Rhys Murillo - Insurance Reviewer - Ateneo Law School

INSURANCE REVIEWER– Atty. Quimson

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Most of the content of this reviewer was taken from the Reviewer of Johnbee Sioson (3-B,1994) edited to include new jurisprudence and subject matter discussed in class.

THE INSURANCE CODE OF 1976 (Presidential Decree No. 1460) GENERAL PROVISIONS Section 1. This decree shall be known as the “Insurance Code of 1978” What is the principle behind insurance? Insurance is based upon the principle of aiding another from a loss caused by an unfortunate event. How old is the concept of insurance? Very old. Benevolent societies organized for the purpose of extending aid to their unfortunate members from a fund contributed by all, have been in existence from the earliest times. They existed among the Egyptians, the Chinese, the Hindus, the Romans, and are known to have been established among the Greeks as early as, believe it or not, 3 B.C. How did insurance develop in the Philippines? Pre-Spanish Era - there was no insurance; every loss was borne by the person or the family who suffered the misfortune. Spanish era – Insurance, in its present concept, was introduced in the Philippines when Lloyd’s of London appointed Strachman, Murray & Co., Inc. as its representative here. 1898 – Life insurance was introduced in this country with the entry of Sun Life Assurance of Canada in the local insurance market. 1906 – First domestic non-life insurance company, the Yek Tong Lin Insurance Company, was organized 1910 – First domestic life insurance company, the Insular Life Assurance Co., Ltd., was organized 1939 – Union Insurance Society of Canton appointed Russel & Surgis as its agent in Manila. The business transacted the Philippines was then limited to non-life insurance. 1936 – Social insurance was established with the enactment of Commonwealth Act no. 186 which created the Government Service Insurance System (GSIS) which started operations in 1937. The Act covers gov’t employees. 1949 – Government agency was formed to handle insurance affairs, where the Insular Treasurer was appointed commissioner ex-officio. 1950 – Reinsurance was introduced by the Reinsurance Company of the Orient when it wrote treaties for both life and non life. 1951 – First workmen’s compensation pool was organized as the Royal Group Incorporated. 1954 – RA 1161 was enacted which provided for the organization of the Social Security System (SSS) covering employees of the private sector. At present, there are 130 insurance companies registered with the Office of the Insurance Commissioner. Of these, 2 are composite insurance companies (engaged in both life and non-life insurance), 23 are life insurance companies, 101 are non-life insurance companies and 4 are reinsurance companies. How did insurance laws develop in the Philippines? During the Spanish Period, the laws on insurance were found in Title VII of Book II and Section III of Title III of Book III of the Spanish Code of Commerce; and in Chapters II and IV of Tile XII of Book IV of the Spanish Civil Code of 1889 (whew!) During the American Regime, on Dec. 11, 1914, the Phil Legislature enacted the Insurance Act (Act 2427). This Act which took effect on July 1, 1915 repealed the provisions of the Spanish Code of Commerce on Insurance. When the Civil Code of the Philippines (RA 386) took effect on August 30, 1950, the provisions of the Spanish Civil Code of 1889 were likewise repealed. For quite a long time, the Insurance Act was the governing law on insurance in the Philippines. On Dec. 18, 1974, PD 612 was promulgated, ordaining and instituting the Insurance Code of the Philippines, thereby repealing Act 2427. PD’s 63, 123 and 317 were issued, amending PD 612. Finally PD 1460 which took effect on June 11, 1976 consolidated all insurance laws into a single code and this is what we know now as the Insurance Code of 1978.

3D SY 2004-2005

rhys alexei

INSURANCE REVIEWER– Atty. Quimson

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What are the present laws that govern insurance (also known as the laws we have to know for exams)? The laws we have to know are, of course, PD 1460, and Articles 2011-2012, 2021-2027 and 2166 of the New Civil Code. What do these Civil Code Provisions say? Art. 2011. The contract of insurance is governed by special laws. Matters not expressly provided for in such special laws shall be regulated by this Code. Art. 2012. Any person who is forbidden from receiving any donation under Art. 739 cannot be named beneficiary of a life insurance policy by a person who cannot make any donation to him, according to said article. Art. 2021. The aleatory contract of life annuity binds the debtor to pay an annual pension or income during the life of one or more determinate persons in consideration of a capital consisting of money or other property, whose ownership is transferred to him at once with the burden of income. Art. 2022. The annuity may be constituted upon the life of the person who gives the capital, upon that of a third person, or upon the lives of various persons, all of whom must be living at the time the annuity is established. It may also be constituted in favor of the person or persons upon whose life or lives the contract is entered into, or in favor of another or other persons. Art. 2023. Life annuity shall be void if constituted upon the life of a person who was already dead at the time the contract was entered into, or who was at the that time suffering from an illness which caused his death within twenty days following said date. Art. 2024. The lack of payment of the income due does not authorize the recipient of the life annuity to demand the reimbursement of the capital or to retake possession of the property alienated, unless there is a stipulation to the contrary; he shall have only a right judicially to claim the payment of the income in arrears and to require a security for the future income, unless there is a stipulation to the contrary. Art. 2025. The income corresponding to the year in which the person enjoying it dies shall be pain in proportion to the days during which he lived; if the income should be paid by installments in advance, the whole amount of the installment which began to run during his life shall be paid. Art. 2026. He who constitutes an annuity by gratuitous title upon his property, may provide at the time the annuity is established that the same shall not be subject to execution or attachment on account of the obligations of the recipient of the annuity. If the annuity was constituted in fraud of creditors, the latter may ask for execution or attachment of the property. Art. 2027. No annuity shall be claimed without first proving the existence of the person upon whose life the annuity is constituted. What is so important about the Civil Code Provisions? Atty. Quimson never fails to ask about Art. 2012. Are there special laws that govern insurance? Yes, but Atty. Quimson did not tell us to look them up. However, for reference they are: 1. Revised GSIS Act of 1977 (PD 1146, as amended) 2. Social Security Act of 1954 ( RA 1161, (as amended) 3. The Property Insurance Law ( RA 656, as amended by PD 245) 4. Republic Act No. 4898 5. EO 250; and 6. RA 3591 How do we construe the provisions of the Insurance Code (IC)? Since our present IC is based mainly on the Insurance Act, which in turn was taken verbatim from the law of California (except for Chap V, which was taken from the law of NY), the courts should follow in fundamental

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INSURANCE REVIEWER– Atty. Quimson

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points, at least, the construction placed by California Courts on California law (and the construction placed by the NY Courts on NY law). This is in accordance with the well settled rule in statutory construction that when a statute has been adopted from some other state or country, and said statute has previously been construed by the courts of such state or country, the statute is usually deemed to have been adopted with the construction so given. Cases: (1) Constantino v. Asia Life 87 PHIL 248 Facts:  Appeal consolidates two cases.  Asia life insurance Company (ALIC) was incorporated in Delaware.  For the sum of 175.04 as annual premium duly paid to ALIC, it issued Policy No. 93912 whereby it insured the life of Arcadio Constantino for 20 years for P3T with Paz Constantino as beneficiary. o First premium covered the period up to Sept. 26, 1942. No further premiums were paid after the first premium and Arcadio died on Sept. 22, 1944.

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Due to Jap occupation, ALIC closed its branch office in Manila from Jan. 2 1942-1945. On Aug. 1, 1938, ALIC issued Policy no. 78145 covering the lives of Spouses Tomas Ruiz and Agustina Peralta for the sum of P3T for 20 years. The annual premium stipulated was regularly paid from Aug. 1, 1938 up to and including Sept. 30, 1940. o Effective Aug. 1, 1941, the mode of payment was changed from annually to quarterly and such quarterly premiums were paid until Nov. 18, 1941. o Last payment covered the period until Jan. 31, 1942. o Tomas Ruiz died on Feb. 16, 1945 with Agustina Peralta as his beneficiary. Due to Jap occupation, it became impossible and illegal for the insured to deal with ALIC. Aside from this the insured borrowed from the policy P234.00 such that the cash surrender value of the policy was sufficient to maintain the policy in force only up to Sept. 7, 1942. Both policies contained this provision: All premiums are due in advance and any unpunctuality in making such payment shall cause this policy to lapse unless and except as kept in force by the grace period condition. Paz Constantino and Agustina Peralta claim as beneficiaries, that they are entitled to receive the proceeds of the policies less all sums due for premiums in arrears. They also allege that non-payment of the premiums were caused by the closing of ALIC’s offices during the war and the impossible circumstances by the war, therefore, they should be excused and the policies should not be forfeited. Lower court ruled in favor of ALIC.

Issue: May a beneficiary in a life insurance policy recover the amount thereof although the insured died after repeatedly failing to pay the stipulated premiums, such failure being caused by war? Held: NO. Due to the express terms of the policy, non-payment of the premium produces its avoidance. In Glaraga v. Sun Life, it was held that a life policy was avoided because the premium had not been paid within the time fixed; since by its express terms, non-payment of any premium when due or within the 31 day grace period ipso fact caused the policy to lapse. When the life insurance policy provides that non-payment of premiums will cause its forfeiture, war does NOT excuse non-payment and does not avoid forfeiture. Essentially, the reason why punctual payments are important is that the insurer calculates on the basis of the prompt payments. Otherwise, malulugi sila. It should be noted that the parties contracted not only as to peace time conditions but also as to wartime conditions since the policies contained provisions applicable expressly to wartime days. The logical inference therefore is that the parties contemplated the uninterrupted operation of the contract even if armed conflict should ensue. (2) Insular Life v. Ebrado 80 SCRA 181

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rhys alexei

INSURANCE REVIEWER– Atty. Quimson

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Facts:  Buenaventura Ebrado was issued by Insular Life Assurance Co. a whole life plan for P5,882.00 with a rider for Accidental Death Benefits for the same amount.  Ebrado designated Carponia Ebrado as the revocable beneficiary in his policy, referring to her as his wife.  Ebrado died when he was accidentally hit by a falling branch of tree.  Insurer by virtue of the contract was liable for 11,745.73, and Carponia filed her claim, although she admitted that she and the insured were merely living as husband and wife without the benefit of marriage.  Pascuala Ebrado also filed her claim as the widow of the deceased insured.  Insular life filed an interpleader case and the lower court found in favor of Pascuala. Issue: Between Carponia and Pascuala, who is entitled to the proceeds? Held: Pascuala. It is quite unfortunate that the Insurance Act or our own Insurance Code does not contain a specific provision grossly resolutory of the prime question at hand. Rather, the general rules of civil law should be applied to resolve this void in the insurance law. Art. 2011 of the NCC states: The contract of insurance is governed by special laws. Matters not expressly provided for in such special laws shall be regulated by this Code. When not otherwise specifically provided for in the insurance law, the contract of life insurance is governed by the general rules of civil law regulating contracts. Under Art. 2012, NCC: Any person who is forbidden from receiving any donation under Art. 739 cannot be named beneficiary of a life insurance policy by a person who cannot make any donation to him, according to said article. Under Art. 739, donations between persons who were guilty of adultery or concubinage at the time of the donation shall be void. In essence, a life insurance policy is no different from civil donations insofar as the beneficiary is concerned. Both are founded on the same consideration of liberality. A beneficiary is like a donee because from the premiums of the policy which the insured pays, the beneficiary will receive the proceeds or profits of said insurance. As a consequence, the proscription in Art. 739 should equally operate in life insurance contracts. Therefore, since common-law spouses are barred from receiving donations, they are likewise barred from receiving proceeds of a life insurance contract. (3) Qua Chee Gan v. Law Union Rock 98 PHIL 85 Facts:  Qua Chee Gan, a merchant, owned 4 warehouses in Albay which were used for the storage or copra and hemp in which the appelle deals with exclusively.  The warehouses together with the contents were insured with Law Union since 1937 and the loss made payable to PNB as mortgagee of the hemp and copra.  A fire of undetermined cause broke out in July 21, 1940 and lasted for almost 1 whole week.  Bodegas 1, 3, and 4 including the merchandise stored were destroyed completely.  Insured then informed insurer of the unfortunate event and submitted the corresponding fire claims, which were later reduced to P370T.  Insurer refused to pay claiming violations of the warranties and conditions, filing of fraudulent claims and that the fire had been deliberately caused by the insured.  Insured filed an action before CFI which rendered a decision in favor of the insured.

Issues and Resolutions: (1) WON the policies should be avoided for the reason that there was a breach of warranty. Under the Memorandum of Warranty, there should be no less than 1 hydrant for each 150 feet of external wall measurements of the compound, and since bodegas insured had an external wall per meter of 1640 feet, the insured should have 11 hydrants in the compound. But he only had 2.

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rhys alexei

INSURANCE REVIEWER– Atty. Quimson

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Even so, the insurer is barred by estoppel to claim violation of the fire hydrants warranty, because knowing that the number of hydrants it demanded never existed from the very beginning, appellant nevertheless issued the policies subject to such warranty and received the corresponding premiums. The insurance company was aware, even before the policies were issued, that in the premises there were only 2 hydrants and 2 others were owned by the Municipality, contrary to the requirements of the warranties in question. It should be close to conniving at fraud upon the insured to allow the insurer to claim now as void the policies it issued to the insured, without warning him of the fatal defect, of which the insurer was informed, and after it had misled the insured into believing that the policies were effective. Accdg to American Jurisprudence: It is a well-settled rule that the insurer at the time of the issuance of a policy has the knowledge of existing facts, which if insisted on, would invalidate the contract from its very inception, such knowledge constitutes a waiver of conditions in the contract inconsistent with known facts, and the insurer is stopped thereafter from asserting the breach of such conditions. The reason for the rule is: To allow a company to accept one’s money for a policy of insurance which it knows to be void and of no effect, though it knows as it must that the insured believes it to be valid and binding is so contrary to the dictates of honesty and fair dealing, as so closely related to positive fraud, as to be abhorrent to fair-minded men. It would be to allow the company to treat the policy as valid long enough to get the premium on it, and leave it at liberty to repudiate it the next moment. Moreover, taking into account the well-known rule that ambiguities or obscurities must strictly be interpreted against the party that cause them, the memorandum of warranty invoked by the insurer bars the latter from questioning the existence of the appliances called for, since its initial expression “the undernoted appliances for the extinction of fire being kept on the premises insured hereby..” admits of the interpretation as an admission of the existence of such appliances which insurer cannot now contradict, should the parole evidence apply. (2) WON the insured violated the hemp warranty provision against the storage of gasoline since insured admitted there were 36 cans of gasoline in Bodega 2 which was a separate structure and not affected by the fire. It is well to note that gasoline is not specifically mentioned among the prohibited articles listed in the socalled hemp warranty. The clause relied upon by the insurer speaks of “oils”. Ordinarily, oils mean lubricants and not gasoline or kerosene. Here again, by reason of the exclusive control of the insurance company over the terms of the contract, the ambiguity must be held strictly against the insurer and liberally in favor of the insured, specially to avoid a forfeiture. Furthermore, the gasoline kept was only incidental to the insured’s business. It is a well settled rule that keeping of inflammable oils in the premises though prohibited by the policy does NOT void it if such keeping is incidental to the business. Also, the hemp warranty forbade the storage only in the building to which the insurance applies, and/or in any building communicating therewith; and it is undisputed that no gasoline was stored in the burnt bodegas and that Bodega No. 2 which was where the gasoline was found stood isolated from the other bodegas. (4) Ty v. Filipinas Compañia de Seguros 17 SCRA 364 Facts:  Ty was employed as a mechanic operator by Braodway Cotton Factory at Grace Park, Caloocan.  In 1953, he took personal accident policies from 7 insurance companies (6 defendants), on different dates, effective for 12 mos.  On Dec. 24. 1953, a fire broke out in the factory were Ty was working. A hevy object fell on his hand when he was trying to put out the fire.  From Dec. 1953 to Feb. 6, 1954 Ty received treatment at the Nat’l Orthopedic Hospital for six listed injuries. The attending surgeon certified that these injuries would cause the temporary total disability of Ty’s left hand.  Insurance companies refused to pay Ty’s claim for compensation under the policies by reason of said disability of his left hand. Ty filed a complaint in the municipal court who decided in his favor.

3D SY 2004-2005

rhys alexei

INSURANCE REVIEWER– Atty. Quimson 

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CFI reversed on the ground that under the uniform terms of the policies, partial disability due to loss of either hand of the insured, to be compensable must be the result of amputation.

Issue: WON Ty should be indemnified under his accident policies. Held. NO. SC already ruled in the case of Ty v. FNSI that were the insurance policies define partial disability as loss of either hand by amputation through the bones of the wrist, the insured cannot recover under said policies for temporary disability of his left hand caused by the fractures of some fingers. The provision is clear enough to inform the party entering into that contract that the loss to be considered a disability entitled to indemnity, must be severance or amputation of the affected member of the body of the insured. In the words of Atty. Quimson: Aba gago pala siya, Sinabi ng loss by amputation, pinagpipilitan pa nyang fracture lang ang kailangan. (5) Del Rosario v. Equitable Insurance 118 PHIL 349 Facts:  Equitable Insurance issued a life Insurance policy to del Rosario binding itself to pay P1,000 to P3,000 as indemnity.  Del Rosario died in a boating accident. The heirs filed a claim and Equitable paid them P1,000.  The heir filed a complaint for recovery of the balance of P2,000, claiming that the insurere should pay him P3,000 as stated in the policy. Issue: WON the heir is entitled to recover P3,000. Held: YES. Generally accepted principles or ruling on insurance, enunciate that where there is an ambiguity with respect to the terms and conditions of the policy, the same shall be resolved against the one responsible thereof. The insured has little, if any, participation in the preparation of the policy. The interpretation of obscure stipulations in a contract should not favor the party who cause the obscurity. (6) Misamis Lumber v. Capital Insurance 123 Phil 1077 Facts:  Misamis lumber insured it’s motor car for P14T with Capital Insurance. The policy stipulated that the insured may authorize the repair of the vehicle necessitated by damage and the liability of the insured is limited to 150.  Car met an accident and was repaired by Morosi Motors at a total cost of P302.27. Misamis made a report of the accident to Capital who refused to pay the cost of the repairs. Issue: WON the insurer is liable for the total amount of the repair. Held: NO. The insurance policy stipulated that if it is the insured who authorized the repair, the liability of the insurer is limited to 150. The literal meaning of the stipulation must control, it being the actual contract, expressly and plainly provided for in the policy.

(7) Verendia v. CA 217 SCRA 1993 Facts:

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INSURANCE REVIEWER– Atty. Quimson

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Fidelity and Surety Insurance Company (Fidelity) issued Fire Insurance Policy No. F-18876 effective between June 23, 1980 and June 23, 1981 covering Rafael (Rex) Verendia's residential in the amount of P385,000.00. Designated as beneficiary was the Monte de Piedad & Savings Bank.

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Verendia also insured the same building with two other companies, namely, The Country Bankers Insurance for P56,000.00 and The Development Insurance for P400,000.00.

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While the three fire insurance policies were in force, the insured property was completely destroyed by fire.

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Fidelity appraised the damage amounting to 385,000 when it was accordingly informed of the loss. Despite demands, Fidelity refused payment under its policy, thus prompting Verendia to file a complaint for the recovery of 385,000

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Fidelity, averred that the policy was avoided by reason of over-insurance, that Verendia maliciously represented that the building at the time of the fire was leased under a contract executed on June 25, 1980 to a certain Roberto Garcia, when actually it was a Marcelo Garcia who was the lessee.

