Answer:

The insurer is liable to “A” under the “Theft Clause”.

The Supreme Court held in the case of Villacorta v. Insurance Commissioner that where
a car is unlawfully and wrongfully taken by some people, be they employees of the car
shop or not to whom it had been entrusted, and taken on a long trip without the owner's
consent or knowledge, such taking constitutes or partakes of the nature of theft as defined
in Article 308 of the Revised Penal Code.

In the case at bar, A’s car was taken from the repair shop by the one of the employees
without his consent. Regardless of the reason behind such taking, and even though
temporary and only for a joy ride, such amounts to theft. Therefore, the insurer is liable
for the damage incurred due to the car accident.

1993

Bar Question:

S Insurance Co. issued a personal accident policy to Bob Tan with a face value of
P500,000. In the evening of September 5, 1992, after his birthday party, Tan was in a
happy mood but not drunk. He was playing with his hand gun, from which he previously
removed the magazine. As his secretary was watching television, he stood in front of her
and pointed the gun at her. She pushed it aside and said that it may be loaded. He
assured her that it was not and then pointed it at his temple. The next moment, there was
an explosion and Tan slumped to the floor lifeless.
The wife of the deceased sought payment on the policy but her claim was rejected. The
insurance company agreed that there was no suicide. However, it was the submission of
the insurance company that there was no accident. In support thereof, it contended a)
that there was no accident when a deliberate act was performed unless some additional,
unexpected, independent and unforeseen happening occur which produces or brings
about the injury or death; and b) that the insured willfully exposed himself to needless
peril and thus removed himself from the coverage of the insurance policy.

Are the two contentions of the insurance company tenable? Explain.

Suggested Answer:

No, the contentions of the insurance company are untenable. Bob Tan was
unquestionably negligent and that negligence cost him his own life. But it should not
prevent his widow from recovering from the insurance policy he obtained precisely against
accident. There is nothing in the policy that relieves the insurer of the responsibility to pay
the indemnity agreed upon if the insured is shown to have contributed to his own accident.
Indeed, most accidents are caused by negligence.

2004

Bar Question:

CNI insure SAM under a homeowner's policy against claims for accidental injuries by
neighbors. SAM's minor son, BOY, injured 3 children of POS, a neighbor, who sued SAM
for damages. SAM's lawyer was ATT, who was paid for his services by the insurer for
reporting periodically on the case to CNI. In one report, ATT disclosed to CNI that after
his investigations, he found the injuries to the 3 children not accidental but intentional.

SAM lost the case in court, and POS was awarded one million pesos in damages which
he sought to collect from the insurer. But CNI used ATTs report to deny the claim on the
ground that the injuries to POS's 3 children were intentional, hence excluded from the
policy's coverage. POS countered that CNI was estopped from using ATTs report
because it was unethical for ATT to provide prejudicial information against his client to
the insurer, CNI.

Who should prevail: the claimant, POS; or the insurer, CNI? Decide with reasons briefly.
(5%)

Suggested Answer:

The CNN claim cannot prevail because as a rule it is the insurer who has the burden of
proof to show that the peril was excepted as it is the insurer that seeks avoidance from
the liability.
Moreover, in Finman General Assurance Corp. v. Court of Appeals, 213 SCRA 493
(1992), it was explained that there is no "accident" in the context of an accident policy, if
it is the natural result of the insured's voluntary act, unaccompanied by anything
unforeseen except the injury. There is no accident when a deliberate act is performed
unless some additional and unforeseen happening occurs that brings about the injury.

This element of deliberateness is not clearly shown from the facts of the case, especially
considering the fact that BOY is a minor, and the injured parties are also children.
Accordingly, it is possible that CNI may not prosper. ATT's report is not conclusive on
POS or the court.

FIRE INSURANCE

1975

1. In 1964, Jose constructed a house worth P50,000.00, which he insured against

fire for the same amount. The insurance for the same amount was renewed every
year. In 1974, when the house was already worth P100,000.00 on account of
inflationary prices (in case of a rebuilding), one-fifth (1/5) of the house was
destroyed by fire. As nothing illegal about the contract, how much, if any, can Jose
successfully recover from the Insurance Company? Reason.