Issue: WON Verendia can claim on the insurance despite the misrepresentation as to the lessee and the overinsurance. Held: NOPE. The contract of lease upon which Verendia relies to support his claim for insurance benefits, was entered into between him and one Robert Garcia, a couple of days after the effectivity of the insurance policy. When the rented residential building was razed to the ground, it appears that Robert Garcia was still within the premises. However, according to the investigation by the police, the building appeared to have "no occupants" and that Mr. Roberto Garcia was "renting on the otherside of said compound" These pieces of evidence belie Verendia's uncorroborated testimony that Marcelo Garcia whom he considered as the real lessee, was occupying the building when it was burned. Ironically, during the trial, Verendia admitted that it was not Robert Garcia who signed the lease contract but it was Marcelo Garcia cousin of Robert, who had also been paying the rentals all the while. Verendia, however, failed to explain why Marcelo had to sign his cousin's name when he in fact he was paying for the rent and why he (Verendia) himself, the lessor, allowed such a ruse. Fidelity's conclusions on these proven facts appear, therefore, to have sufficient bases: Verendia concocted the lease contract to deflect responsibility for the fire towards an alleged "lessee", inflated the value of the property by the alleged monthly rental of P6,500) when in fact, the Provincial Assessor of Rizal had assessed the property's fair market value to be only P40,300.00, insured the same property with two other insurance companies for a total coverage of around P900,000, and created a dead-end for the adjuster by the disappearance of Robert Garcia. Basically a contract of indemnity, an insurance contract is the law between the parties. Its terms and conditions constitute the measure of the insurer's liability and compliance therewith is a condition precedent to the insured's right to recovery from the. As it is also a contract of adhesion, an insurance contract should be liberally construed in favor of the insured and strictly against the insurer company which usually prepares it . Considering, however, the foregoing discussion pointing to the fact that Verendia used a false lease contract to support his claim under Fire Insurance Policy, the terms of the policy should be strictly construed against the insured. Verendia failed to live by the terms of the policy, specifically Section 13 thereof which is expressed in terms that are clear and unambiguous, that all benefits under the policy shall be forfeited "if the claim be in any respect fraudulent, or if any false declaration be made or used in support thereof, or if any fraudulent means or devises are used by the Insured or anyone acting in his behalf to obtain any benefit under the policy". Verendia, having presented a false declaration to support his claim for benefits in the form of a fraudulent lease contract, he forfeited all benefits therein by virtue of Section 13 of the policy in the absence of proof that Fidelity waived such provision There is also no reason to conclude that by submitting the subrogation receipt as evidence in court, Fidelity bound itself to a "mutual agreement" to settle Verendia's claims in consideration of the amount of P142,685.77. While the said receipt appears to have been a filled-up form of Fidelity, no representative of Fidelity had signed it. It is even incomplete as the blank spaces for a witness and his address are not filled up. More significantly, the same receipt states that Verendia had received the aforesaid amount. However, that Verendia had not received the amount stated therein, is proven by the fact that Verendia himself filed

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rhys alexei

INSURANCE REVIEWER– Atty. Quimson

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the complaint for the full amount of P385,000.00 stated in the policy. It might be that there had been efforts to settle Verendia's claims, but surely, the subrogation receipt by itself does not prove that a settlement had been arrived at and enforced. Thus, to interpret Fidelity's presentation of the subrogation receipt in evidence as indicative of its accession to its "terms" is not only wanting in rational basis but would be substituting the will of the Court for that of the parties

Section 2. Whenever used in this Code, the following terms shall have the respective meanings hereinafter set forth or indicated, unless the context otherwise requires: (1) A “Contract of Insurance” is an agreement whereby one undertakes for a consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event. A contract of suretyship shall be deemed to be an insurance contract, within the meaning of this Code, only if made by a surety who or which, as such, is doing an insurance business as hereinafter provided. (2) The term “doing an insurance business” or “transacting an insurance business” withing the meaning of this Code, shall include: (a) Making or proposing to make, as insurer, any insurance contract; (b) Making, or proposing to make, as surety, any contract of suretyship as a vocation and not as merely incidental to any other legitimate business or activity of the surety; (c) Doing any kind of business including a reinsurance business, specifically recognized as constituting the doing of an insurance business within the meaning of this Code; (d) Doing or proposing to do any business in substance equivalent to any of the foregoing in a manner designed to evade the provisions of this code. In the application of the provisions of this Code, the fact that no profit is derived from the making of insurance contracts, agreements or transactions or that no separate or distinct consideration is received therefor, shall not be deemed conclusive to show that the making thereof does not constitute the doing or transacting of an insurance business. (3) As used in this Code, the term “Commissioner” means the “Insurance Commissioner.” Is the definition of a contract of insurance under Sec. 2 sufficient? De Leon believes that it is not. He opines that the definition does Not include Life insurance which is a contract upon a condition rather than a contract to indemnify for nor recovery can fully repay a beneficiary for the loss of life which is beyond pecuniary value. A better definition he thinks, is that of Vance who said that a “contract of insurance is an agreement by which one party, for a consideration, promises to pay money or its equivalent, or to do some act valuable to the insured or his nominee, upon the happening of a loss, damage, liability or disability arising from an unknown or contingent event.” What are the characteristics of an insurance contract? A contract of insurance has the following characteristics: 1. Consensual – perfected by the meeting of the minds of the parties

2. 3. 4. 5. 6. 7.

Voluntary – it is not compulsory and the parties may incorporate such terms and conditions as they may deem convenient which will be binding provided they are not against the law or public policy Aleatory – depends upon some contingent event Executed – as to the insured after the payment of the premium Executory – as to the insurer as it is not executed until payment for a loss Conditional – subject to conditions the principal one of which is the happening of the event insured against Personal – each party in the contract have in view the character, credit and conduct of the other

What are the elements of an insurance contract?

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INSURANCE REVIEWER– Atty. Quimson

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Like any other contract, an insurance contract must have consent of the parties, object and cause or consideration. The parties who give their consent in this contract are the insurer and insured. The object of the contract is the transferring or distributing of the risk of loss, damage, liability or disability from the insured to the insurer. The cause or consideration of the contract is the premium which the insured pays the insurer. What is an additional element of an insurance contract? Insurable Interest. This means that the insured possesses an interest of some kind susceptible of pecuniary estimation. How are insurance contracts classified? Insurance contracts are classified as follows? 1) Life insurance contracts a) Individual (Sections 179-183, 227) b) Group Life (Sections 50 and 228) c) Industrial Life (Sections 229-231) 2) Non-Life Insurance Contracts a) Marine (Sections 99-166) b) Fire (Sections 167-173) c) Casualty (Section 174) 3) Contracts of Suretyship and bonding (Sections 175-178) How are insurance contracts construed? Ambiguities or obscurities must be strictly interpreted against the party that caused them. As the insurance policy is prepared solely by the insurer, the ambiguities shall be construed against it and in favor of the insured. (Qua Chee Gan) What does the term “doing insurance business” include? The term “doing an insurance business or “transacting an insurance business” includes: a) Making or proposing to make, as insurer, any insurance contract; b) Making, or proposing to make, as surety, any contract of suretyship as a vocation and not as merely incidental to any other legitimate business or activity of the surety; c) Doing any kind of business including a reinsurance business, specifically recognized as constituting the doing of an insurance business within the meaning of this Code; d) Doing or proposing to do any business in substance equivalent to any of the foregoing in a manner designed to evade the provisions of this code. Does the fact that no profit was derived from the transaction nor a separate consideration received therefore mean that no insurance business was transacted? No. Fact that no profit is derived from the contract or transaction or that no separate or direct consideration is received for such contract or transaction is NOT deemed conclusive to show that no insurance business was transacted. Will any suretyship agreement amount to an insurance contract? No. In order for a suretyship agreement to come under the purview of the Insurance Code, the Surety undertaking to ensure the performance of the obligations must be registered with the Insurance Commissioner and must have been issued by the latter with a certificate of authority. Furthermore, the person acting as a surety is habitually engaged as such for a livelihood. Cases: (8) Philamlife v. Ansaldo 234 SCRA 509 Facts:

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Ramon M. Paterno sent a letter-complaint to the Insurance Commissioner alleging certain problems encountered by agents, supervisors, managers and public consumers of the Philamlife as a result of certain practices by said company.

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Commissioner requested petitioner Rodrigo de los Reyes, in his capacity as Philamlife's president, to comment on respondent Paterno's letter.

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INSURANCE REVIEWER– Atty. Quimson

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The complaint prays that provisions on charges and fees stated in the Contract of Agency executed between Philamlife and its agents, as well as the implementing provisions as published in the agents' handbook, agency bulletins and circulars, be declared as null and void. He also asked that the amounts of such charges and fees already deducted and collected by Philamlife in connection therewith be reimbursed to the agents, with interest at the prevailing rate reckoned from the date when they were deducted

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Manuel Ortega, Philamlife's Senior Assistant Vice-President and Executive Assistant to the President, asked that the Commissioner first rule on the questions of the jurisdiction of the Insurance Commissioner over the subject matter of the letters-complaint and the legal standing of Paterno. Insurance Commissioner set the case for hearing and sent subpoena to the officers of Philamlife. Ortega filed a motion to quash the subpoena alleging that the Insurance company has no jurisdiction over the subject matter of the case and that there is no complaint sufficient in form and contents has been filed. The motion to quash was denied.

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Issue: WON the insurance commissioner had jurisdiction over the legality of the Contract of Agency between Philamlife and its agents. Held: No, it does not have jurisdiction. The general regulatory authority of the Insurance Commissioner is described in Section 414 of the Insurance Code, to wit: "The Insurance Commissioner shall have the duty to see that all laws relating to insurance, insurance companies and other insurance matters, mutual benefit associations and trusts for charitable uses are faithfully executed and to perform the duties imposed upon him by this Code, . . . ." On the other hand, Section 415 provides: "In addition to the administrative sanctions provided elsewhere in this Code, the Insurance Commissioner is hereby authorized, at his discretion, to impose upon insurance companies, their directors and/or officers and/or agents, for any willful failure or refusal to comply with, or violation of any provision of this Code, or any order, instruction, regulation or ruling of the Insurance Commissioner, or any commission of irregularities, and/or conducting business in an unsafe or unsound manner as may be determined by the Insurance Commissioner, the following: a) fines not in excess of five hundred pesos a day; and b) suspension, or after due hearing, removal of directors and/or officers and/or agents." A plain reading of the above-quoted provisions show that the Insurance Commissioner has the authority to regulate the business of insurance, which is defined as follows: "(2) The term 'doing an insurance business' or 'transacting an insurance business,' within the meaning of this Code, shall include (a) making or proposing to make, as insurer, any insurance contract; (b) making, or proposing to make, as surety, any contract of suretyship as a vocation and not as merely incidental of the surety; (c) doing any kind of business, including a reinsurance business, specifically recognized as constituting the doing of an insurance business within the meaning of this Code; (d) doing or proposing to do any business in substance equivalent to any of the foregoing in a manner designed to evade the provisions of this Code. (Insurance Code, Sec. 2 [2]) Since the contract of agency entered into between Philamlife and its agents is not included within the meaning of an insurance business, Section 2 of the Insurance Code cannot be invoked to give jurisdiction over the same to the Insurance Commissioner. Expressio unius est exclusio alterius. (9) Philamcare v. CA 379 SCRA 356 (2002) Facts:



Ernani Trinos, applied for a health care coverage with Philamcare. In the standard application form, he answered NO to the following question: “Have you or any of your family members ever consulted or been treated for high blood pressure, heart trouble, diabetes, cancer, liver disease, asthma or peptic ulcer? (If Yes, give details)”

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INSURANCE REVIEWER– Atty. Quimson

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

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The application was approved for a period of one year from March 1, 1988 to March 1, 1989. He was a issued Health Care Agreement, and under such, he was entitled to avail of hospitalization benefits, whether ordinary or emergency, listed therein. He was also entitled to avail of "out-patient benefits" such as annual physical examinations, preventive health care and other out-patient services. Upon the termination of the agreement, the same was extended for another year from March 1, 1989 to March 1, 1990, then from March 1, 1990 to June 1, 1990. The amount of coverage was increased to a maximum sum of P75,000.00 per disability. During the period of his coverage, Ernani suffered a heart attack and was confined at the Manila Medical Center (MMC) for one month beginning March 9, 1990.



While her husband was in the hospital, Julita tried to claim the benefits under the health care agreement. However, Philamcare denied her claim saying that the Health Care Agreement was void.



According to Philamcare, there was concealment regarding Ernani's medical history. o Doctors at the MMC allegedly discovered at the time of Ernani's confinement that he was hypertensive, diabetic and asthmatic, contrary to his answer in the application form.

 

Julita had no choice but to pay the hospitalization expenses herself, amounting to about P76,000.00



Julita instituted, an action for damages against Philamcare. She asked for reimbursement of her expenses plus moral damages and attorney's fees. RTC decided in favor of Julita. CA affirmed.

After her husband was discharged from the MMC, he was attended by a physical therapist at home. Later, he was admitted at the Chinese General Hospital (CGH). Due to financial difficulties, Julita brought her husband home again. In the morning of April 13, 1990, Ernani had fever and was feeling very weak. Julita was constrained to bring him back to the CGH where he died on the same day.

Issues and Resolutions: Philamcare brought the instant petition for review, raising the primary argument that a health care agreement is not an insurance contract; hence the "incontestability clause" under the Insurance Code Title 6, Sec. 48 does not apply. SC held that in the case at bar, the insurable interest of respondent's husband in obtaining the health care agreement was his own health. The health care agreement was in the nature of non-life insurance, which is primarily a contract of indemnity. Once the member incurs hospital, medical or any other expense arising from sickness, injury or other stipulated contingent, the health care provider must pay for the same to the extent agreed upon under the contract. Under the title Claim procedures of expenses, Philamcare. had 12 mos from the date of issuance of the Agreement within which to contest the membership of the patient if he had previous ailment of asthma, and six months from the issuance of the agreement if the patient was sick of diabetes or hypertension. The periods having expired, the defense of concealment or misrepresentation no longer lie. Petitioner argues that respondent's husband concealed a material fact in his application. It appears that in the application for health coverage, petitioners required respondent's husband to sign an express authorization for any person, organization or entity that has any record or knowledge of his health to furnish any and all information relative to any hospitalization, consultation, treatment or any other medical advice or examination. Philamcare cannot rely on the stipulation regarding "Invalidation of agreement" which reads: Failure to disclose or misrepresentation of any material information by the member in the application or medical examination, whether intentional or unintentional, shall automatically invalidate the Agreement from the very beginning and liability of Philamcare shall be limited to return of all Membership Fees paid. An undisclosed or misrepresented information is deemed material if its revelation would have resulted in the declination of the applicant by Philamcare or the assessment of a higher Membership Fee for the benefit or benefits applied for. The answer assailed by petitioner was in response to the question relating to the medical history of the applicant. This largely depends on opinion rather than fact, especially coming from respondent's husband who was not a medical doctor. Where matters of opinion or judgment are called for, answers made in good faith and without intent to deceive will not avoid a policy even though they are untrue. Thus, (A)lthough false, a representation of the expectation, intention, belief, opinion, or judgment of the insured will not avoid the policy if there is no actual fraud in inducing the acceptance of the risk, or its acceptance at a lower rate of premium, and this is likewise the rule although the

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INSURANCE REVIEWER– Atty. Quimson

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statement is material to the risk, if the statement is obviously of the foregoing character, since in such case the insurer is not justified in relying upon such statement, but is obligated to make further inquiry. There is a clear distinction between such a case and one in which the insured is fraudulently and intentionally states to be true, as a matter of expectation or belief, that which he then knows, to be actually untrue, or the impossibility of which is shown by the facts within his knowledge, since in such case the intent to deceive the insurer is obvious and amounts to actual fraud. The fraudulent intent on the part of the insured must be established to warrant rescission of the insurance contract. Concealment as a defense for the health care provider or insurer to avoid liability is an affirmative defense and the duty to establish such defense by satisfactory and convincing evidence rests upon the provider or insurer. In any case, with or without the authority to investigate, petitioner is liable for claims made under the contract. Having assumed a responsibility under the agreement, petitioner is bound to answer the same to the extent agreed upon. In the end, the liability of the health care provider attaches once the member is hospitalized for the disease or injury covered by the agreement or whenever he avails of the covered benefits which he has prepaid. Under Section 27 of the Insurance Code, "a concealment entitles the injured party to rescind a contract of insurance." The right to rescind should be exercised previous to the commencement of an action on the contract. In this case, no rescission was made. Besides, the cancellation of health care agreements as in insurance policies require the concurrence of the following conditions: 1. Prior notice of cancellation to insured; 2. Notice must be based on the occurrence after effective date of the policy of one or more of the grounds mentioned; 3. Must be in writing, mailed or delivered to the insured at the address shown in the policy; 4. Must state the grounds relied upon provided in Section 64 of the Insurance Code and upon request of insured, to furnish facts on which cancellation is based. None of the above pre-conditions was fulfilled in this case. When the terms of insurance contract contain limitations on liability, courts should construe them in such a way as to preclude the insurer from noncompliance with his obligation. Being a contract of adhesion, the terms of an insurance contract are to be construed strictly against the party which prepared the contract — the insurer. By reason of the exclusive control of the insurance company over the terms and phraseology of the insurance contract, ambiguity must be strictly interpreted against the insurer and liberally in favor of the insured, especially to avoid forfeiture. This is equally applicable to Health Care Agreements. The phraseology used in medical or hospital service contracts, such as the one at bar, must be liberally construed in favor of the subscriber, and if doubtful or reasonably susceptible of two interpretations the construction conferring coverage is to be adopted, and exclusionary clauses of doubtful import should be strictly construed against the provider.

CHAPTER 1 CONTRACT OF INSURANCE TITLE I – WHAT MAY BE INSURED Section 3. Any contingent or unknown event, whether past or future, which may damnify a person having an insurable interest, or create a liability against him, may be insured against, subject to the provisions of this chapter. The consent of the husband is not necessary for the validity of an insurance policy taken out by the married woman on her life or that of her children. Any minor of the age of eighteen years or more, may notwithstanding such minority, contract for life, health and accident insurance, with any insurance company duly authorized to do business in the Philippines, provided the insurance is taken on his own life and the beneficiary appointed is the minor’s estate or the minor’s father, mother, husband, wife, child, brother or sister. The married woman or the minor herein allowed to take out an insurance policy may exercise all the rights and privileges of an owner under a policy.

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INSURANCE REVIEWER– Atty. Quimson

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All rights, title and interest in the policy of insurance taken out by an original owner on the life or health of a minor shall automatically vest in the minor upon the death of the original owner, unless otherwise provided in the policy. What perils or risk may be insured? The following risks may be insured: 1. Any contingent or unknown event whether past or future which may cause damage to a person having an insurable interest; or 2. Any contingent or unknown event, whether past or future, which may create liability against the person insured. May a married woman take out an insurance? If so, on what? Yes. A married woman may take out an insurance on her life or that of her children even without the consent of her husband. She may likewise take out an insurance on the life of her husband, her paraphernal property, or on property given to her by her husband. May a minor take out an insurance? Third par of Sec. 3 is no longer applicable, since the age of majority is now 18 years old (RA 8809, Dec. 13, 1989). Atty Quimson asked us to look at a few provisions of law with respect to this section. What are they? Art. 1174 (NCC). Except in cases expressly specified by the law, or when it is otherwise declared by stipulation, or when the nature of the obligation requires the assumption of risk, no person shall be responsible for those events which, could not be foreseen, or which, though foreseen, were inevitable. Art. 110 (FC). The spouses retain the ownership, possession, administration and enjoyment of their exclusive properties. Either spouse may during the marriage, transfer the administration of his or her exclusive property to the other by means of a public instrument, which shall be recorded in the registry of property of the place where the property is located. Art. 1327 (NCC). The following cannot give consent to a contract: (1) Unemancipated minors; (2) Insane or demented persons, and deaf-mutes who do not know how to write. Art. 1390 (NCC). The following contracts are voidable or annullable, even though there may have been no damage to the contracting parties: (1) Those where one of the parties is incapable of giving consent to a contract; (2) Those where the consent is vitiated by mistake, violence, intimidation, undue influence or fraud. These contracts are binding, unless they are annulled by a proper action in court. They are susceptible of ratification. Problem: A, wanted to open a medicinal herb shop. He placed a long distance phone call to Taiwan and talked to an exporter who willingly agreed to consign several tons of ginsengs with him on the condition that he will come and pick the goods up. A then sent 5 of his cargo vessels to Taiwan. The ships left on August 9. On August 14, A insured the 5 vessels against perils of the South China Sea “Lost or Not Lost” with B Insurance Co. Without the knowledge of both parties, the ships had already sunk on Aug. 14. Is B Insurance Co. liable for the ships? Yes. This is an example of a past unknown event because the sinking of the ship is a past event at the time that the policy took effect. The contract is valid and B Insurance Co. is liable because he agreed to pay even though the ship be already lost. An insurance against an unknown past event is peculiar only to marine insurance. However, Atty. Quimson said in class that nowadays, most if not all insurance companies no longer insure a past event since technology has progressed in such a manner that a ship’s current status can easily be known while the application is being processed. Case.

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INSURANCE REVIEWER– Atty. Quimson

page 14

(10) Philamcare v. CA (repeat – Case #09) 379 SCRA 356 Facts:



Ernani Trinos, applied for a health care coverage with Philamcare. In the standard application form, he answered NO to the following question: “Have you or any of your family members ever consulted or been treated for high blood pressure, heart trouble, diabetes, cancer, liver disease, asthma or peptic ulcer? (If Yes, give details)”



The application was approved for a period of one year from March 1, 1988 to March 1, 1989. He was a issued Health Care Agreement, and under such, he was entitled to avail of hospitalization benefits, whether ordinary or emergency, listed therein. He was also entitled to avail of "out-patient benefits" such as annual physical examinations, preventive health care and other out-patient services. Upon the termination of the agreement, the same was extended for another year from March 1, 1989 to March 1, 1990, then from March 1, 1990 to June 1, 1990. The amount of coverage was increased to a maximum sum of P75,000.00 per disability. During the period of his coverage, Ernani suffered a heart attack and was confined at the Manila Medical Center (MMC) for one month beginning March 9, 1990.







While her husband was in the hospital, Julita tried to claim the benefits under the health care agreement. However, Philamcare denied her claim saying that the Health Care Agreement was void.



According to Philamcare, there was concealment regarding Ernani's medical history. o Doctors at the MMC allegedly discovered at the time of Ernani's confinement that he was hypertensive, diabetic and asthmatic, contrary to his answer in the application form.

 

Julita had no choice but to pay the hospitalization expenses herself, amounting to about P76,000.00



Julita instituted, an action for damages against Philamcare. She asked for reimbursement of her expenses plus moral damages and attorney's fees. RTC decided in favor of Julita. CA affirmed.

After her husband was discharged from the MMC, he was attended by a physical therapist at home. Later, he was admitted at the Chinese General Hospital (CGH). Due to financial difficulties, Julita brought her husband home again. In the morning of April 13, 1990, Ernani had fever and was feeling very weak. Julita was constrained to bring him back to the CGH where he died on the same day.

Issues and Resolutions: Philamcare brought the instant petition for review, raising the primary argument that a health care agreement is not an insurance contract; hence the "incontestability clause" under the Insurance Code Title 6, Sec. 48 does not apply. SC held that in the case at bar, the insurable interest of respondent's husband in obtaining the health care agreement was his own health. The health care agreement was in the nature of non-life insurance, which is primarily a contract of indemnity. Once the member incurs hospital, medical or any other expense arising from sickness, injury or other stipulated contingent, the health care provider must pay for the same to the extent agreed upon under the contract. Under the title Claim procedures of expenses, Philamcare. had 12 mos from the date of issuance of the Agreement within which to contest the membership of the patient if he had previous ailment of asthma, and six months from the issuance of the agreement if the patient was sick of diabetes or hypertension. The periods having expired, the defense of concealment or misrepresentation no longer lie. Petitioner argues that respondent's husband concealed a material fact in his application. It appears that in the application for health coverage, petitioners required respondent's husband to sign an express authorization for any person, organization or entity that has any record or knowledge of his health to furnish any and all information relative to any hospitalization, consultation, treatment or any other medical advice or examination. Philamcare cannot rely on the stipulation regarding "Invalidation of agreement" which reads: Failure to disclose or misrepresentation of any material information by the member in the application or medical examination, whether intentional or unintentional, shall automatically invalidate the Agreement from the very beginning and liability of Philamcare shall be limited to return of all Membership Fees paid. An undisclosed or misrepresented information is deemed

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INSURANCE REVIEWER– Atty. Quimson

page 15

material if its revelation would have resulted in the declination of the applicant by Philamcare or the assessment of a higher Membership Fee for the benefit or benefits applied for. The answer assailed by petitioner was in response to the question relating to the medical history of the applicant. This largely depends on opinion rather than fact, especially coming from respondent's husband who was not a medical doctor. Where matters of opinion or judgment are called for, answers made in good faith and without intent to deceive will not avoid a policy even though they are untrue. Thus, (A)lthough false, a representation of the expectation, intention, belief, opinion, or judgment of the insured will not avoid the policy if there is no actual fraud in inducing the acceptance of the risk, or its acceptance at a lower rate of premium, and this is likewise the rule although the statement is material to the risk, if the statement is obviously of the foregoing character, since in such case the insurer is not justified in relying upon such statement, but is obligated to make further inquiry. There is a clear distinction between such a case and one in which the insured is fraudulently and intentionally states to be true, as a matter of expectation or belief, that which he then knows, to be actually untrue, or the impossibility of which is shown by the facts within his knowledge, since in such case the intent to deceive the insurer is obvious and amounts to actual fraud. The fraudulent intent on the part of the insured must be established to warrant rescission of the insurance contract. Concealment as a defense for the health care provider or insurer to avoid liability is an affirmative defense and the duty to establish such defense by satisfactory and convincing evidence rests upon the provider or insurer. In any case, with or without the authority to investigate, petitioner is liable for claims made under the contract. Having assumed a responsibility under the agreement, petitioner is bound to answer the same to the extent agreed upon. In the end, the liability of the health care provider attaches once the member is hospitalized for the disease or injury covered by the agreement or whenever he avails of the covered benefits which he has prepaid. Under Section 27 of the Insurance Code, "a concealment entitles the injured party to rescind a contract of insurance." The right to rescind should be exercised previous to the commencement of an action on the contract. In this case, no rescission was made. Besides, the cancellation of health care agreements as in insurance policies require the concurrence of the following conditions: 1. Prior notice of cancellation to insured; 2. Notice must be based on the occurrence after effective date of the policy of one or more of the grounds mentioned; 3. Must be in writing, mailed or delivered to the insured at the address shown in the policy; 4. Must state the grounds relied upon provided in Section 64 of the Insurance Code and upon request of insured, to furnish facts on which cancellation is based. None of the above pre-conditions was fulfilled in this case. When the terms of insurance contract contain limitations on liability, courts should construe them in such a way as to preclude the insurer from noncompliance with his obligation. Being a contract of adhesion, the terms of an insurance contract are to be construed strictly against the party which prepared the contract — the insurer. By reason of the exclusive control of the insurance company over the terms and phraseology of the insurance contract, ambiguity must be strictly interpreted against the insurer and liberally in favor of the insured, especially to avoid forfeiture. This is equally applicable to Health Care Agreements. The phraseology used in medical or hospital service contracts, such as the one at bar, must be liberally construed in favor of the subscriber, and if doubtful or reasonably susceptible of two interpretations the construction conferring coverage is to be adopted, and exclusionary clauses of doubtful import should be strictly construed against the provider.

Section 4. The preceding section does not authorize an insurance for or against the drawing of any lottery, or for against any chance or ticket in a lottery drawing a prize. Is a contract of insurance a wagering or gambling contract? NO. A contract of insurance is a contract of indemnity and not a wagering or gambling contract. Although it is true that an insurance contract is also based on a contingency, it is not a contract of chance.

What is the concept of a lottery? The term “lottery” extends to all schemes for the distribution of prizes by chance, such as policy playing, gift exhibition, prize concerts, raffles at fairs, etc. and various forms of gambling.

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INSURANCE REVIEWER– Atty. Quimson

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What are the three essential elements of lottery? Consideration, prizes and chance. There is consideration of price aid if it appears that the prizes offered by whatever name they may be called came out of the fund raised by the sale of chances among the participants in order to win the prizes. Are all prizes equivalent to a lottery? If the prizes do not come out of the fund or contributions by the participants, no consideration has been paid and consequent, there is no lottery. Ex: A company, to promote the sale of certain products, resorts to a scheme which envisions the giving away for free of certain prizes for the purchase of said products, for the participants are not required to pay more than the usual price o the products. Can a sweepstakes holder insure himself against the failure of his ticket to win? NO. It cannot be said that he suffered a “loss” of prize when he did not win. The failure to win a prize would not damnify or create a liability against him. What are the distinctions between an insurance contract and a wagering contract? A contract of insurance is a contract of indemnity and not a wagering, or gambling contract.(Sec. 25) White it is based on a contingency, it is not a contract of chance and is not used for profit. The distinctions are the following: Insurance Contract Parties seek to distribute loss by reason of mischance Insured avoids misfortune. Tends to equalize fortune. What one insured gains is not at the expense of another insured. The entire group of insureds provides through the premiums paid, the funds which make possible the payment of all claims; Purchase of insurance does not create a new and non-existing risk of loss to the purchaser. In purchasing insurance, the insurer faces an already existing risk of economic loss.

Gambling contract Parties contemplate gain through mere chance or the occurrence of a contingent event. Gambler courts fortune Tends to increase the inequality of fortune. Essence is whatever one person wins from a wager is lost by the other wagering party. As soon as a party makes a wager, he creates a risk of loss to himself where no such risk existed previously.

What are the similarities between an insurance contract and a gambling contract? They are similar in only one respect. In both, one party promises to pay a given sum to the other upon the occurrence of a given future event, the promise being condition upon the payment of, or agreement to pay, a stipulated amount by the other party to the contract. In either case, one party may receive more, much more, than he paid or agreed to pay. Problems. A, B, C and D decided to join a bungee jumping competition. They contributed P1,000 each to a fund available for the use of any member who is injured in the contest. Is this insurance or gambling? This is an insurance contract. Each member contributes to a common fund, out of which one is reimbursed for the losses that he may suffer. Suppose A, B, C, and D agree that the whole amount of 4T would be given to the one who swings nearest to the ground. Is this insurance or gambling? This is now a gambling contract. The parties are now contemplating a gain based upon uncertain events.

Section 5. All kinds of insurance are subject to the provisions of this chapter so far as the provisions can apply. What is the applicability of the provisions of Chapter 1?

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Provisions of Chap 1 on “The Contract of Insurance” (Secs 1-98) are also applicable to marine Insurance (Secs. 99-166), Fire insurance (Secs. 167-173), Casualty Insurance (Sec. 174), Suretyship (Secs. 175-178), Life Insurance (Secs. 179-183), and to any other kind of insurance (Sec. 2) so far as said provisions can apply. Matters not expressly provided for in the Insurance Code and special laws are regulated by the CC. So, an insurance contract under RA 1611 (Social Security Act of 1954) shall be governed primarily by the said law and subsidiarily by Chap. 1 of the Insurance Code, and in the absence of the applicable provisions in both laws, the pertinent provisions of the CC shall be applied.

TITLE II – PARTIES TO THE CONTRACT Section 6. Every person, partnership, association or corporation duly authorized to transact insurance business as elsewhere provided in this Code, may be an insurer. Who are the parties to the contract of insurance? The Insurer is the party who assumes or accepts the risk of loss and undertakes for a consideration to indemnify the insured or to pay him a certain sum on the happening of a specified contingency or event. The business of insurance may be carried on by individuals just as much as by corporations and associations. The state itself may go into insurance business. The insured, or the second party to the contract, is the person in whose favor, the contract is operative and who is indemnified against, or is to receive a certain sum upon the happening of a specified contingency or event. He is the person whose loss is the occasion for the payment of the insurance proceeds by the insurer. Is the insured always the person to whom the proceeds are paid? No. The person paid may be the beneficiary designated in the policy. A common example of this situation is a life insurance policy where the proceeds are not given to the insured but to a third party designated by the insured. What is the nature of the relationship between the insurer and the insured? It is that of a contingent debtor and creditor, subject to the conditions of the policy and NOT that of trustee and cestui que trust. How are the terms assurer, insured and assured used in insurance? Accdg to Black’s Law, Insurer is synonymous with the term “assurer” or “underwriter”. The terms “insured” and “assured” are generally used interchangeably; but strictly speaking, the term “insured” refers to the owner of the property insured or the person whose life is the subject of the contract of insurance, while “assured” refers to the person for whose benefit the insurance is granted. For ex: A wife insures the life of her husband for her own benefit. The wife is the assured, and the husband the insured. The wife is the owner of the policy but she is not the insured. In property insurance, like fire insurance, the insure is also the assured where the proceeds are payable to him. Assured is also used sometimes as a synonym of “beneficiary.” The beneficiary is the person designated by the terms of the policy as the one to receive the proceeds of the insurance. He is the third party in a contract of life insurance, whose benefit the policy is issued and to whom the loss is payable.

Who may be an insurer? A foreign or domestic insurance company may transact business in the Philippines but must first obtain a certificate of authority for that purpose from the Insurance Commissioner who has the discretion to refuse to issue such certificate if it will best promote the interests of the people of this country. (Sec. 187)

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INSURANCE REVIEWER– Atty. Quimson

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An individual may also be an insurer, provided he holds a certificate of authority from the Insurance Commissioner, and provided further that he is possessed of the capital assets required of an insurance corporation doing the same kind of business in the Philippines and invested in the same manner. (Secs. 184186) What is an insurance corporation? IC defines it as one formed or organized to save any person or persons or other corporations harmless from loss, damage, or liability arising from any unknown or future or contingent event, or to indemnify or to compensate any person or persons or other corporations for any such loss, damage, or liability, or to guarantee the performance of or compliance with contractual obligations or the payment of debts of others. (Sec. 185) The last part of the statement refers to suretyship. (Sec. 175) What does the term “insurer” and “insurance company” include? It includes individuals, partnerships, associations or corporations, including GOCC’s or entities, engaged as principals in the insurance business, except mutual benefit associations. It shall also include professional reinsurers as defined in Sec. 280 (Sec. 184) Is the Business of Insurance affected with public interest? Yes. It is therefore, subject to regulation and control by the state by virtue of the exercise of its police power or in the interest of public convenience and the general good of the people. Atty. Quimson asked us to look at Sec. 184-185 for the meaning of “insurer”, “insurance company”, and “Insurance corporation”; and Sec. 187 for the certificate of authority required to transact insurance business. What do these sections provide? Sec. 184. For the purposes of this Code, the term “insurer” or “insurance company” shall include all individuals, partnerships, associations, or corporations including government-owned or controlled corporations or entities, engaged as principals in the insurance business, excepting mutual benefit associations. Unless the context otherwise requires, the term shall also include professional reinsurers defined in Sec. 280. “Domestic Company” shall include companies formed, organized or existing under the laws of the Philippines. “Foreign Company,” when used without limitation, shall include companies formed, organized, or existing under any lws other than those of the Philippines. Sec. 185. Corporations formed or organized to save any person or persons or other corporations harmless from loss, damage, or liability arising from any unknown or future or contingent event, or to indemnify or to compensate any person or persons or other corporations for any such loss, damage, or liability, or to guarantee the performance of or compliance with contractual obligations or the payment of debts of others shall be known as “insurance corporations.” The provisions of the Corporation Law shall apply to all insurance corporations now or hereafter engaged in business in the Philippines in so far as they do not conflict with the provisions of this chapter. Sec. 187. No insurance company shall transact any insurance business in the Philippines until after it shall have obtained a certificate of authority for that purpose from the Commissioner upon application therefore and payment by the company concerned of the fees hereinafter prescribed. The Commissioner may refuse to issue a certificate of authority to any insurance company if, in his judgment, such refusal will best promote the interests of the people of this country. No such certificate of authority shall be granted to any such company until the Commissioner shall have satisfied himself by such examination as he may make and such evidence as he may require that such company is qualified by the laws of the Philippines to transact business therein, that the grant of such authority appears to be justified in the light of local economic requirements, and that the direction and administration, as well as the integrity and responsibility of the organizers and administrators, the financial organization and the amount of capital, notwithstanding the provisions of section 188, reasonably assure the safety of the interests of the policyholders and the public. In order to maintain the quality of the management of insurance companies and afford better protection of policyholders and the public in general, any person of good moral character, unquestioned integrity and recognized competence may be elected or appointed director or officer of insurance companies. The

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Commissioner shall prescribe the qualifications of the executive officers and other key officials of insurance companies for the purposes of this section. No person shall concurrently be a director and/or officer of an insurance company and an adjustment company. Incumbent directors and/or officers affected by the above provisions are hereby allowed to hold on to their positions until the end of their terms or two years from the effectivity of the Decree, whichever is shorter. Before issuing such certificate of authority, the Commissioner must be satisfied that the name of the company is not that of any other known company transacting a similar business in the Philippines, or a name so similar as to be calculated to mislead the public. Such certificate of authority shall expire on the last day of June of each year and shall be renewed annually if the company is continuing to comply with the provisions of this Code or the circulars, instructions, rulings or decisions of the Commissioner. Every company receiving any such certificate of authority shall be subject to the provisions of this Code and other related laws and to the jurisdiction and supervision of the Commissioner. No insurance company may be authorized to transact in the Philippines the business of life and non-life insurance concurrently, unless specifically authorized to do so, provided however, that the terms “life” and “non-life” insurance shall e deemed to include health, accident and disability insurance. No insurer company shall have any equity in an adjustment company and neither shall an adjustment company have an equity in an insurance company. Insurance companies and adjustment companies presently affected by the above provisions shall have two years from the effectivity of the Decree within which to divest of their stockholdings.

Section 7. Anyone except a public enemy may be insured. What are the requisites in order that a person may be insured in a contact of insurance? There are 3 requisites namely: c) He must be competent to enter into a contract. d) He must possess an insurable interest in the subject of insurance. e) He must NOT be a public enemy. What is a public enemy? It is a nation with whom the Philippines is at war, and it includes every citizen or subject of such nation. What is the effect of war on the existing insurance contracts between the Philippines and a citizen or subject of a public enemy, with respect to property insurance? With respect to property insurance, the rule adopted in the Phil is that an insurance policy ceases to be valid and enforceable as soon as the insured becomes a public enemy. What is the effect of war on the existing insurance contracts between the Philippines and a citizen or subject of a public enemy, with respect to life insurance? Three doctrines have arisen. (1) Connecticut Rule – there are two elements in the consideration for which the annual premium is paid: a. The mere protection for the year; and b. The privilege of renewing the contract for each succeeding year by paying the premium for that year at the time agreed upon. Accdg. to this view, the payments of the premiums are a condition precedent, the nonperformance of which (as when the performance would be illegal) necessary defeats the right to renew the contract.

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(2)

New York Rule – apparently followed by the number of decisions. War between the states in which the parties reside merely suspends the contracts of life insurance and that upon the tender of premiums due by the insured or his representatives after the war has terminated revives the contract which becomes fully operative.

(3)

US Rule – declared the contract not merely suspended but is abrogated by reason of non-payment of premiums, since the time of the payment is peculiarly of the essence of the contract. However, the insured is entitled to the cash or reserve value of the policy (if any) which is the excess of the premiums paid over the actual risk carried during the years when the policy had been in force.