Answer: Property Insurance policies may be classified into an open policy, valued policy
or running policy. According to Sec. 60 of the Insurance Code, an open policy is one in
which the value of the thing insured is not agreed upon, and the amount of the insurance
merely represents the insurer’s maximum liability. The value of such thing insured shall
be ascertained at the time of the loss; according to Sec. 61 of the Insurance Code, a
valued policy is one which expresses on its face an agreement that the thing insured shall
be valued at a specific sum; according to Sec. 62 of the Insurance Code, a running policy
is one which contemplates successive insurances, and which provides that the object of
the policy may be from time to time defined, especially as to the subjects of insurance, by
additional statements or indorsements.

Applying said principles to the problem, the insurance may be an open policy or
valued policy. If said insurance policy is an open one, then under the Iaw appraisal of loss
is made after the fire. Since the house was worth P100,000.00 at such time, then the loss
of Jose is P20,000.00 and he can recover this amount under such an open policy.
 If the fire policy is a valued one, under the Insurance Code, the valuation in a
valued policy is conclusive between the parties in the absence of fraud and the value is
based on the face of the agreement, then Jose is only limited to the amount of 1/5 of
P50,000 or P10,000.

1989

Bar Question #4

(1) Queens Insurance Company insured X, a resident of Baguio City, “against all direct
loss and damage by fire.” X lived in a house heated by a furnace. His servant built a fire
in the furnace using material that was highly flammable. The furnace fire cause intense
heat and great volumes of smoke and soot that damaged the furnishings in the rooms of
X. When X tried to collect on the policy, Queens Insurance refused to pay contending that
the damage is not covered by the policy, where the fire is confined within the furnace.
Decide.

Suggested Answer:

(1) The refusal of Queens Insurance Company to pay is justified. The law provides that
liability on the part of the insurer will ensue only if there is a “hostile fire” and not a “friendly
fire.” A hostile fire is one that is uncontrolled, whereas a friendly fire is one contained in
its proper receptacle. Once a fire has passed outside the limits assigned to it, it becomes
a hostile fire. In the given facts, since the fire remained confined within the furnace, it is
merely a friendly fire. Therefore, not being a hostile fire, the insurance company is justified
in its refusal.

Alfredo took out a policy to insure his commercial building against fire. The broker for the
insurance company agreed to give a 15-day credit within which to pay the insurance
premium. Upon delivery of the policy on May 15, 2006, Alfredo issued a postdated check
payable on May 30, 2006. On May 28, 2006, a fire broke out and destroyed the building
owned by Alfredo.

a. May Alfredo recover on the insurance policy?

 b. Would your answer in (a) be the same if it was found that the proximate cause of
the fire was an explosion and that fire was but the immediate cause of loss and
there is no excepted peril under the policy?
c. If the fire was found to have been caused by Alfredo's own negligence, can he still
recover on the policy?

Reason briefly in (a), (b) and (c).

ANSWER:

a. Yes, Alfredo can recover on the insurance policy.

Although Section 79 of the Insurance Code of the Philippines (ICP) provides that in
fire insurance, payment of premium is necessary for validity of the policy (also known
as “cash and carry” provision), nonetheless, the rule has been modified by the
decisions of the Supreme Court after the promulgation of the Insurance Code. Thus,
in UCPB General Insurance v. Masagana Telemart (G.R. No. 137172, April 4, 2001),
it was held that if the insurer has granted the insured a credit term for the payment of
the premium and loss occurs before the expiration of the term, recovery on the policy
should be allowed even though the premium is paid after the loss but within the credit
term.

In this case, although the payment of the premium through check was made after the
building was destroyed by fire, Alfredo may still recover since the check was payable
within the 15-day credit given by the insurance company.

Hence, Alfredo may still recover on the insurance company despite the destruction of
the thing prior to the actual payment of the premium.

b. Yes. Section 86 of the ICP provides that the insurer shall be liable the loss, the
proximate cause of which is the peril insured against. Section 86 of the same Code
also provides that the insurer shall also be liable for the loss if the immediate cause of
which is the peril insured against except where the proximate cause is an excepted
peril.

In this case, although the proximate cause of the loss is the explosion, the fire is still
the immediate cause of the destruction of the building. The insurance company is still
liable since the explosion was not an excepted peril in the insurance policy.

Hence, Alfredo may still recover from the insurance policy even if the fire is only the
immediate cause of the loss.

c. Yes, Alfredo can still recover. Section 89 of the ICP provides that an insurer is not
liable for a loss caused by the willful act or through the connivance of the insured; but
 the insurer is not exonerated by the negligence of the insured, or of the insurance
agents or others.