We follow the US Rule. Problem. B is sideswiped by a balut vendor. Because he was previously indicted for many other crimes including illegal possession of balisongs, he was declared Metro Manila’s Public Enemy No.1. If A wants to secure insurance on the life of B, may the insurer refuse on the grounds that B is a public enemy and therefore may not be insured under Sec. 7 of the IC? NO. Sec. 7 speaks of a public enemy only in reference to a nation with whom the Phil is at war and every citizen and or subject thereof. Cases. (11) Filipinas Cia de Seguros v. Christern Huenfeld & Co. 80 PHIL 54 Facts:  Oct. 1, 1941, Domestic Corp Christern, after payment of the premium, obtained from Filipinas, fire policy no. 29333 for P100T covering merchandise contained in a building located in Binondo.  On Feb. 27, 1942, during the Jap occupation, the building and the insured merchandise were burned. Christern submitted to Filipinas its claim.  Salvaged goods were sold and the total loss of Christern was P92T.  Filipinas denied liability on the ground that Christern was an enemy corp and cannot be insured. Issue: WON Filipinas is liable to Christern, Huenfeld & Co. Held: NO. Majority of the stockholders of Christern were German subjects. This being so, SC ruled that said corporation became an enemy corporation upon the war between the US and Germany. The Phil Insurance Law in Sec. 8 provides that anyone except a public enemy may be insured. It stands to reason that an insurance policy ceases to be allowable as soon as an insured becomes a public enemy. The purpose of the war is to cripple the power ad exhaust the resources of the enemy, and it is inconsistent that one country should destroy its enemy property and repay in insurance the value of what has been so destroyed, or that it should in such manner increase the resources of the enemy or render it aid. All individuals who compose the belligerent powers, exist as to each other, in a state of utter exclusion and are public enemies. Christern having become an enemy corporation on Dec. 10. 1941, the insurance policy issued in his favor on Oct. 1, 1941 by Filipinas had ceased to be valid and enforceable, and since the insured goods were burned after Dec. 10, 1941, and during the war, Christern was NOT entitled to any indemnity under said policy from Filipinas. Elementary rules of justice require that the premium paid by Christern for the period covered by the policy from Dec. 10, 1941 should be returned by Filipinas.

Section 8. Unless the policy otherwise provides, where a mortgagor of the property effects insurance in his own name providing that a loss shall be payable to the mortgagee, or assigns a policy of insurance to a mortgagee, the insurance is deemed to be upon the interest of the

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mortgagor, who does not cease to be a party to the original contract, and any act of his, prior to the loss, which would otherwise avoid the insurance, will have the same effect, although the property is in the hands of the mortgagee, but any act which, under the contract of insurance, is to be performed by the mortgagor, may be performed by the mortgagee therein named, with the same effect as if it had been performed by the mortgagor. Is it alright if both the mortgagor and the mortgage insure the same property? YES. The mortgagor and the mortgagee have each an insurable interest in the property mortgaged, and this interest is separate and distinct from the other. Consequently, insurance taken by one in his own name only and in his favor alone does not inure to the benefit of the other. And in case both of them take out separate insurance policies on the same property, or one policy covering their respective interests, the same is not open to the objection that there is double insurance. What is the extent of the insurable interest of the mortgagor? The mortgagor of the property, as owner has an insurable interest to the extent of the value of the property, even if the mortgage debt is equal to such value. The reason is that the loss or destruction of the property insured will NOT extinguish the mortgage debt. What is the extent of the insurable interest of the mortgagee? The mortgagee or his assignee has an insurable interest in the mortgaged property to the extent of the debt secured, such interest continues until the mortgage debt is extinguished. Up to what extent can each recover? The mortgagor cannot recover upon the insurance beyond the full amount of the loss, and the mortgagee cannot recover in excess of the credit at the time of the loss. Under Sec. 8, what are the effects of insurance when the mortgagor effects insurance in his own name and provides that the loss be payable to the mortgagee? The legal effects of this are: (1) The contract is deemed to be upon the interest of the mortgagor, hence he does NOT cease to be a party to the contract; (2) Any action of the mortgage prior to the loss which would otherwise avoid the insurance affects the mortgagee even if the property is in the hands of the mortgagee; (3) Any act which under the contract of insurance is to be performed by the mortgagor, may be performed by the mortgagee; (4) In case of loss, the mortgagee is entitled to the proceeds to the extent of his credit; and (5) Upon recovery by the mortgagee to the extent of his credit, the debt is extinguished. What is the effect if the mortgagee effects insurance on behalf of the mortgagor? Practically the same rules apply. Upon the destruction of the property, then the mortgagee is entitled to receive the proceeds equal to the amount of the mortgage credit. Such payment operates to discharge the debt. Atty. Quimson wants us to look at Art. 2127 CC. What does it say? Art. 2127. The mortgage extends to the natural accession, to the improvements, growing fruits, and the rents or income not yet received when the obligation becomes due, and to the amount of the indemnity granted or owing to the proprietor from the insurers of the property mortgaged, or in virtue of expropriation for public use, with the declarations, amplifications and limitations established by law, whether the estate remains in the possession of the mortgagor, or it passes into the hands of a third person.

Problems. A is the owner of a house worth 10T which he mortgaged to B to secure a loan of 5T. What is the insurable interests of each? Insurable interest of A, mortgagor is P10T, while the insurable interest of B, mortgagee is P5T. A insured for 1M her house with the policy providing that the loss shall be payable to B. The house was mortgaged to B as security for a loan of P750T. It was totally destroyed by accidental fire. Who may recover on the policy?

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B, the mortgagee may receive the 1M but is entitled only to the extent of his credit of P750T, and he shall hold as trustee for A, mortgagor, the excess of P250T. Supposing before the fire occurred B had already been paid, who, if at all, will receive the proceeds? A will receive the proceeds. The reason is that A effected the insurance in his own name and he did NOT cease to be a party to the contract although it was provided that the indemnity be paid to B. Suppose it was B, mortgagee who insured the house for 1M. If the loss occurred before B was paid who is entitled to receive the proceeds? B. But B can only recover P750T, the amount of her credit. What if the loss occurred after B was paid, can he still receive the proceeds? No. Upon payment of the debt, B lost his insurable interest in the property. Will A get the proceeds? No. Because A was never a party to the contract. It is important to note that it was B, mortgagee who effected the insurance. Cases: (12) San Miguel Brewery v. Law Union Rock Insurance Company 40 PHIL 674 Facts:  On Jan. 12, 1918, Dunn mortgaged a parcel of land to SMB to secure a debt of 10T.  Mortgage contract stated that Dunn was to have the property insured at his own expense, authorizing SMB to choose the insurers and to receive the proceeds thereof and retain so much of the proceeds as would cover the mortgage debt.  Dunn likewise authorized SMB to take out the insurance policy for him.

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Brias, SMB’s general manager, approached Law Union for insurance to the extent of 15T upon the property. In the application, Brias stated that SMB’s interest in the property was merely that of a mortgagee.

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Law Union, not wanting to issue a policy for the entire amount, issued one for P7,500 and procured another policy of equal amount from Filipinas Cia de Seguros. Both policies were issued in the name of SMB only and contained no reference to any other interests in the propty. Both policies required assignments to be approved and noted on the policy. Premiums were paid by SMB and charged to Dunn. A year later, the policies were renewed. In 1917, Dunn sold the property to Harding, but no assignment of the policies was made to the latter. Property was destroyed by fire. SMB filed an action in court to recover on the policies. Harding was made a defendant because by virtue of the sale, he became the owner of the property, although the policies were issued in SMB’s name. SMB sought to recover the proceeds to the extent of its mortgage credit with the balance to go to Harding. Insurance Companies contended that they were not liable to Harding because their liability under the policies was limited to the insurable interests of SMB only. SMB eventually reached a settlement with the insurance companies and was paid the balance of it’s mortgage credit. Harding was left to fend for himself. Trial court ruled against Harding. Hence the appeal.

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Issue: WON the insurance companies are liable to Harding for the balance of the proceeds of the 2 policies. Held: NOPE. Under the Insurance Act, the measure of insurable interest in the property is the extent to which the insured might be daminified by the loss or injury thereof. Also it is provided in the IA that the insurance shall be applied exclusively to the proper interest of the person in whose name it is made. Undoubtedly, SMB as the mortgagee of the property, had an insurable interest therein; but it could NOT, an any event, recover upon the two policies an amount in excess of its mortgage credit. By virtue of the Insurance Act, neither Dunn nor Harding could have recovered from the two policies. With respect to Harding, when he acquired the property, no change or assignment of the policies had been

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undertaken. The policies might have been worded differently so as to protect the owner, but this was not done. If the wording had been: “Payable to SMB, mortgagee, as its interests may appear, remainder to whomsoever, during the continuance of the risk, may become owner of the interest insured”, it would have proved an intention to insure the entire interest in the property, NOT merely SMB’s and would have shown to whom the money, in case of loss, should be paid. Unfortunately, this was not what was stated in the policies. If during the negotiation for the policies, the parties had agreed that even the owner’s interest would be covered by the policies, and the policies had inadvertently been written in the form in which they were eventually issued, the lower court would have been able to order that the contract be reformed to give effect to them in the sense that the parties intended to be bound. However, there is no clear and satisfactory proof that the policies failed to reflect the real agreement between the parties that would justify the reformation of these two contracts. (13) Saura Import Export Co. v. Philippine International Surety 118 PHIL 150 Facts:  On Dec. 26, 1952, Saura mortgaged to PNB its registered parcel of land in Davao to secure the payment of a promissory note of P27T.  A building of strong materials which was also owned by Saura, was erected on the parcel of land and the building had always been covered by insurance even before the execution of the mortgage contract.  Pursuant to the mortgage agreement which required Saura to insure the building and its contents, it obtained a fire insurance for P29T from PISC for a period of 1 year starting Oct. 2, 1954.

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The mortgage also required Saura to endorse the insurance policy to PNB. The memo stated: Loss if any, payable to PNG as their interest may appear, subject to the terms, conditions and warranties of this policy. The policy was delivered to PNB by Saura. On Oct. 15, 1954, barely 13 days after the issuance of the fire insurance, PISC canceled the same, effective as of the date of issue. Notice of the cancellation was sent to PNB in writing and was received by the bank on Nov. 8, 1954. On Apr. 6, 1955, the building and its contents worth P4,685 were burned. On April 11, 1985, Saura filed a claim with PISC and mortgagee bank. Upon presentation of notice of loss with PNB, Saura learned for the first time that the policy had been previously canceled by PISC, when Saura’s folder in the bank’s file was opened and the notice of the cancellation by PISC was found.

Issue: WON there was proper cancellation of the policy? Held. NO. The policy in question does NOT provide for the notice of cancellation, its form or period. The Insurance Law does not likewise provide for such notice. This being the case, it devolves upon the Court to apply the generally accepted principles of insurance, regarding cancellation of the insurance policy by the insurer. Actual notice of cancellation in a clear and unequivocal manner, preferably in writing should be given by the insurer to the insured so that the latter might be given an opportunity to obtain other insurance for his own protection. The notice should be personal to the insurer and not to and/or through any unauthorized person by the policy. Both the PSIC and the PNB failed, wittingly or unwittingly to notify Saura of the cancellation made. The insurer contends that it gave notice to PNB as mortgagee of the property and that was already substantial compliance with its duty to notify the insured of the cancellation of the policy. But notice to the bank, as far as Saura herein is concerned, is not effective notice. PISC is then ordered to pay Saura P29T, the amount involved in the policy subject matter of this case. (14) Palilieo v. Cosio 97 PHIL 919 Facts:

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On Dec. 18, 1951, Palileo obtained from Cosio a loan of P12T. To secure payment, Cosio required Palileo to sign a document known as “conditional sale of residential building”, purporting to convey to Cosio, with a right to repurchase (on the part of Palileo), a two-story building of strong materials belonging to Palileo. After execution of the document, Cosio insured the building against fire with Associated Insurance & Surety Co. (Associated) for 15T. The insurance policy was issued in the name of Cosio. The building was partly destroyed by fire and after proper demand, Cosio was able to collect from the insurance company an indemnity of P13,107. Palileo demanded from Cosio that she be credited with the necessary amount to pay her obligation out of the insurance proceeds, but Cosio refused to do so. Trial Court found that the debt had an unpaid balance of P12T. It declared the obligation of Palileo to Cosio fully compensated by virtue of the proceeds collected by Cosio and further held that the excess of P1,107 (13,107 – 12,000) be refunded to Palileo

Issue: WON the trial court was justified in considering the obligation of Palileo fully compensated by the insurance amount that Cosio was able to collect from Associated, and WON the trial court was correct in requiring Cosio to refund the excess of P1,107 to Palileo. Held. NO and NO. The rule is that “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, but in such case, 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.” The lower court erred in declaring that the proceeds of the insurance taken out by Cosio on the property insured to the benefit of Palileo and in ordering the former to deliver to the latter, the difference between the indebtedness and the amount of insurance received by Cosio. In the light of this ruling, the correct solution would be that the proceeds of the Insurance be delivered to Cosio, but her claim against Palileo should be considered assigned to the insurance company who is deemed subrogated to the rights of Cosio to the extent of the money paid as indemnity. (15) Grepalife v. CA 316 SCRA 677 Facts:

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A contract of group life insurance was executed between Grepalife and DBP. Grepalife agreed to insure the lives of eligible housing loan mortgagors of DBP. Dr. Wilfredo Leuterio, a physician and a housing debtor of DBP applied for membership in the group life insurance plan.

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In an application form, Dr. Leuterio answered questions concerning his health stating that he is in good health and has never consulted a physician for or a heart condition, high blood pressure, cancer, diabetes, lung, kidney or stomach disorder or any other physical impairment.

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Grepalife issued the insurance coverage of Dr. Leuterio, to the extent of his DBP mortgage indebtedness amounting to eighty-six thousand, two hundred (P86,200.00) pesos. Dr. Leuterio died due to "massive cerebral hemorrhage." Consequently, DBP submitted a death claim to Grepalife.

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Grepalife denied the claim alleging that Dr. Leuterio was not physically healthy when he applied for an insurance coverage and insisted that Dr. Leuterio did not disclose that he had been suffering from hypertension, which caused his death. Allegedly, such non-disclosure constituted concealment that justified the denial of the claim.

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The widow of the late Dr. Leuterio, filed a complaint against Grepalife for "Specific Performance with Damages." During the trial, Dr. Hernando Mejia, who issued the death certificate, was called to testify. Dr. Mejia’s findings, based partly from the information given by the widow, stated that Dr. Leuterio complained of headaches presumably due to high blood pressure. The inference was not conclusive because Dr. Leuterio was not autopsied, hence, other causes were not ruled out. RTC ruled in favor of widow and against Grepalife. Grepalife appealed contending that the wife was not the proper party in interest to file the suit, since it is DBP who insured the life of Dr. Leuterio.

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Issue: WON the widow is the real party in interest, (not DBP) and has legal standing to file the suit. Held: YES. Grepalife alleges that the complaint was instituted by the widow of Dr. Leuterio, not the real party in interest, hence the trial court acquired no jurisdiction over the case. It argues that when the Court of Appeals affirmed the trial court’s judgment, Grepalife was held liable to pay the proceeds of insurance contract in favor of DBP, the indispensable party who was not joined in the suit. To resolve the issue, we must consider the insurable interest in mortgaged properties and the parties to this type of contract. The rationale of a group insurance policy of mortgagors, otherwise known as the "mortgage redemption insurance," is a device for the protection of both the mortgagee and the mortgagor. On the part of the mortgagee, it has to enter into such form of contract so that in the event of the unexpected demise of the mortgagor during the subsistence of the mortgage contract, the proceeds from such insurance will be applied to the payment of the mortgage debt, thereby relieving the heirs of the mortgagor from paying the obligation. In a similar vein, ample protection is given to the mortgagor under such a concept so that in the event of death; the mortgage obligation will be extinguished by the application of the insurance proceeds to the mortgage indebtedness. Consequently, where the mortgagor pays the insurance premium under the group insurance policy, making the loss payable to the mortgagee, the insurance is on the mortgagor’s interest, and the mortgagor continues to be a party to the contract. In this type of policy insurance, the mortgagee is simply an appointee of the insurance fund, such loss-payable clause does not make the mortgagee a party to the contract. The insured private respondent did not cede to the mortgagee all his rights or interests in the insurance, the policy stating that: "In the event of the debtor’s death before his indebtedness with the Creditor [DBP] shall have been fully paid, an amount to pay the outstanding indebtedness shall first be paid to the creditor and the balance of sum assured, if there is any, shall then be paid to the beneficiary/ies designated by the debtor." When DBP submitted the insurance claim against petitioner, the latter denied payment thereof, interposing the defense of concealment committed by the insured. Thereafter, DBP collected the debt from the mortgagor and took the necessary action of foreclosure on the residential lot of private respondent And since a policy of insurance upon life or health may pass by transfer, will or succession to any person, whether he has an insurable interest or not, and such person may recover it whatever the insured might have recovered, 14 the widow of the decedent Dr. Leuterio may file the suit against the insurer, Grepalife. As to the question of whether there was concealment, CA held as affirmed by the SC that contrary to Grepalife’s allegations, there was no sufficient proof that the insured had suffered from hypertension. Aside from the statement of the insured’s widow who was not even sure if the medicines taken by Dr. Leuterio were for hypertension, the appellant had not proven nor produced any witness who could attest to Dr. Leuterio’s medical history. The fraudulent intent on the part of the insured must be established to entitle the insurer to rescind the contract. Misrepresentation as a defense of the insurer to avoid liability is an affirmative defense and the duty to establish such defense by satisfactory and convincing evidence rests upon the insurer. In the case at bar, the petitioner failed to clearly and satisfactorily establish its defense, and is therefore liable to pay the proceeds of the insurance

Section 9. If an insurer assents to the transfer of an insurance from a mortgagor to a mortgagee, and, at the time of his assent, imposes further obligations on the assignee, making a new contract with him, the acts of the mortgagor cannot affect the rights of said assignee. What does this provision say? Under this section, where an insurer assents to the transfer of an insurance from a Mortgagor (Mor) to a Mortgage (Mee), and at the time of his assent the insurer imposes further obligation on the Mee, a new and distinct consideration passed from the Mee to the insurer, and a new contract is created between them. The acts of the Mor cannot anymore affect the rights of the Mee. What is the significance of this provision?

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Remember we said in Sec. 8 that all acts of the mortgagor affects the mortgagee? Well, this provision provides the exception to the rule.

TITLE III – INSURABLE INTEREST Section 10. Every person has an insurable interest in the life and health: (a) Of himself, of his spouse and of his children; (b) Of any person on whom he depends wholly in part for education or support, or in whom he has a pecuniary interest; (c) Of any person under a legal obligation to him for the payment of money, or respecting property or services, Of which death or illness might delay or prevent the performance; and (d) Of any person upon whose life any estate or interest vested in him depends. Why is this section important? Other than it discusses the concept of keyman insurance, Atty. Quimsons asked this in a past mid-term exam, asking the students to Quote the provision. What is insurable interest? Insurable interest is one the most basic of all requirements in insurance. In general, a person is deemed to have insurable interest in the subject matter insured where he ha a relation or connection with or concern in it that he will derive pecuniary benefit or advantage from its preservation and will suffer pecuniary loss or damage from its destruction, termination or injury by the happening of the event insured against. Why must there be an insurable interest? It is essential for validity and enforceability of the contract or policy. A policy issued to a person without interest in the subject matter is a mere wager policy or contract. When is there insurable interest in life insurance? In life insurance, Insurable interest exists where there is reasonable ground founded on the relations of the parties whether pecuniary, contractual or by blood or affinity, and to expect some benefit or advantage from the continuance of the life of the insured. Problem. A takes an insurance policy on his life and names his friend X as beneficiary, and another insurance on the life of Y in consideration of “love and affection” with A as a beneficiary. Which of the two insurances, if any, is valid and which, if any, is void? The Insurance taken on A on his life is VALID, because the beneficiary need not have an insurable interest in the life of the insured. It must be the one insuring who has an insurable interest in the life of the person he is insuring, and of course, it goes without saying that one has an insurable interest in his own life and health. ON the other hand, the insurance taken by A on the life of Y is VOID because “love and affection for the insured” n the part of the person insuring is NOT sufficient ground to qualify as insurable interest.

Cases: (16) Col. C. Castro v. Insurance Commissioner GR. 55836, Feb. 16, 1981 Facts:  Castro applied for insurance on the life of his driver. On the basis of such application, Insular Life issued policy No. 934943 effective July 18, 1979.  The policy applied for and issued was on a 20-yr endowment plan for the sum of P25T with double indemnity in case of accidental death.  Castro paid the first quarterly premium of P309.95. About 3 months later, on Oct. 16, 1959, the insured driver was allegedly shot to death by unknown persons. (hmmm… sounds fishy…)

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Castro then filed a claim for the total benefits of 50T under the policy. Insular life denied the claim on the ground that the policy was VOID. Insular instead refunded to Castro the premiums he had paid.

Issue: WON Castro has an insurable interest in his driver. Held: NO. The requirement of insurable interest to support a contract of insurance is based upon consideration of public policy which renders wager policies INVALID. To sustain a contract of this character it must appear that there is a real concern in the life of the party whose death would be the cause of substantial loss to those who are named as a beneficiary. Mere relationship of uncle and nephew, employer and employee is NOT sufficient to provide an insurable interest on the life of the insured. It must be shown that the destruction of the life of the insured would cause pecuniary loss to the complainant. This, Castro failed to prove. (17) Lincoln National Life v. San Juan CA GR 34588-88, Nov. 27, 1971 Facts:  An employer insured the life of the employee with two insurance companies.  The insurance totaled 200T and the only beneficiaries were the employer and his wife.  A severed head was later found, purportedly that of the insured employee.  The insurance companies refused to pay on the ground that the employer had no insurable interest in the life of the employee. Issue: WON the employer can recover the proceeds of a life insurance policy of his employee. Held. NOPE. The insured was a tenant in a coconut land owned by the employer and his earning were barely that of a farm laborer. It was established that the insured could not have afforded the insurance policies drawn on his life. Many more policies were found to have been issued with the employee/tenant as insured and the employer and his wife as beneficiaries. The policies were also found to have been acquired in quick succession. It was found that the various postal money orders issued in payment of the premiums were made by the employer. It appears that, based on the circumstances and evidence, the insurance was really taken out by the employer. (18) Gercio v. Sun Life 48 PHIL 53 Facts:  Sunlife issued a life insurance policy to Gercio, the former agreeing to insure the life of Gercio for 2T to be paid to him on Feb. 1, 1930 or if he should die before said date, then to his wife Andrea, should she survive him; otherwise to the executor, administrator of Gercio.  The policy did not include any provision reserving to Gercio the right to change the beneficiary.  The wife was convicted of adultery and a decree of divorce was issued.  Gercio notified Sunlife that he had revoked his donation in favor of Andrea and that he had designated his present wife Adela as his beneficiary.  Sunlife refused to change the beneficiary. Issue: WON Gercio may change the beneficiary in the policy. Held. NO. If the policy contains no provision authorizing a change of beneficiary without the beneficiary’s consent, the insured cannot make such change. It is held that a life insurance policy of a husband made payable to his wife as a beneficiary is the separate property of the beneficiary and beyond the control of the husband. (NOTE: this case is based on the old rule under the Insurance Act)

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Court also held that the designation of a beneficiary that is originally valid does NOT render it invalid dut to a subsequent cessation of the interests between the beneficiary and insured. (19) El Oriente v. Posadas 56 PHIL 147 (1931) Facts:

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El Oriente in order to protect itself against the loss that it might suffer by reason of the death of its manager, A. Velhagen, who had had more than thirty-five (35) years of experience in the manufacture of cigars in the Philippines, procured from the Manufacturers Life Insurance Co., of Toronto, Canada, thru its local agent E. E. Elser, an insurance policy on the life of the said A. Velhagen for the sum of $50,000, United States currency designating itself as the beneficiary.

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El Oriente paid for the premiums due thereon and charged as expenses of its business all the said premiums and deducted the same from its gross incomes as reported in its annual income tax returns, which deductions were allowed upon a showing that such premiums were legitimate expenses of its business.

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Upon the death of A. Velhagen in 1929, the El Oriente received all the proceeds of the said life insurance policy, together with the interests and the dividends accruing thereon, aggregating P104,957.88 CIR assessed El Oriente for deficiency taxes because El Oriente did not include as income the proceeds received from the insurance.

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Issue: WON the proceeds of insurance taken by a corporation on the life of an important official to indemnify it against loss in case of his death, are taxable as income under the Philippine Income Tax Law Held: NOT TAXABLE. In Chapter I of the Tax Code, is to be found section 4 which provides that, "The following incomes shall be exempt from the provisions of this law: (a) The proceeds of life insurance policies paid to beneficiaries upon the death of the insured . . ." Section 10, as amended, in Chapter II On Corporations, provides that, "There shall be levied, assessed, collected, and paid annually upon the total net income received in the preceding calendar year from all sources by every corporation . . .a tax of three per centum upon such income . . ." Section 11 in the same chapter, provides the exemptions under the law, but neither here nor in any other section is reference made to the provisions of section 4 in Chapter I. Under the view we take of the case, it is sufficient for our purposes to direct attention to the anomalous and vague condition of the law. It is certain that the proceeds of life insurance policies paid to individual beneficiaries upon the death of the insured are exempt. It is not so certain that the proceeds of life insurance policies paid to corporate beneficiaries upon the death of the insured are likewise exempt. But at least, it may be said that the law is indefinite in phraseology and does not permit us unequivocally to hold that the proceeds of life insurance policies received by corporations constitute income which is taxable It will be recalled that El Oriente, took out the insurance on the life of its manager, who had had more than thirty-five years' experience in the manufacture of cigars in the Philippines, to protect itself against the loss it might suffer by reason of the death of its manager. We do not believe that this fact signifies that when the plaintiff received P104,957.88 from the insurance on the life of its manager, it thereby realized a net profit in this amount. It is true that the Income Tax Law, in exempting individual beneficiaries, speaks of the proceeds of life insurance policies as income, but this is a very slight indication of legislative intention. In reality, what the plaintiff received was in the nature of an indemnity for the loss which it actually suffered because of the death of its manager. (20) Philamcare v. CA (repeat – Case # 09) 379 SCRA 356 Facts:

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Ernani Trinos, applied for a health care coverage with Philamcare. In the standard application form, he answered NO to the following question: “Have you or any of your family members ever consulted or been treated for high blood pressure, heart trouble, diabetes, cancer, liver disease, asthma or peptic ulcer? (If Yes, give details)”

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The application was approved for a period of one year from March 1, 1988 to March 1, 1989. He was a issued Health Care Agreement, and under such, he was entitled to avail of hospitalization benefits,

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whether ordinary or emergency, listed therein. He was also entitled to avail of "out-patient benefits" such as annual physical examinations, preventive health care and other out-patient services. Upon the termination of the agreement, the same was extended for another year from March 1, 1989 to March 1, 1990, then from March 1, 1990 to June 1, 1990. The amount of coverage was increased to a maximum sum of P75,000.00 per disability. During the period of his coverage, Ernani suffered a heart attack and was confined at the Manila Medical Center (MMC) for one month beginning March 9, 1990.

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While her husband was in the hospital, Julita tried to claim the benefits under the health care agreement. However, Philamcare denied her claim saying that the Health Care Agreement was void.

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According to Philamcare, there was concealment regarding Ernani's medical history. o Doctors at the MMC allegedly discovered at the time of Ernani's confinement that he was hypertensive, diabetic and asthmatic, contrary to his answer in the application form.

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Julita had no choice but to pay the hospitalization expenses herself, amounting to about P76,000.00

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Julita instituted, an action for damages against Philamcare. She asked for reimbursement of her expenses plus moral damages and attorney's fees. RTC decided in favor of Julita. CA affirmed.

After her husband was discharged from the MMC, he was attended by a physical therapist at home. Later, he was admitted at the Chinese General Hospital (CGH). Due to financial difficulties, Julita brought her husband home again. In the morning of April 13, 1990, Ernani had fever and was feeling very weak. Julita was constrained to bring him back to the CGH where he died on the same day.

Issues and Resolutions: Philamcare brought the instant petition for review, raising the primary argument that a health care agreement is not an insurance contract; hence the "incontestability clause" under the Insurance Code Title 6, Sec. 48 does not apply. SC held that in the case at bar, the insurable interest of respondent's husband in obtaining the health care agreement was his own health. The health care agreement was in the nature of non-life insurance, which is primarily a contract of indemnity. Once the member incurs hospital, medical or any other expense arising from sickness, injury or other stipulated contingent, the health care provider must pay for the same to the extent agreed upon under the contract. Under the title Claim procedures of expenses, Philamcare. had 12 mos from the date of issuance of the Agreement within which to contest the membership of the patient if he had previous ailment of asthma, and six months from the issuance of the agreement if the patient was sick of diabetes or hypertension. The periods having expired, the defense of concealment or misrepresentation no longer lie. Petitioner argues that respondent's husband concealed a material fact in his application. It appears that in the application for health coverage, petitioners required respondent's husband to sign an express authorization for any person, organization or entity that has any record or knowledge of his health to furnish any and all information relative to any hospitalization, consultation, treatment or any other medical advice or examination. Philamcare cannot rely on the stipulation regarding "Invalidation of agreement" which reads: Failure to disclose or misrepresentation of any material information by the member in the application or medical examination, whether intentional or unintentional, shall automatically invalidate the Agreement from the very beginning and liability of Philamcare shall be limited to return of all Membership Fees paid. An undisclosed or misrepresented information is deemed material if its revelation would have resulted in the declination of the applicant by Philamcare or the assessment of a higher Membership Fee for the benefit or benefits applied for. The answer assailed by petitioner was in response to the question relating to the medical history of the applicant. This largely depends on opinion rather than fact, especially coming from respondent's husband who was not a medical doctor. Where matters of opinion or judgment are called for, answers made in good faith and without intent to deceive will not avoid a policy even though they are untrue. Thus, (A)lthough false, a representation of the expectation, intention, belief, opinion, or judgment of the insured will not avoid the policy if there is no actual fraud in inducing the acceptance of the risk, or its acceptance at a lower rate of premium, and this is likewise the rule although the statement is material to the risk, if the statement is obviously of the foregoing character, since in such case the insurer is not justified in relying upon such statement, but is obligated to make further

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inquiry. There is a clear distinction between such a case and one in which the insured is fraudulently and intentionally states to be true, as a matter of expectation or belief, that which he then knows, to be actually untrue, or the impossibility of which is shown by the facts within his knowledge, since in such case the intent to deceive the insurer is obvious and amounts to actual fraud. The fraudulent intent on the part of the insured must be established to warrant rescission of the insurance contract. Concealment as a defense for the health care provider or insurer to avoid liability is an affirmative defense and the duty to establish such defense by satisfactory and convincing evidence rests upon the provider or insurer. In any case, with or without the authority to investigate, petitioner is liable for claims made under the contract. Having assumed a responsibility under the agreement, petitioner is bound to answer the same to the extent agreed upon. In the end, the liability of the health care provider attaches once the member is hospitalized for the disease or injury covered by the agreement or whenever he avails of the covered benefits which he has prepaid. Under Section 27 of the Insurance Code, "a concealment entitles the injured party to rescind a contract of insurance." The right to rescind should be exercised previous to the commencement of an action on the contract. In this case, no rescission was made. Besides, the cancellation of health care agreements as in insurance policies require the concurrence of the following conditions: 1. Prior notice of cancellation to insured; 2. Notice must be based on the occurrence after effective date of the policy of one or more of the grounds mentioned; 3. Must be in writing, mailed or delivered to the insured at the address shown in the policy; 4. Must state the grounds relied upon provided in Section 64 of the Insurance Code and upon request of insured, to furnish facts on which cancellation is based. None of the above pre-conditions was fulfilled in this case. When the terms of insurance contract contain limitations on liability, courts should construe them in such a way as to preclude the insurer from noncompliance with his obligation. Being a contract of adhesion, the terms of an insurance contract are to be construed strictly against the party which prepared the contract — the insurer. By reason of the exclusive control of the insurance company over the terms and phraseology of the insurance contract, ambiguity must be strictly interpreted against the insurer and liberally in favor of the insured, especially to avoid forfeiture. This is equally applicable to Health Care Agreements. The phraseology used in medical or hospital service contracts, such as the one at bar, must be liberally construed in favor of the subscriber, and if doubtful or reasonably susceptible of two interpretations the construction conferring coverage is to be adopted, and exclusionary clauses of doubtful import should be strictly construed against the provider.

Section 11. The insured shall have the right to change the beneficiary he designated in the policy, unless he has expressly waived his right in the said policy. What is a beneficiary? A beneficiary is a person whether natural or juridical for whose benefit the policy is issued and is the recipient of the proceeds in the insurance. Who can be a beneficiary? Any person in general can be a beneficiary. Are there any exceptions? Yes. 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. In case of adultery, concubinage does the disqualification extend to the illegitimate children? NO. The disqualification does not extend to the children, and as such, they may be made beneficiaries. What is the old rule regarding revocability of designation of beneficiary as enunciated in the case of Gercio v. Sunlife? The OLD rule is: When the insured did NOT expressly reserve his right to revoke the designation of his beneficiary, such designation is irrevocable and he cannot change his beneficiary without the consent of the latter.

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What is the current rule? The rule now is: The insured has the power to revoke the designation of the beneficiary even without the consent of the latter, whether or not such power is reserved in the policy. Such right must be exercised specifically in the manner set forth in the policy or contract. It is of course, extinguished at his death and CANNOT be exercised by his personal representatives or assignees. Under the current rule, when does the insured lose the right to change the beneficiary? When the right to change the beneficiary is expressly waived in the policy, the insured has no power to make such change without the consent of the beneficiary. What if the beneficiary dies before the insured and the insured did not change the designation, who gets the proceeds? There is a divergence of opinion, but the general trend is to give it to the estate of the beneficiary. What are the other provisions of law that Atty. Quimson required us to read? Art. 2012, CC. Any person who is forbidden from receiving any donation under Art. 739 cannot be named a beneficiary of a life insurance policy by the person who cannot make any donation to him, according to said article. Art. 739. The following donations shall be void: (1) Those made between persons who were guilty of adultery or concubinage at the time of the donation; (2) Those made between persons found guilty of the same criminal offense, in consideration thereof; (3) Those made to a public officer, or his wife, descendants and ascendants by reason of his office.* *Atty. Quimson said that the designation of the public officer MUST be by reason of his office and NOT all public officers are disqualified from being beneficiaries of a life insurance policy, as long as the designation was not made in consideration of an act done by the public officer by reason of his office in favor of the insured. Art. 43, FC. The termination of subsequent marriage produces the following effects: xxx. (4) The innocent spouse may revoke the designation of the other spouse who acted in bad faith as a beneficiary in any insurance policy even if such designation be stipulated as irrevocable. Art. 64, FC. After the finality of the decree of legal separation, the innocent spouse may revoke the designation of the offending spouse as beneficiary in any insurance policy. The revocation of or change in the designation of the insurance beneficiary shall take effect upon written notification to the insured. Art. 50, FC. The effects provided for by paragraph (4) of Art. 43 xxx shall also apply in the proper cases to marriages which are declared void ab initio or annulled by final judgment under Art. 40 & 45. Problems. Pao and Jane are husband and wife. Jef and Jojo are also husband and wife (yihee…). Jef and Jane engaged in adulterous relations. Jef secured a life insurance policy and named Jane as beneficiary. When Jef dies, who will get the insurance proceeds? Jojo. Jane cannot be named as a beneficiary in a life insurance policy because she is forbidden by law to receive a donation from Jef since they were both guilty of adultery. Pao and Jane are husband and wife. Jef and Jojo are also husband and wife. Jane engaged in adulterous relaions with Van. Jef secured a life insurance and named Jane as beneficiary. When Jef dies, who will get the insurance proceeds? Jane. The law prohibits the situation wherein a person who is forbidden from receiving a donation under Art. 739 is named a beneficiary of a life insurance policy by the person who cannot make any donation to him, according to said article. In other words, notwithstanding the fact that Jane is guilty of adultery, Jane can still be a beneficiary of Jef since the law provides that Jane cannot be a beneficiary of a life insurance

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policy if the person who names her as beneficiary is forbidden to give her a donation under Art. 739. Art. 739 is therefore not applicable in the situation at bar. Pao and Jane are husband and wife. Jef and Jojo are also husband and wife. Jef has a concubine named Maui Taylor. Jef thereafter secured a life insurance policy and named Jane as beneficiary. When Jef dies, who will get the insurance proceeds? Jane. The law only prohibits the situation wherein a person who is forbidden from receiving a donation under Art. 739 is named a beneficiary of a life insurance policy by the person who cannot make any donation to him, according to said article. Notwithstanding that Jef is guilty of concubinage, Jane can still be a beneficiary. Since Jane is not the concubine, Art. 739 will not apply and Jef is not forbidden from giving a donation to Jane. Pao and Jane are husband and wife. Jef and Jojo are also husband and wife. Jane engages in adulterous relations with Van. Jef has a concubine named Maui Taylor. Jef thereafter secures a life insurance policy and names Jane as a beneficiary. WhenJef dies, who will get the insurance proceeds? Jane. The law only prohibits the situation wherein a person who is forbidden from receiving a donation under Art. 739 is named a beneficiary of a life insurance policy by the person who cannot make any donation to him, according to said article. Notwithstanding that both parties are guilty of adultery and concubinage respectively, they are not forbidden because Jef is not the one engaged in an adulterous relationship with Jane, and she is not the concubine of Jef. Art. 739 does not apply. Pao and Jane are husband and wife. Jef and Jojo are also husband and wife. Jef and Pao become lovers. Jef thereafter secures a life insurance policy and names Pao as his beneficiary. When Jef dies who will get the insurance proceeds? Pao. Since there is no law prohibiting Jef from donating to Pao, because both of them are neither guilty of adultery nor concubinage, then the only solution to this problem is to consider the designation of the beneficiary as a contract which is valid and binding between the insurer and the insured. Disclaimer: Any resemblance to real and living persons are purely coincidental. Hahahaha.. right. Cases. (21) Insular Life v. Ebrado (repeated case – case #2) 80 SCRA 181 Facts:  Buenaventura Ebrado was issued by Insular Life Assurance Co. a whole life plan for P5,882.00 with a rider for Accidental Death Benefits for the same amount.  Ebrado designated Carponia Ebrado as the revocable beneficiary in his policy, referring to her as his wife.  Ebrado died when he was accidentally hit by a falling branch of tree.  Insurer by virtue of the contract was liable for 11,745.73, and Carponia filed her claim, although she admitted that she and the insured were merely living as husband and wife without the benefit of marriage.  Pascuala Ebrado also filed her claim as the widow of the deceased insured.  Insular life filed an interpleader case and the lower court found in favor of Pascuala. Issue: Between Carponia and Pascuala, who is entitled to the proceeds? Held: Pascuala. It is quite unfortunate that the Insurance Act or our own Insurance Code does not contain a specific provision grossly resolutory of the prime question at hand. Rather, the general rules of civil law should be applied to resolve this void in the insurance law. Art. 2011 of the NCC states: The contract of insurance is governed by special laws. Matters not expressly provided for in such special laws shall be regulated by this Code. When not otherwise specifically provided for in the insurance law, the contract of life insurance is governed by the general rules of civil law regulating contracts. Under Art. 2012, NCC: Any person who is forbidden from receiving any donation under Art. 739 cannot be named beneficiary of a life insurance policy by a person who cannot make any donation to him, according

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to said article. Under Art. 739, donations between persons who were guilty of adultery or concubinage at the time of the donation shall be void. In essence, a life insurance policy is no different from civil donations insofar as the beneficiary is concerned. Both are founded on the same consideration of liberality. A beneficiary is like a donee because from the premiums of the policy which the insured pays, the beneficiary will receive the proceeds or profits of said insurance. As a consequence, the proscription in Art. 739 should equally operate in life insurance contracts. Therefore, since common-law spouses are barred from receiving donations, they are likewise barred from receiving proceeds of a life insurance contract. (22) Souther Luzon Employee’s Association v. Golpeo 96 PHIL 83 Facts:  SLEA is composed of laborers and employees of the LTBC and BTC (now BLTB Co.), and one of its purposes is mutual aid of its members and their dependents in case of death.  Roman Concepcion was a member until his death in 1950.