In this case, mere negligence of Alfredo will not exonerate the insurance company
from its liability against the former. Since the negligence was not provided to be gross,
the insurer is still liable based on the insurance policy. Hence, Alfredo can still recover.

COMPULSARY MOTOR VEHICLE LIABILITY INSURANCE

1981

Bar Question:

“X” owns and operates several passenger jeepneys in Metro Manila. He entered into a
contract with Gold Mine Insurance & Surety Co., insuring the operation of his jeepneys
against accidents with third party-liability.

During the effectivity of the insurance, one of his jeepneys bumped “B”, who had just
alighted from another passenger jeepney whose driver unloaded passengers in the
middle of the street. “B” suffered bodily injury as a consequence and filed a claim against
the insurance company. The latter refused to pay on the ground that the driver of the
jeepney from which passenger “B” alighted was guilty of negligence in unloading in the
middle of the street, and that the driver of the insured operator was not at fault.

Can passenger “B” recover from the insurance company? Explain.

Suggested Answer:

Yes, passenger “B” may recover from the insurance company.

Under Section 391 of the Insurance Law which pertains to Compulsary Motor Vehicle
Liability Insurance, a claim by the occupant of the vehicle shall lie against the insurer of
directly offending vehicle. Moreover, the same section provides that any claim for death
or injury to any passenger or third-party shall be paid without the necessity of proving fault
or negligence of any kind.

In the case herein, the insurance covers the operation of “X’s” jeepneys against accidents
with third parties; therefore, the insurance covers the liability for death or body injuries of
third persons, like what happened to “B”, and the claim shall be against the insurer of the
directly offending vehicle which is X’s vehicle. Thus, the insurance company is liable to
pay indemnity to B.
 1983

Bar Question:

Driving his car one night, A crossed an intersection as the signal light turned green.
Suddenly he saw an old woman crossing the street just a few feet from his car. He applied
his brakes immediately, but just the same, he hit the woman who turned out to be senile
already. He brought her to the nearest hospital where she was confined for 3 days due to
her injuries. Upon her discharge, A had to pay the hospital bill which amounted to P2,000
including X-rays, doctor’s fees and medicines.

Being covered by the compulsory liability policy required of all vehicle owners under the
Insurance Code, A referred the matter to his insurance company, which refused to
reimburse him, claiming that since A was not at fault (it was admitted that he was not
speeding or in any way negligent), there was no third party liability for which the insurance
company could be liable under A’s policy.

Is the insurance company liable to reimburse A for the hospital expenses? Explain.

Suggested Answer:

Yes, the insurance company is liable.

The Insurance Code has the “no-fault” provision imposing liability for any claim for death
or injury to any third party under the compulsory motor vehicle liability insurance. Under
Section 191 of the Insurance Code, any claim for death or injury to any passenger or
third-party shall be paid without necessity of proving fault or negligence of any kind,
provided: a) The total indemnity in respect of any person shall not be less than Fifteen
thousand pesos (P15,000.00); (b) The following proofs of loss, when submitted under
oath, shall be sufficient evidence to substantiate the claim: (1) Police report of accident;
and (2) Death certificate and evidence sufficient to establish the proper payee; or (3)
Medical report and evidence of medical or hospital disbursement in respect of which
refund is claimed.

Thus, even if there is no negligence on the part of A, he is still entitled to reimbursement

of the hospital bills.

1989

Bar Question #3:

(1) What do you understand by the “no fault indemnity” provision in the Insurance Code?
What are the rules on claims under said provision?

Suggested Answer:

(1) The “no fault indemnity,” according to Sec. 391 Insurance Code, as amended by
Insurance Memorandum Circular No. 4-2006, is where proof of fault or negligence
is not necessary for payment of any claim for death or injury to a passenger or a
third party provided the following are established: (1) a claim may be made against
one motor vehicle only; (2) if the victim is an occupant of a vehicle, the claim shall
lie against the insurer of the vehicle in which he is riding, mounting or dismounting
from; (3) in any other case, the claim shall lie against the insurer of the directly
offending vehicle; (4) in all cases, the right of the party paying the claim to recover
against the owner of the vehicle responsible for the accident shall be maintained;
(5) the total indemnity in respect of any person shall not exceed fifteen thousand
pesos (P15,000.00); (6) the following proofs of loss, when submitted under oath,
shall be sufficient evidence to substantiate the claim: (i) Police report of accident,
and (ii) Death certificate and evidence sufficient to establish the proper payee, or
(iii) Medical report and evidence of medical or hospital disbursement in respect of
which refund is claimed.