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In 1949, SLEA adopted a resolution providing that: A member may, if he chooses, put down his common law wife and/or children he had with her as his beneficiaries; and such person so named by the member will be the sole persons to be recognized by SLEA regarding claims for condolence contributions.

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Roman listed as his beneficiaries Aquilina Maloles and their 4 children. After his death, SLEA was able to collect voluntary contribution from its members amounting to P2,205. Three sets of claimants to the amount presented themselves to the association namely: o Juanita Golpeo, legal wife, and her children o Aquilina Maloles, the common law wife, and her children o Elsie Hicban, another common law wife of Roman, and her child. SLEA then filed an action for interpleader against the 3 conflicting claimants. Trial court rendered a decision declaring Maloles and her children the sole beneficiaries of the amount citing Del Val v. Del Val. Only Golpeo appealed. She argues that: o The insurance code does not apply since the association is not an insurance company but a mutual benefit association. o The stipulation between SLEA and Roman was void for being contrary to law, public morals and public policy, pursuant to Art. 739 of the CC ( donations between persons guilty of concubinage at the time of donation are void)

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Issue: WON Golpeo, the legal wife is entitled to the amount. Held: NO. First of all, the lower court did not consider the association as a regular insurance company, but merely ruled that the death benefit in question is analogous to insurance. Besides, even the Administrative Code describes a mutual benefit company as one which provides any method of life insurance among its members out of dues or assessments collected from its membership. Secondly, without considering the intimation in the brief for Maloles that Golpeo, by her silence and actions had acquiesced in the illicit relations between her husband and Maloles, Golpeo’s argument would certainly NOT apply to the children of Maloles likewise named beneficiaries by the deceased. As a matter of fact, the NCC recognizes certain successional rights of illegitimate children. (23) Nario v. Philamlife Insurance Company 20 SCRA 434 Facts:  Mrs. Nario applied for and was issued a life Insurance policy (no. 503617) by PHILAMLIFE under a 20-yr endowment plant, with a face value of 5T. Her husband Delfin and their unemancipated son Ernesto were her revocable beneficiaries.

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Mrs. Nario then applied for a loan on the above policy with PHILAMLIFE w/c she is entitled to as policy holder, after the policy has been in force for 3 years. The purpose of such loan was for the school expenses of Ernesto. The application bore the written signature and consent of Delfin in 2 capacities o As one of the irrevocable beneficiaries of the policy o As father-guardian of Ernesto and also the legal administrator of the minor’s properties pursuant to Art. 320 of the CC. PHILAMLIFE denied the loan application contending that written consent of the minor son must not only be given by his father as legal guardian but it must also be authorized by the court in a competent guardianship proceeding. Mrs. Nario then signified her decision to surrender her policy and demand its cash value which then amounted to P 520. PHILAMLIFE also denied the surrender of the policy on the same ground as that given in disapproving the loan application. Mrs. Nario sued PHILAMLIFE praying that the latter grant their loan application and/or accept the surrender of said policy in exchange for its cash value. PHILAMLIFE contends that the loan application and the surrender of the policy involved acts of disposition and alienation of the property rights of the minor, said acts are not within the power of administrator granted under Art. 320 in relation to art. 326 CC, hence court authority is required.

Issue: WON PHILAMLIFE was justified in refusing to grant the loan application and the surrender of the policy. Held: YES. SC agreed with the trial court that the vested interest or right of the beneficiaries in the policy should be measured on its full face value and not on its cash surrender value, for in case of death of the insured, said beneficiaries are paid on the basis of its face value and in case the insured should discontinue paying premiums, the beneficiaries may continue paying it and are entitled to automatic extended term or paid-up insurance options and that said vested right under the policy cannot be divisible at any given time. SC also agreed with TC that the said acts (loan app and surrender) constitute acts of disposition or alienation of property rights and not merely management or administration because they involve the incurring or termination of contractual obligations. Under the laws (CC and rules of Court) The father is constituted as the minor’s legal administrator of the propty, and when the propty of the child is worth more than P2T (as in the case at bar, the minor’s propty was worth 2,500 his ½ share as beneficiary), the father a must file a petition for guardianship and post a guardianship bond. In the case at bar, the father did not file any petition for guardianship nor post a guardianship bond, and as such cannot possibly exercise the powers vested on him as legal administrator of the minor’s property. The consent give for and in behalf of the son without prior court authorization to the loan application and the surrender was insufficient and ineffective and PHILAMLIFE was justified in disapproving the said applications. Assuming that the propty of the ward was less than 2T, the effect would be the same, since the parents would only be exempted from filing a bond and judicial authorization, but their acts as legal administrators are only limited to acts of management or administration and not to acts of encumbrance or disposition. (24) Villanueva v. Oro 81 PHIL 464 Facts:  West Coast Life Insurance Company issued two policies of insurance on the life of Esperanza Villanueva, one for 2T, maturing April 1, 1943; and other for 3T maturing Mar. 31, 1943.

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In both policies, West agreed to pay 2T either to Esperanza if still living on Apr 1, 1943; or to beneficiary Bartolome Villanueva, or the father of the insured immediately upon receipt of the proof of death of Esperanza. The policy also gave her the right to change the beneficiary. In 1940, Bartolome died, and he was substituted as beneficiary under the policies by Mariano, Esparanza’s brother.

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Esperanza died in 1944 without having collected the insurance proceeds. Adverse claims for the proceeds were presented by the estate of Esperanza on one hand and by Mariano on the other. CFI held that the estate of Esperanza was entitled to the proceeds to the exclusion of the beneficiary.

Issue: WON the beneficiary is entitled to the proceeds. Held: NO. Under the policies, the insurer obligated itself to pay the insurance proceeds to: (1) the insured if the latter lived on the dates of maturity; or (2) the beneficiary if the insured died during the continuance of the policies. The first contingency excludes the second, and vice versa. In other words, as the insured Esperanza was living on April 1 and March 31, 1943, the proceeds are payable exclusively to her or to her estate unless she had before her death otherwise assigned the matured policies. The beneficiary could be entitled to said proceeds only in default of the first contingency. To sustain the beneficiary’s claim would be to altogether eliminate from the policies the condition that the insurer “agrees to pay to the insured if living.” This conclusion tallies with American Authorities who say that: The interest of the insured in the proceeds of the insurance depends upon his survival of the expiration of the endowment period. Upon the insured’s death, within the period, the beneficiary will take, as against the personal representatives the endowment period, the benefits are payable to him or to his assignee, notwithstanding a beneficiary is designated in the policy. (AmJur and Couch Cyclopedia of Insurance Law) (25) Philamlife v. Pineda 175 SCRA 416 Facts:  On Jan. 15 1963, Dimayuga processed an ordinary life insurance policy from Philamlife and designated his wife and children as irrevocable beneficiaries.  On Feb. 22, 1980, Dimayuga filed a petition in court to amend the designation of the beneficiaries in his policy from irrevocable to revocable.  Lower Court granted the petition. Issue: WON the court erred in granting Dimayuga’s petition. Held: YES. Under the Insurance Act, the beneficiary designated in a life insurance contract cannot be changed without the consent of the beneficiary because he has a vested interest in the policy. The policy contract states that the designation of the beneficiaries is irrevocable. Therefore, based on the said provision of the contract, not to mention the law then applicable, it is only with the consent of all the beneficiaries that any change or amendment in the poicy may be legally and validly effected. The contract between the parties is the law binding on them. (This case rule is no longer controlling under the Insurance Code.) (26) SSS v. Davao 17 SCRA 863 Facts:  Davac was an SSS member, and designated Candelaria Davac, his alleged wife, as his beneficiary.  When he died, both his first wife, Lourdes and his second wife, Candelaria filed claims for the death benefits.  Due to the conflicting claims, the SSS filed a petition praying that both of them be required to interplead and litigate the conflicting claims.  The death benefits were awarded to Candelaria Davac. Issue: Who is entitled to the SSS benefits? Held: Candelaria. Under the SSS Act, the beneficiary as recorded by the employee’s employer is the one entitled to the death benefits, hence they should go to Candelaria. Lourdes contends that the designation made in the person of Candelaria who is party in a bigamous marriage is null and void for being against Art. 739 of the

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CC. SC held that the disqualification mentioned in Art. 739 is NOT applicable to Candelaria, because she was not guilty of concubinage , there bieing NO proof that she had actual knowledge of the previous marriage of her husband. (27) In Re: Mario Chanliongco 79 SCRA 364 Facts:  Atty. Changliongco, an atty of the SC and a GSIS member, died ab intestate.  He failed or overlooked to state in his application for membership with the GSIS the beneficiary or beneficiaries of his retirement benefits should he die before the retirement. Issue: Who will benefit from the proceeds? Held: The retirement benefits shall accrue to his estate and be distributed among his legal heirs in accordance with the law on intestate succession, as in the case of a life insurance policy if NO beneficiary is named in the insurance policy. (28) Vda. De Consuegra v. GSIS 37 SCRA 315 Facts:  Jose Consuegra was employed as a shop foreman of the Office of the District Engineer in Surigao Del Norte.  When he was still alive, he contracted two marriages: o First – Rosario Diaz; 2 children = Jose Consuegra Jr. and Pedro but both predeceased him o 2nd – Basilia Berdin; 7 children. (this was contracted in GF while the first marriage subsisted)  Being a GSIS member when he died, the proceeds of his life insurance were paid by the GSIS to Berdin and her children who were the beneficiaries named in the policy.  Since he was in the gov’t service for 22.5028 years, he was entitled to retirement insurance benefits, for which no beneficiary was designated.  Both families filed their claims with the GSIS, which ruled that the legal heirs were Diaz who is entitled to one-half or 8/16 of the retirement benefits and Berdin and her children were entitled to the remaining half, each to receive an equal share of 1/16.  Berdin went to CFI on appeal. CFI affirmed GSIS decision. Issue: To whom should the retirement insurance benefits be paid? Held: Both families are entitled to half of the retirement benefits. The beneficiary named in the life insurance does NOT automatically become the beneficiary in the retirement insurance. When Consuegra, during the early part of 1943, or before 1943, designated his beneficiaries in his life insurance, he could NOT have intended those beneficiaries of his life insurance as also the beneficiaries of his retirement insurance because the provisions on retirement insurance under the GSIS came about only when CA 186 was amended by RA 660 on June 18, 1951. Sec. 11(b) clearly indicates that there is need for the employee to file an application for retirement insurance benefits when he becomes a GSIS member and to state his beneficiary. The life insurance and the retirement insurance are two separate and distinct systems of benefits paid out from 2 separate and distinct funds. In case of failure to name a beneficiary in an insurance policy, the proceeds will accrue to the estate of the insured. And when there exists two marriages, each family will be entitled to one-half of the estate. (29) Gercio v. Sun Life (repeat, case #18) 48 PHIL 53 Facts:

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Sunlife issued a life insurance policy to Gercio, the former agreeing to insure the life of Gercio for 2T to be paid to him on Feb. 1, 1930 or if he should die before said date, then to his wife Andrea, should she survive him; otherwise to the executor, administrator of Gercio. The policy did not include any provision reserving to Gercio the right to change the beneficiary. The wife was convicted of adultery and a decree of divorce was issued. Gercio notified Sunlife that he had revoked his donation in favor of Andrea and that he had designated his present wife Adela as his beneficiary. Sunlife refused to change the beneficiary.

Issue: WON Gercio may change the beneficiary in the policy. Held. NO. If the policy contains no provision authorizing a change of beneficiary without the beneficiary’s consent, the insured cannot make such change. It is held that a life insurance policy of a husband made payable to his wife as a beneficiary is the separate property of the beneficiary and beyond the control of the husband. (NOTE: this case is based on the old rule under the Insurance Act) Court also held that the designation of a beneficiary that is originally valid does NOT render it invalid dut to a subsequent cessation of the interests between the beneficiary and insured.

Section 12. The interest of a 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; in which event, the nearest relative of the insured shall receive the proceeds of said insurance if not otherwise qualified. Who are the “nearest relatives” mentioned here? Those related to the decedent in the order mentioned under the rules of intestate succession such as: (the order of the following relatives are as follows) 1. The legitimate children; 2. The father and mother, if living; 3. The grandfather and grandmother; or ascendants nearest in degree, if living; 4. The illegitimate children; 5. The surviving spouse; and 6. The collateral relatives, to wit: a. Brothers and sisters of the full blood; b. Brothers and sisters of the half-blood; and c. Nephews and nieces 7. In default of the above, the STATE shall be entitled to receive the insurance proceeds.

Problem: Clark is insured. His nearest relatives are: 1) Anakin, the legitimate child 2) Jor-el and Kyla, the legitimate father and mother 3) Lolo and Lola, grandfather and grandmother (or ascendants in the nearest degree) 4) Bastardo, the illegitimate child 5) Lois Lane, the surviving spouse 6) Collateral relatives to wit: a) Kuya, brother of full blood b) Alf, brother of half blood c) Nep, nephew What if all of the above are nowhere to be found? Then the State of Krypton is entitled to the proceeds. Suppose that Lois Lane masterminded a plan to kill Clark and Anakin carried it out. Anakin and Lois were convicted of murder. However, they are also instituted as beneficiaries in the insurance policy of Clark, and

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the proceeds are the only properties available for distribution to the heirs. In case all three are convicted who gets the proceeds? Since Anakin, the legitimate child and Lois, the surviving spouse are no longer entitled to the proceeds, then following the rules on intestate succession, the proceeds must be divided between the legitimate parents (Jor-el and Kyla) who get ½ of the proceeds and the Illegitimate child (Bastardo) who gets the other half. Same facts above, but it was only Lois Lane who was instituted as beneficiary. Is Anakin still entitled to the insurance proceeds? At first glance the answer might be YES, because according to Section 12, it is only the interest of the beneficiary which is forfeited, and since Anakin was not instituted as beneficiaries, then his interest is still intact. HOWEVER, there is a proviso in Sec. 12, which states: ” the nearest relative of the insured shall received the proceeds of said insurance if not otherwise qualified”. Meaning, in order to find out if Anakin is qualified, reference must be made to laws of succession. According to Art. 1024 of the CC, the provisions relating to incapacity by will are equally applicable to intestate succession; and according to Art. 1032 (2), any person who has been convicted of an attempt against the life of the testator is incapable of succeeding by reason of unworthiness. Hence, the correct answer to this problem is NO. Anakin is not entitled to the proceeds and subsequently the insurance proceeds will be divided as provided for in the first answer. In case Anakin and Lois are not convicted, but both are instituted as beneficiaries of Clark, can they still collect the proceeds? There is no law or jurisprudence that treats of this situation. However, Atty. Quimson said in class that there must be a conviction before Sec. 12 can operate to disqualify or forfeit the interests of Anakin and Lois. Sec. 12 speaks of “principals, accomplice or accessory”, and there must therefore be a conviction of the beneficiaries as either of the three to the crime against the insured. Suppose Anakin and Lois are not convicted and they are not instituted as beneficiaries of Clark, can they now collect the proceeds? In this case, Sec. 12 is no longer the relevant provision, but Art. 1032 (2) of the CC. However, it is submitted (by JohnBee Sioson) that there must be a final conviction in order for Art. 1032 to apply, i.e., to bar Anakin and Lois from collecting on the ground of unworthiness. Furthermore, Art. 1034 says: In order to judge the capacity of the heir, devisee or legatee, his qualifications at the time of the death of the decedent shall be the criterion. In cases falling under Nos. 2, 3 & 5 of Art. 1032, it shall be necessary to wait until final judgment is rendered. Elle Driver, Beatrix Kiddo & O-Ren Ishi are all creditors of Bill. All three are instituted as beneficiaries of Bill. Elle fails to qualify since she is Bill’s concubine. Beatrix on the other hand, eager to claim the insurance proceeds, used the “5 point exploding heart technique” she learned from Pai Mei, killing Bill. O-Ren now claims the proceeds of the insurance. However, her claim is opposed by BB, Bill’s legitimate daughter who contends that according to Sec. 12, it is the nearest relative who should get the proceeds, meaning her. Between BB and O-Ren, who is entitled to get the proceeds? O-Ren Ishi gets the proceeds because it was stipulated in the contract of insurance (I think she’ll use it to surgically graft her scalp back since it was sliced by Beatrix using a Hatori Hanzo Sword). Remember that the insurance contract is the law between the parties and hence it must be followed by the insurance company. Sec. 12 ONLY applies if there is NO stipulation in the contract of insurance as to who are the other beneficiaries of the proceeds.(Cue Kill Bill soundtrack…)

Section 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. What is the importance of this provision? It defines insurable interest in PROPERTY.

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Cases: (30) Harvardian Colleges v. Country Bankers Insurance Corp. 1 CARA 2 Facts:  Harvardian is a family corporation, the stockholders of which are Ildefonso Yap, Virginia King Yap and their children.  Prior to Aug. 9, 1979, an agent of Country Bankers proposed to Harvardian to insure its school building. Although at first reluctant, Harvardian agreed.  Country Banks sent an inspector to inspect the school building and agreed to insure the same for P500,000 for which Harvardian paid an annual premium of P2,500.

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On Aug. 9, 1979, Country Bankers issued to Harvardian a fire insurance policy. On March 12, 1980, (39 days before I was born… hehehehe )during the effectivity of said insurance policy, the insured property was totally burned rendering it a total loss. A claim was made by plaintiff upon defendant but defendant denied it contending that plaintiff had no insurable interest over the building constructed on the piece of land in the name of the late Ildefonso Yap as owner. It was contended that both the lot and the building were owned by Ildefonso Yap and NOT by the Harvardian Colleges.

Issue: WON Harvardian colleges has a right to the proceeds. Held: Harvardian has a right to the proceeds. Regardless of the nature of the title of the insured or even if he did not have title to the property insured, the contract of fire insurance should still be upheld if his interest in or his relation to the property is such that he will be benefited in its continued existence or suffer a direct pecuniary loss from its destruction or injury. The test in determining insurable interest in property is whether one will derive pecuniary benefit or advantage from its preservation, or will suffer pecuniary loss or damage from its destruction, termination or injury by the happening of the event insured against. Here Harvardian was not only in possession of the building but was in fact using the same for several years with the knowledge and consent of Ildefonso Yap. It is reasonably fair to assume that had the building not been burned, Harvardian would have been allowed the continued use of the same as the site of its operation as an educational institution. Harvardian therefore would have been directly benefited by the preservation of the property, and certainly suffered a pecuniary loss by its being burned.

Section 14. An insurable ineters 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. What is existing interest? Existing interest in property is the legal or equitable title on the property. What is an inchoate interest? It is an interest which has not yet ripened, such as the interest of a stockholder in the property of the corporation which he owns stocks. In what kind of expectancy may insurable interest consist? The expectancy MUST be coupled with an existing interest in that, out of which such expectancy arises. Examples would be: a farmer insuring future crops that he will grow on his land, or a workman insuring the building which he was contracted to repair. Cases: (31) Suter v. Union Surety 51 OG 1905

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Facts:

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Suter, the managing partner of Morcoin Co., insured two juke boxes with Union Surety for P4,000. (btw, siya din yung sa Tax 2 diba? Yung pinakasalan yung partner niyang si Spirig?) Subsequently, the two juke boxes were destroyed by fire. Suter now claims from Union Surety, the latter denying the claims on the grounds that: o The properties were allegedly overvalued, it having been proven that the juke boxes cost only P774.00 o Suter had no insurable interest since the properties insured belong to Morcoin Co.

Issues and Resolutions: (1) Whether or not the juke boxes were overvalued. No. While acquisition cost is only P774.00, this does not include taxes, freight insurance, shipping cost, and other improvements made thereon. The value of the property is determine at the time it was insured and not the time it was acquired. (2) WON Suter had insurable interest. YES, Suter had insurable interest. The test for insurable interest in property is whether or not the insured will benefit in the property’s reservation or continued existence, or suffer a direct pecuniary loss in its destruction. Suter, being the managing partner will clearly benefit in the juke boxes’ preservation and would also be affected by its destruction. (32) Traders Insurance and Surety Co. v. Golangco 95 PHIL 826 Facts:  A decision was rendred in Civil Case No. 6306 granting Golangco the right to collect rentals from a building in Sta. Cruz, Manila.

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Golangco then sought fire insurance from Traders. Before the policy was issued, Golangco made a full and clear exposal of his interests in the premises, i.e. that he was not the owner. The fire policy that defendant issued covered only all of Golangco’s interest in the premises and his right to collect the rentals. The building burned down in a fire and Golangco sought to collect from Traders. Traders denied any liability on the ground that since Golangco was not the owner of the premises then he had no insurable interest in the same and consequently, he could not collect the insurance proceeds.

Issue: WON plaintiff can claim the insurance proceeds. Held. YES. Both at the time of the issuance of the policy and at the time of the fire, plaintiff Golangco was in legal possession of the premises, collecting rentals from its occupant. It seems plain that if the premises were destroyed as they were, by fire, Golangco would be, as he was, directly damnified thereby; and hence he had an insurable interest therein. (33) Zenith Insurance Corporation v. The Insurance Commission 87 OG 6249 Facts:

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Zenith entered into an insurance contract, denominated as Equipment Floater Policy covering a Kato Bachoe including its accessories and appurtenances thereof, from loss of damage. Complainant paid the stipulated premiums therefore. Within the period of effectivity of the policy, the two pieces of hydraulic wheel gear pumps, which are considered appurtenances and/or parts attached to and/or installed in the Kato BAchoe were lost, stolen and/or illegally detached by unknown thieves or malefactors Despite repeated assurances by Zenith’s soliciting agent, it refused and failed to settle and pay complainant’s insurance claim.

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Complainant seeks not only the payment of said insurance claim of 70T plus legal interest, atty’s fees, and litigation expenses, but also the revocation or cancellation of the license of Zenith to do insurance business.

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Zenith on the other hand contends that: o Complainant is not the real party in interest since the policy carries with it a designated loss payee, the BA Finance Corp o The policy insures against loss or damage caused by fire and lightning, etc, while theft or robbery is NOT insured against in the policy, it not having been expressly mentioned o Loss nevertheless is excluded under the exception of “infidelity exclusion” by the operator who left it unguarded, unattended and deserted while entrusted to him, and for failure to give timely notice of loss o Complainant and/or BA Finance is guilty of concealment and misrepresentation at the time they secured the policy, because at the time it became operative, the complainant was NOT yet the owner of the property insured, the property still hot having been delivered to him, and BA finance had no insurable interest yet, henceforth, the contract of insurance was VOID AB INITIO for lack of insurable interest at the time the insurance took effect.

Issues and Resolutions: (1) WON the loss through theft or robbery claimed is within the coverage of the policy. The Insurance Commissioner, as reiterated by the SC, found for the complainant in this wise: While the policy enumerated the risks covered, it does NOT, however, in its express terms, limit compensability to that stated in the enumeration. The enumerated risks excluded did not include theft or robbery committed or perpetrated by an unidentified culprit, hence the complainant’s claim for damages is compensable. The foregoing policy is supported by the long time honored doctrine of “contra proferentem: which provides that: “any ambiguity in the policy shall be resolved in favor of the insured and against the insurer”. This is true because insurance contracts are essentially contracts of adhesion and applicants for insurance have no choice but to accept the terms and conditions in the policy even if they are not in full accord therewith. (2) WON the complainant was with insurable interest therein when the said policy contract was procured. The complainant has insurable interest in the insured property at the time of the procurement of the insurance policy. As the CC provides, “the contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price,” and Sec. 15 of the IC allows the insurance of a mere contingent or expectant interest in anything if the same is founded on an actual right to the thing, or upon any valid contract. As this is the case, mere possession of an equitable title, like that pertaining to the buyer, gives rise to insurable interest in the property in which such title inheres. Furthermore, considering that Zenith’s agent had been fully apprised of the circumstances prior to the actual issuance of the policy and the endorsement, it cannot now allege that complainant has no insurable interest on the property insured. Zenith is now precluded by the equitable principle of estoppel from impugning and dishonoring the very insurance policy contract it issued and the endorsement and increase in the coverage made through its duly authorized agent. (34) Filipino Merchants v. CA 179 SCRA 638 Facts:

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The Chao Tiek Seng a consignee of the shipment of fishmeal loaded on board the vessel SS Bougainville and unloaded at the Port of Manila on or about December 11, 1976 and seeks to recover from Filipino the amount of P51,568.62 representing damages to said shipment which has been insured by Filipino.

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Filipino brought a third party complaint against Compagnie Maritime Des Chargeurs Reunis and/or E. Razon, Inc. seeking judgment against the third party defendants in case judgment is rendered against it.

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It appears from the evidence presented that Chao insured said shipment with Filipino for the sum of P267,653.59 for the goods described as 600 metric tons of fishmeal in gunny bags of 90 kilos each from Bangkok, Thailand to Manila against all risks under warehouse to warehouse terms. Actually, what was imported was 59.940 metric tons not 600 tons at $395.42 a ton.

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The fishmeal in 666 gunny bags were unloaded from the ship on December 11, 1976 at Manila unto the arrastre contractor E. Razon, Inc. and Filipino’s surveyor ascertained and certified that in such discharge 105 bags were in bad order condition as jointly surveyed by the ship's agent and the arrastre contractor.

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Based on said computation the Chao made a formal claim against the Filipino for P51,568.62. A formal claim statement was also presented by the plaintiff against the vessel, but the Filipino refused to pay the claim.

Issues & Resolutions: Filipino contends that an "all risks" marine policy has a technical meaning in insurance in that before a claim can be compensable it is essential that there must be "some fortuity," "casualty" or "accidental cause" to which the alleged loss is attributable and the failure of herein private respondent, upon whom lay the burden, to adduce evidence showing that the alleged loss to the cargo in question was due to a fortuitous event precludes his right to recover from the insurance policy. SC did not uphold this contention. An "all risks policy" should be read literally as meaning all risks whatsoever and covering all losses by an accidental cause of any kind. The terms "accident" and "accidental", as used in insurance contracts, have not acquired any technical meaning. They are construed by the courts in their ordinary and common acceptance. Thus, the terms have been taken to mean that which happens by chance or fortuitously, without intention and design, and which is unexpected, unusual and unforeseen. An accident is an event that takes place without one's foresight or expectation; an event that proceeds from an unknown cause, or is an unusual effect of a known cause and, therefore, not expected. Coverage under an "all risks" provision of a marine insurance policy creates a special type of insurance which extends coverage to risks not usually contemplated and avoids putting upon the insured the burden of establishing that the loss was due to the peril falling within the policy's coverage; the insurer can avoid coverage upon demonstrating that a specific provision expressly excludes the loss from coverage. A marine insurance policy providing that the insurance was to be "against all risks" must be construed as creating a special insurance and extending to other risks than are usually contemplated, and covers all losses except such as arise from the fraud of the insured. The burden of the insured, therefore, is to prove merely that the goods he transported have been lost, destroyed or deteriorated. Thereafter, the burden is shifted to the insurer to prove that the loss was due to excepted perils. To impose on the insured the burden of proving the precise cause of the loss or damage would be inconsistent with the broad protective purpose of "all risks" insurance. In the present case, there being no showing that the loss was caused by any of the excepted perils, the insurer is liable under the policy Filipino contends that Chao does not have insurable interest, being only a consignee of the goods. Anent the issue of insurable interest, SC upheld the ruling of the CA that Chao, as consignee of the goods in transit under an invoice containing the terms under "C & F Manila," has insurable interest in said goods. Section 13 of the Insurance Code defines insurable interest in property as every interest in property, whether real or personal, or any relation thereto, or liability in respect thereof, of such nature that a contemplated peril might directly damnify the insured. In principle, anyone has an insurable interest in property who derives a benefit from its existence or would suffer loss from its destruction whether he has or has not any title in, or lien upon or possession of the property. Insurable interest in property may consist in (a) an existing interest; (b) an inchoate interest founded on an existing interest; or (c) an expectancy, coupled with an existing interest in that out of which the expectancy arises. Chao, as vendee/consignee of the goods in transit has such existing interest therein as may be the subject of a valid contract of insurance. His interest over the goods is based on the perfected contract of sale. The perfected contract of sale between him and the shipper of the goods operates to vest in him an equitable title even before delivery or before he performed the conditions of the sale. The contract of shipment, whether under F.O.B., C.I.F., or C. & F. as in this case, is immaterial in the determination of whether the vendee has an insurable interest or not in the goods in transit. The perfected contract of sale even without delivery vests in the vendee an equitable title, an existing interest over the goods sufficient to be the subject of insurance

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Section 15. A carrier or depository of any kind has an insurable interest in a thing held by him as such, to the extent of his liability but not to exceed the value thereof.

What is the reason for this provision? The loss of the thing may make the carrier or depositary liable to the owner of the goods, to the extent of the value of the goods, and the law therefore allows such a carrier or depositary to insure his possible liability therefor. Problem. M/V Mary Jane, a common carrier, insured Peter Parker’s goods, valued at 1M with A.MAY Insurance Company for 2M. The vessel was hit by lightning, caught fire, and sank. Mary Jane is now claiming 2M from A.MAY because the policy stated that the loss due to lightning is compensable. A.MAY denies liability on the ground that: (1) Mary Jane is not the owner of the goods and therefore has no insurable interest; and (2) Mary Jane cannot claim more than the value of the goods lost. Decide. According to Sec. 15, a carrier has insurable interest in a thing held by him as such. Hence, Mary Jane has insurable interest over the goods of Peter Parker. However, the same provision also states that such insurable interest is only up to the extent of his liability and not to exceed the value of the thing. Since the value of the goods is only 1M, then Mary Jane can only collect 1M. Case: (35) Lopez v. Del Rosario 44 PHIL 98 Facts:  Benita Del Rosario is the owner of a bonded warehouse in Manila where copra and other merchandise are deposited.  Among those who had copra deposited in the warehouse was Froilan Lopez, the owner of 14 warehouse receipts with a declared value of P107,990.40 in his name.  Del Rosario secured insurance on the warehouse and its contents with 5 different insurance companies in the amount of P404,800.  All policies were in the name of Del Rosario, except for one (with Nat’l Insurance Co.) for 40T, in favor of Compania Copra de Tayabas.  The warehouse and its contents were destroyed by fire. When Bayne, a fire loss adjuster, failed to effect a settlement between the Insurance companies and Del Rosario, the latter authorized Atty. Fisher to negotiate with the Companies.  An agreement was reached to submit the matter to arbitration. The claims by different people who had stored copra in the warehouse were settled with the exception of Friolan Lopez.  A case was filed in CFI by Lopez. The court awarded him the sum of P88,492.21 with legal interest. Issue: WON Del Rosario acted as the agent of Lopez in taking out the insurance on the contents of the warehouse or whether she acted as the reinsurer of the copra. Held: She acted as the agent of Lopez. The agency can be deduced from the warehouse receipts, the insurance policies and the circumstances surrounding the transaction. Under any aspect, Del Rosario is liable. The law is that a policy effected by a bailee and covering by its terms in his own property and property held in trust, inures, in the event of loss, equally and proportionately to the benefit of all owners of the property insured. Even if one secured insurance covering his own goods and goods stored with him, and even if the owner of the stored goods did not request or know the insurance, and did not ratify it before the payment of the loss, it has been held by a reputable court that the warehouseman is liable to the owner of such stored goods for his share. In a case of contributing policies, adjustments of loss made by an expert or by a board of arbitrators may be submitted to the court NOT as evidence of the facts stated therein, or as obligatory, but for the purpose of assisting the court in calculating the amount of liability.

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Section 16. A mere contingent or expectant interest in anything, not founded on an actual right to the thing, nor upon any valid contract for it, is not insurable. What does this section mean? Mere hope or expectation of benefit which may be frustrated by the happening of some event uncoupled with any present legal right will not support a contract of insurance. Examples: A son cannot insure the property of his father which he expects to inherit from the latter, or a husband insuring the paraphernal property of his wife; the reason being, their interest is merely an expectancy of inheriting, and the rights to succession are transmitted only from the moment of the death of the decedent. Section 17. The measure of an insurable interest in the property is the extent to which the insured might be damnified by loss or injury thereof. Problems. A insured his property valued at P100,000 for P120,000. A suffered a total loss. How much is he entitled to recover? A is entitled to recover only the value of his loss which is 100T and not 120T because it is against public policy to profit from a loss. What if the one who caused the damage, B paid A P80,000? What is the liability of the Insurance Company? The insurance claim is reduced in the same amount of 80T. Anything that reduces or diminishes the loss, reduces and diminished the amount which the insurer is bound to pay. Hence the insurer is liabile for 20T. Under a building contract, A constructed a house in Ayala Alabang for 4M for Z who made an advance payment of 1M, the balance to be paid upon deliver of the house on Aug. 13, 1993. A finished the house on July 13, 1993 so he insured the house against fire for 4M. Before delivery of the house in August, the house burned down. What is the extent of the insurable interest of A? It is still 4M, notwithstanding the fact that he has received from Z 1M as advance payment. The reason why he is entitled to the whole 4M is, he has to replace the house destroyed with another house worth 4M as per the contract, not one valued at only 3M. In other words, 4M was the extent to which A was damnified by the loss of the house.

Cases: (36) San Miguel Brewery v. Law Union Rock Insurance Company (repeat – case #12) 40 PHIL 674 Facts:  On Jan. 12, 1918, Dunn mortgaged a parcel of land to SMB to secure a debt of 10T.  Mortgage contract stated that Dunn was to have the property insured at his own expense, authorizing SMB to choose the insurers and to receive the proceeds thereof and retain so much of the proceeds as would cover the mortgage debt.  Dunn likewise authorized SMB to take out the insurance policy for him.  Brias, SMB’s general manager, approached Law Union for insurance to the extent of 15T upon the property. In the application, Brias stated that SMB’s interest in the property was merely that of a mortgagee.  Law Union, not wanting to issue a policy for the entire amount, issued one for P7,500 and procured another policy of equal amount from Filipinas Cia de Seguros. Both policies were issued in the name of SMB only and contained no reference to any other interests in the propty. Both policies required assignments to be approved and noted on the policy.  Premiums were paid by SMB and charged to Dunn. A year later, the policies were renewed.  In 1917, Dunn sold the property to Harding, but no assignment of the policies was made to the latter.

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Property was destroyed by fire. SMB filed an action in court to recover on the policies. Harding was made a defendant because by virtue of the sale, he became the owner of the property, although the policies were issued in SMB’s name. SMB sought to recover the proceeds to the extent of its mortgage credit with the balance to go to Harding. Insurance Companies contended that they were not liable to Harding because their liability under the policies was limited to the insurable interests of SMB only. SMB eventually reached a settlement with the insurance companies and was paid the balance of it’s mortgage credit. Harding was left to fend for himself. Trial court ruled against Harding. Hence the appeal.

Issue: WON the insurance companies are liable to Harding for the balance of the proceeds of the 2 policies. Held: NOPE. Under the Insurance Act, the measure of insurable interest in the property is the extent to which the insured might be daminified by the loss or injury thereof. Also it is provided in the IA that the insurance shall be applied exclusively to the proper interest of the person in whose name it is made. Undoubtedly, SMB as the mortgagee of the property, had an insurable interest therein; but it could NOT, an any event, recover upon the two policies an amount in excess of its mortgage credit. By virtue of the Insurance Act, neither Dunn nor Harding could have recovered from the two policies. With respect to Harding, when he acquired the property, no change or assignment of the policies had been undertaken. The policies might have been worded differently so as to protect the owner, but this was not done. If the wording had been: “Payable to SMB, mortgagee, as its interests may appear, remainder to whomsoever, during the continuance of the risk, may become owner of the interest insured”, it would have proved an intention to insure the entire interest in the property, NOT merely SMB’s and would have shown to whom the money, in case of loss, should be paid. Unfortunately, this was not what was stated in the policies. If during the negotiation for the policies, the parties had agreed that even the owner’s interest would be covered by the policies, and the policies had inadvertently been written in the form in which they were eventually issued, the lower court would have been able to order that the contract be reformed to give effect to them in the sense that the parties intended to be bound. However, there is no clear and satisfactory proof that the policies failed to reflect the real agreement between the parties that would justify the reformation of these two contracts. (37) Ang Ka Yu v. Phoenix Assurance 1 CARA 704 Facts:  Ang Ka Yu had a piece of property in his possession. He insured it with Phoenix.  The property was lost, so Ang Ka Yu sought to claim the proceeds.  Phoenix denied liability on the ground that Ang was not the owner but a mere possessor and as such, had no insurable interest over the property. Issue: WON a mere possessor has insurable interest over the property. Held: Yes. A person having a mere right or possession of property may insure it to its full value and in his own name, even when he is not responsible for its safekeeping. The reason is that even if a person is NOT interested in the safety and preservation of material in his possession because they belong to 3 rd parties, said person still has insurable interest, because he stands either to benefit from their continued existence or to be prejudiced by their destruction. (38) Cha v. Cha 277 SCRA 690 (1997) Facts:

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Spouses Nilo Cha and Stella Uy-Cha, as lessees, entered into a lease contract with CKS Development Corporation (CKS), as lessor.

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One of the stipulations of the one (1) year lease contract states: "18. . . . The LESSEE shall not insure against fire the chattels, merchandise, textiles, goods and effects placed at any stall or store or space in the leased premises without first obtaining the written consent and approval of the LESSOR. If the LESSEE obtain(s) the insurance thereof without the consent of the LESSOR then the policy is deemed assigned and transferred to the LESSOR for its own benefit; . . ." Notwithstanding the above stipulation, the Cha spouses insured against loss by fire their merchandise inside the leased premises for Five Hundred Thousand (P500,000.00) with the United Insurance without the written consent CKS.

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On the day that the lease contract was to expire, fire broke out inside the leased premises. When CKS learned of the insurance earlier procured by the Cha spouses (without its consent), it wrote the United a demand letter asking that the proceeds of the insurance contract (between the Cha spouses and United) be paid directly to CKS, based on its lease contract with the Cha spouses.

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United refused to pay CKS, alleging that the latter had no insurable interest. Hence, the latter filed a complaint against the Cha spouses and United.

Issue: WON CKS can claim the proceeds of the fire insurance. Held: NO. CKS has no insurable interest. Sec. 18 of the Insurance Code provides: "Sec. 18. 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." A non-life insurance policy such as the fire insurance policy taken by petitioner-spouses over their merchandise is primarily a contract of indemnity. Insurable interest in the property insured must exist at the time the insurance takes effect and at the time the loss occurs. The basis of such requirement of insurable interest in property insured is based on sound public policy: to prevent a person from taking out an insurance policy on property upon which he has no insurable interest and collecting the proceeds of said policy in case of loss of the property. In the present case, it cannot be denied that CKS has no insurable interest in the goods and merchandise inside the leased premises under the provisions of Section 17 of the Insurance Code which provide: "Section 17. The measure of an insurable interest in property is the extent to which the insured might be damnified by loss of injury thereof." Therefore, CKS cannot, under the Insurance Code — a special law — be validly a beneficiary of the fire insurance policy taken by the petitioner-spouses over their merchandise. This insurable interest over said merchandise remains with the insured, the Cha spouses. The automatic assignment of the policy to CKS under the provision of the lease contract previously quoted is void for being contrary to law and/or public policy. The proceeds of the fire insurance policy thus rightfully belong to the spouses Nilo Cha and Stella UyCha (herein co-petitioners). The insurer (United) cannot be compelled to pay the proceeds of the fire insurance policy to a person (CKS) who has no insurable interest in the property insured.

Section 18. 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. Simplified, the provision states that? NO insurable interest = NO contract of Insurance. Cases: (39) Sharuff and Co. v. Baloise Fire Insurance Co. 64 SCRA 258 Facts:  Sharuff and Eskenazi were doing business under the firm name Sharuff and Co.