1993

Bar Question:

HL insured his brand new car with P Insurance Company for comprehensive coverage
wherein the insurance company undertook to indemnify him against loss or damage to
the car a) by accidental collision b) by fire, external explosion, burglary, or theft, and c)
malicious acts.

After a month, the car was carnapped while parked in the parking space in front of the
Intercontinental Hotel in Makati. HL’s wife who was driving said car before it was
carnapped reported immediately the incident to various government agencies in
compliance with the insurance requirements.

Because the car could not be recovered, HL filed a claim for the loss of the car with the
insurance company but it was denied on the ground that his wife who was driving the car
when it was carnapped was in the possession of an expired driver’s license, a violation
of the authorized driver clause of the insurance company.

1) May the insurance company be held liable to indemnify HL for the loss of the insured
vehicle? Explain.
2) Supposing that the car was brought by HL on installment basis and there were
installments due and payable before the loss of the car as well as installments not yet
payable. Because of the loss of the car, the vendor demanded from HL the unpaid
balance of the promissory note. HL resisted the demand and claimed that he was only
liable for the installments due and payable before the loss of the car but no longer liable
for other installments not yet due at the time of the loss of the car. Decide.

Suggested Answer:

1) Yes, the insurance company is liable for the loss of the vehicle. Where the motor
vehicle is unlawfully and wrongfully taken without the owner’s consent or knowledge, such
taking constitutes theft, and therefore, it is the ‘theft clause’ and not the ‘authorized driver
clause’ that should apply. The fact that the driver using the car before it was carnapped
had an expired driver’s license is of no moment.

2) The insurance policy was meant to be an additional security to the principal contract,
which is the promissory note, to insure that it will be paid in case the automobile is lost
through accident or theft. The chattel mortgage constituted over the automobile is merely
an accessory contract to the promissory note. Being the principal contract, the promissory
note is unaffected by whatever befalls the subject matter of the accessory contract.
Therefore, the unpaid balance on the promissory note should be paid, and not just the
installments due and payable before the automobile was carnapped.

1994

Bar Question:

What is your understanding of a “no fault indemnity” clause found in an insurance

policy?

Suggested Answer:

Under the “no fault indemnity” clause, any claim for death or injury of any
passenger or third party shall be paid without the necessity of proving fault or negligence
of any kind. The indemnity in respect of any one person shall not exceed P5,000.00,
provided they are under oath, the following proofs shall be sufficient:

1) Police report of the accident; and

2) Death certificate and evidence sufficient to establish the proper payee; or
3) Medical report and evidence of medical or hospital disbursement in respect of
which refund is claimed.
 4) Claim may be made against one motor vehicle only.

2014

BAR QUESTION:

On May 26, 2014, Jess insured with Jack Insurance (Jack) his 2014 Toyota Corolla
sedan under a comprehensive motor vehicle insurance policy for one year. On July 1,
2014, Jess’ car was unlawfully taken. Hence, he immediately reported the theft to the
Traffic Management Command (TMC) of the Philippine National Police (PNP), which
made Jess accomplish a complaint sheet as part of its procedure. In the complaint sheet,
Jess alleged that a certain Ric Silat(Silat) took possession of the subject vehicle to add
accessories and improvements thereon. However, Silat failed to return the subject vehicle
within the agreed 3-day period. As a result, Jess notified Jack of his claim for
reimbursement of the value of the lost vehicle under the insurance policy. Jack refused
to pay claiming that there is no theft as Jess gave Silat lawful possession of the car. Is
Jack correct? (4%)

SUGGESTED ANSWER

A:No. Jack is not correct. The “theft clause” of a comprehensive motor vehicle
insurance policy has been interpreted by the Court in several cases to cover situations
like (1) when one takes the motor vehicle of another without the latter’s consent even if
the motor vehicle is later returned, there is theft—there being intent to gain as the use of
the thing unlawfully taken constitutes gain, or (2) when there is taking of a vehicle by
another person without the permission or authority from the owner thereof.