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They insured their merchandise with Baloise. Later on, Sharuff and Eskenazi entered into a contract of partnership and thereby changed the firm name to Sharuff and Eskenazi. The merchandise insured was subsequently destroyed by fire. Sharuff and Eskenazi filed their claim against the insurance company. Baloise refused to pay on the ground that the policy was issued in the name of Sharuff and Co. and not Sharuff and Eskenazi.

Issue: WON the partnership can claim the proceeds of the policy. Held: YUP. The subsequent partnership did not alter the composition of the firm. The people involved are actually the same. Furthermore, such change of firm name was not made to defraud the insurance company or some other person. (40) Garcia v. HongKong Fire and Marine Insurance Co. 45 PHIL 122 Facts:  Garcia had his merchandise insured by Hongkong Fire and Marine Insurance Co.  The insurance company however made a mistake and issued a policy covering the building where the merchandise was stored. (The building was not owned by Garcia)  The policy was written in English, of which Garcia was ignorant, so he could not have noticed the error of the insurance company.  Said policy was later on assigned by Garcia to PNB to secure a loan. PNB acknowledged receipt of said policy, referring to it as a policy covering the merchandise.  The insurance company made the necessary endorsements to PNB.  The building which housed the merchandise was later razed by fire. The insurance company refused to pay due to the fact that the policy indicates insurance on the building and not on the merchandise. Issue: WON Garcia can collect. Held: YES. The defense of the insurer is purely technical. The mistake was obviously on the part of the insurer when it issued a wrong policy. It cannot deny such allegation due to the fact that it even confirmed with PNB the nature of said policy when it was endorsed. Garcia could not have noticed the mistake due to his ignorance of the English language.

Section 19. An interest in property insured must exist when the insurance takes effect, and when the loss occurs, but need not exist in the meantime; and 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. When must insurable interest exist? In case of life insurance at the time the insurance takes effect. In case of property insurance, at the time the insurance takes effect AND at the time of the loss, but it need not exist in the meantime. Problem. Beatrix insured her house for 1T. At that time, she was the owner of the house. During the effectivity of the policy, she sold the house to Bill for 2T, but did not transfer the policy. Because of the effects of Sec. 20, the insurance was suspended. A week later, Beatrix realized how much she missed the house and bought it from Bill for 3T. The next day, the house burned down. Is the Insurer liable notwithstanding the transfer of interest from Beatrix to Bill during the effectivity of the policy? Yes. Beatrix had insurable interest on the house as she was the owner at the time the insurance took effect. She also had insurable interest on the house at the time of the loss since she had already reacquired it from Bill. The law says Beatrix need not have insurable interest in the meantime, or during the intervening period between the time of effectivity of the insurance, and the time of the loss. Therefore, notwithstanding

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the ownership of Bill during the intervening period, as Beatrix had insurable interest at the two points in time required by law, then the insurer is liable. Cases: (41) Tai Tong Chua Che & Co. v. Insurance Commission 158 SCRA 366 Facts:  Palomo obtained a loan from Taitong for 100T. To secure this, he mortgaged a parcel of land with a building. Taitong insured the mortgaged property with Travelers Multi-Indemnity Corp for 100T.  The insured property was razed by fire. Taitong claimed the proceeds from the insurance company.  Travelers refused to pay, claiming that Taitong had no more insurable interest in the property since Palomo had allegedly paid the mortgaged debt already. Issue: WON Taitong can collect the proceeds. Held: Yes. The allegation of the insurance company that the debt had already been paid was NOT proved. Taitong on the other hand presented evidence, namely the contract of mortgage which does not appear to have been canceled or released.

Section 20. Except in the cases specified in the next four sections, and in the cases of life, accident and health insurance, a change of interest in any part of a thing insured, unaccompanied by a corresponding change of interest in the insurance, suspends the insurance to an equivalent extent, until the interests in the thing and the interest in the insurance are vested in the same person. What is the general rule embodied in this section? The General Rule is that the mere transfer of the thing insured does not transfer the policy but suspends it until the same person becomes the owner of both the policy and the thing insured. The term “change of interest” in this section means absolute transfer of the property insured such as the conveyance of the property insured by means of an absolute deed of sale. What are the exceptions to the general rule? The exceptions, where a change of interest does NOT suspend the insurance are: 1. Life, health and accident insurance (Sec. 20) 2. Change of interest in the thing insured occurs after the injury which results in a loss (Sec. 21) 3. Change of interest in one or more of several things separately insured by one policy (Sec. 22) 4. Change of interest by will or succession on the death of the insured (Sec. 23) 5. Transfer of interest by one of several partners, joint owners or owners in common who are jointly insured, to the other (Sec. 24) What is the reason for this provision suspending the insurance in case of change of interest? The object of the provision is to provide against changes which might supply a motive to destroy the property, or might lessen the interest of the insurer in protecting and guarding it. Case: (42) Bachrach v. British American Insurance Co. 17 PHIL 555 Facts:  Bachrach insured properties of its general furniture shop with British. The properties were subsequently destroyed by fire.  Bachrach claims from the insurance company. The claim was denied on the ff grounds: o The policy was allegedly forfeited because the insured stored varnishes and paints within the premises; o Insured stored gasoline in the building; and

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Bachrach executed a chattel mortgage on the properties insured without the consent of the insured.

Issue: WON Bachrach can claim the proceeds of the policy. Held: Yes. The policy was NOT forfeited due to the strong paints and varnishes. There was no express provision pertaining to it and these paints and varnishes are incidental to the business of the insured to keep the furniture in a saleable condition. The gasoline stored within the premises was in the reservoir of the car and thus does not violate any provision in the policy. There is no express prohibition against the execution of a chattel mortgage on the property insured. (43) San Miguel Brewery v. Law Union Rock Insurance Company (repeat – case #12) 40 PHIL 674 Facts:  On Jan. 12, 1918, Dunn mortgaged a parcel of land to SMB to secure a debt of 10T.  Mortgage contract stated that Dunn was to have the property insured at his own expense, authorizing SMB to choose the insurers and to receive the proceeds thereof and retain so much of the proceeds as would cover the mortgage debt.  Dunn likewise authorized SMB to take out the insurance policy for him.  Brias, SMB’s general manager, approached Law Union for insurance to the extent of 15T upon the property. In the application, Brias stated that SMB’s interest in the property was merely that of a mortgagee.  Law Union, not wanting to issue a policy for the entire amount, issued one for P7,500 and procured another policy of equal amount from Filipinas Cia de Seguros. Both policies were issued in the name of SMB only and contained no reference to any other interests in the propty. Both policies required assignments to be approved and noted on the policy.  Premiums were paid by SMB and charged to Dunn. A year later, the policies were renewed.  In 1917, Dunn sold the property to Harding, but no assignment of the policies was made to the latter.  Property was destroyed by fire. SMB filed an action in court to recover on the policies. Harding was made a defendant because by virtue of the sale, he became the owner of the property, although the policies were issued in SMB’s name.  SMB sought to recover the proceeds to the extent of its mortgage credit with the balance to go to Harding.  Insurance Companies contended that they were not liable to Harding because their liability under the policies was limited to the insurable interests of SMB only.  SMB eventually reached a settlement with the insurance companies and was paid the balance of it’s mortgage credit. Harding was left to fend for himself. Trial court ruled against Harding. Hence the appeal. Issue: WON the insurance companies are liable to Harding for the balance of the proceeds of the 2 policies. Held: NOPE. Under the Insurance Act, the measure of insurable interest in the property is the extent to which the insured might be daminified by the loss or injury thereof. Also it is provided in the IA that the insurance shall be applied exclusively to the proper interest of the person in whose name it is made. Undoubtedly, SMB as the mortgagee of the property, had an insurable interest therein; but it could NOT, an any event, recover upon the two policies an amount in excess of its mortgage credit. By virtue of the Insurance Act, neither Dunn nor Harding could have recovered from the two policies. With respect to Harding, when he acquired the property, no change or assignment of the policies had been undertaken. The policies might have been worded differently so as to protect the owner, but this was not done. If the wording had been: “Payable to SMB, mortgagee, as its interests may appear, remainder to whomsoever, during the continuance of the risk, may become owner of the interest insured”, it would have proved an intention to insure the entire interest in the property, NOT merely SMB’s and would have shown to whom the money, in case of loss, should be paid. Unfortunately, this was not what was stated in the policies.

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If during the negotiation for the policies, the parties had agreed that even the owner’s interest would be covered by the policies, and the policies had inadvertently been written in the form in which they were eventually issued, the lower court would have been able to order that the contract be reformed to give effect to them in the sense that the parties intended to be bound. However, there is no clear and satisfactory proof that the policies failed to reflect the real agreement between the parties that would justify the reformation of these two contracts.

Section 21. A change of interest in a thing insured, after the occurrence of an injury which results in a loss, does not affect the right of the insured to indemnity for the loss. Problem: A insured his house for 10T. On Aug. 10, 2004, the house was partially damaged by fire. On Aug. 15, 2004, he sold the same house so partially damaged to C. Can A collect on the insurance after selling the house? Yes. The change of interest was made after the occurrence of the injury which resulted in a partial loss. Upon the occurrence of the risk insured against, the liability of the insurer became fixed and from that day onward, he became duty bound to indemnify A for his loss.

Section 22. A change in interest in one or more of several distinct things, separately insured by one policy, does not avoid the insurance as to the others. Problem. A is the owner of a Feroza and a Civic. He insures the Feroza for 200T and the Civic for 150T under a single policy for which he paid a total premium of 20T. If he sells the Feroza without the insurer’s consent, is the insurer liable in case the Civic is lost? Yes. Since the vehicles are separately insured. Under Sec. 22, the sale of one distinct thing does NOT avoid the insurance as to the others. A is the owner of a Feroza and a Civic. He insured the Feroza and the Civic for 350T under a single policy for which he paid a premium of 20T. In case he sells the Feroza without the insurer’s consent, is the insurer liable in case the Civic is lost? NO. Since the two cars are not separately valued in the policy and the premium was meant to cover both vehicles. In this case, the sale of one thing affects the insurance of the others.

Section 23. A change of interest, by will or succession on the death of the insured, does not avoid the insurance; and his interest in the insurance passes to the person taking his interest in the thing insured. Problem. A insures his nipa hut, his only property. He has no compulsory heirs. He institutes B as his universal heir. Thereafter, A dies and B inherits the hut. If the hut burns down can B collect? Yes. Sec. 23 says so.

Section 24. A transfer of interest by one of several partners, joint owners, or owners in common, who are jointly insured, to the others, does not avoid the insurance, even though it has been agreed that the insurance shall cease upon the alienation of the thing insured. What does this section provide? It provides that a transfer of interest in the insured property by a partner, joint owner, or owner in common to the others who are jointly insured, will NOT avoid the insurance. The rule is the same even if there is a stipulation that the insurance will cease upon the alienation of th thing insured. What is the reason for the rule?

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The underlying principle is that each partner, or owner or owner in common is interested in the whole property and hazard is NOT increased because the purchasing partner has acquired a greater interest in the property by a transfer of his co-partner’s chare. In other words, the transfer does not affect the risk because NO NEW PARTY is brought into the contractual relationship with the insurer. Is there an exception to the rule? Yes. If the policy contains the stipulation that “in case of ANY sale or transfer or change of title of any property insured by this company, or of any undivided interest therein, such insurance will be void and cease.” What is the effect if the sale was made to a stranger? All the more, the contract will be avoided because the risk is already affected since a new party is brought into the contract of insurance. However, such sale to a stranger ends the contract of insurance only as to the interest of the transferor and does NOT affect the insurance of the other partners, joint owners or owners in common. Problems. A fire insurance policy was issued by Spiderman Insurance Co. to Peter, MJ, and Harry, who are partners. Harry sold his interest to Doc Ock. In case of fire is the insurer liable to Doc Ock? NO, since Doc Ock is a stranger.(Furthermore arch-enemy siya ni spiderman…hehehe) insurer is liable to Peter and MJ whose insurance was not affected by the sale of Harry.

However, the

If using the same facts, Harry sells to Peter. Is the insurer liable to Peter? Yes. Peter is a partner. What must the insurer do to avoid the policy? Spiderman Insurance Co. must stipulate in the policy that “any sale of the property or any interest therein avoids the policy.” This is the only way the insurer cannot be held liable.

Section 25. Every stipulation in a policy of insurance for the payment of loss whether the person insured has or the payment of loss whether the person insured has or has not any interest in the property insured, or that the policy shall be received as proof of such interest, and every policy executed by way of gaming or wagering, is void. This section avoids two types of stipulations in an insurance policy. What are they? 1. Stipulation for the payment of loss WON the person insured has any interest in the subject matter of the insurance (exception: life insurance) 2.

Stipulation that the policy will be received as proof of insurable interest

What is the reason for voiding such stipulations? As to the 1st stipulation, we must remember that insurable interest is a requisite of a valid contract of insurance. Lack of this requisite avoids the contract. As to the 2nd stipulation, the law permits the insurer to show lack of insurable interest on the part of the insured, even after the issuance of a policy of insurance to avoid liability. (Sec. 83)

TITLE IV – CONCEALMENT Section 26. A neglect to communicate that which a party knows and ought to communicate is called a concealment. What are the four primary concerns of parties to an insurance contract? In making a contract so highly aleatory such as that of insurance, the parties have four primary concerns to wit:

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The correct estimation of the risk which enables the insurer to decide whether he is willing to assume it, and if so, at what rate or premium; The precise delimitation of the risk which determines the extent of the contingent duty to pay undertaken by the insurer; Such control of the risk after it is assumed as will enable the insurer to guard against the increase of the risk because of change in conditions; and Determining whether a loss occurred, and if so, the amount of such loss.

What is concealment? Concealment is a neglect to communicate that which a party knows and ought to communicate. What are the requisites of concealment? There can be no concealment unless: 1) A party knows the fact which he neglects to communicate or disclose to the other; 2) Such party concealing duty bound to disclose such fact to the other 3) Such party concealing makes no warranty of the fact concealed; and 4) The other party has no means of ascertaining the fact concealed

Section 27. A concealment whether intentional or unintentional entitles the injured party to rescind a contract of insurance. What is the effect of concealment? As a rule, failure on the part of the insured to disclose conditions affecting the risk of which he is aware, makes the contract voidable at the insured’s option. The reason is that insurance policies are traditionally contracts uberrime fidae, that is, contracts of the outmost good faith. This doctrine is essential on account of the fact that the full circumstances of the subject-matter of insurance are, as a rule, known to the insured only, and the insurer, in deciding whether or not to accept a risk, must rely primarily upon the information supplied to him by the appellant. In order to rescind a contract on the ground of concealment, must the insurer prove fraud? NO. Under Sec. 27, the insurer need not prove fraud in order to rescind a contract on the ground of concealment. The duty of communication is independent of the intention and is violated by the fact of concealment, even when there is no intention to deceive. Sec. 27 provides that the effect of concealment is the same regardless of whether the concealment is intentional or unintentional. Why does the law make no distinction between international and unintentional concealment? Because you have to prove fraud. And if you have to prove fraud, you have to prove intention to deceive. And it is so hard to prove intention to deceive because we are not mind-readers. What is the reason behind Sec. 27? The reason behind the Sec. is that in cases of concealment, the insurer is misled or deceived into accepting the risk , or accepting it at the rate of premium agreed upon. The insurer, relying upon the belief that the insured will disclose every material fact within his actual or presumed knowledge, is misled into a belief that the circumstance withheld does NOT exist, and he is thereby induced to estimate the risk upon a false basis. What is the criterion then if we were to apply Sec. 27? We must ask ourselves the question: Was the insurer misled or deceiving into entering a contract obligation or in fixing the premium of insurance by the withholding of material information or facts within the insured’s knowledge or presumed knowledge? The application of Sec 27, necessarily depends on the answer to this question. Problems. In his application for life insurance, A did not reveal the fact that he was suffering from a certain ailment. Is there concealment if the ailment was not material to the contract? Whether or not A was aware of the ailment, there is no concealment if the ailment is not material to the contract.

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Same facts as above but the ailment is material to the contract. Is there concealment? YES. There is concealment. However, we can distinguish. If A, was aware of the ailment, but honestly believed that it was not material, the concealment is not fraudulent or intentional. But if A was aware of the materiality of the ailment, there is fraudulent concealment. Nevertheless, the effect is the same. It entitles the insurer to rescind the contract. Cases: (44) Argente v. West Coast Life Insurance Co. 51 PHIL 725 Facts:  A joint life insurance policy was issued to Bernardo Argente and his wife Vicenta upon payment of premium, by West Coast.  On Nov. 18, 1925, during the effectivity of the policy, Vicenta died of cerebral apoplexy. Thereafter, Bernardo claimed payment but was refused.  It is admitted that in the Medical Examiner’s report, Vicenta, in response to the question asked by the medical examiner, her replies were as follows: o “How frequently do you use beer, wine, spirits and other intoxicants?” she answered “beer only in small quantities”. o “What physician have you consulted or been treated by within the last 5 years and for what illness or ailment?” she answered “none”  It is however, not disputed that in 1924, Vicenta was taken to a hospital for what was first diagnosed as alcoholism and later changed to manic-depressive psychosis and then again changed to pscyhonuerosis. Issue: WON on the bais of the misrepresentations of Vicenta, Bernardo is barred from recovery. Held: YES. The court found that the representations made by Vicenta in his application for life insurance were false with respect to her state of health and that she knew and was aware that the representations so made by her were false. In an action on a life insurance policy where the evidence conclusively shows that the answers to questions concerning diseases were untrue, the truth or falsity of the answer becomes the determining factor. If the policy was procured by fraudulent misrepresentations, the contract of insurance apparently set forth therein was never legally existent. It can be fairly assumed that had the true facts been disclosed by the insured, the insurance would never have been granted. (45) Yu Pang Cheng v. CA 105 PHIL 1930 Facts:  Yu Pang Eng obtained a life insurance policy naming his brother Yu Pang Cheng as beneficiary.  Eng subsequently died of medullary carcinoma, Grade 4, advanced and lesser curvature.  Cheng claims the proceeds of the policy.  Insurance co. refused payment on the ground that the policy was void due to the concealment. Issue: WON the policy is void. Held: YES. In the application for the policy, Eng was asked whether he had been ill or had consulted a doctor due to symptoms or illnesses enumerated in the questionnaire. He answered “ No”, when in fact he was hospitalized seven months prior to his application for the said policy. (46) Saturnino v. Philamlife 7 SCRA 316 Facts:

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2 months prior to the insurance of the policy, Saturnino was operated on for cancer, involving complete removal of the right breast, including the pectoral muscles and the glands, found in the right armpit.

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Notwithstanding the fact of her operation, Saturnino did not make a disclosure thereof in her application for insurance. She stated therein that she did not have, nor had she ever had, among others listed in the application, cancer or other tumors; that she had not consulted any physician, undergone any operation or suffered any injury within the preceding 5 years. She also stated that she had never been treated for, nor did she ever have any illness or disease peculiar to her sex, particularly of the breast, ovaries, uterus and menstrual disorders. The application also recited that the declarations of Saturnino constituted a further basis for the issuance of the policy.

Issue: WON the insured made such false representation of material facts as to avoid the policy. Held: YES. There can be no dispute that the information given by her in the application for insurance was false, namely, that she never had cancer or tumors or consulted any physician or undergone any operation within the preceding period of 5 years. The question to determine is: Are the facts then falsely represented material? The Insurance Law 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 proposed contract, or making his inquiries. The contention of appellants is that the facts subject of the representation were not material in view of the non-medical nature of the insurance applied for, which does away with the usual requirement of medical examination before the policy is issued. The contention is without merit. If anything, the waiver of medical examination renders even more material the information required of the applicant concerning previous condition of health and diseases suffered, for such information necessarily constitutes an important factor which the insurer takes into consideration in deciding whether to issue the policy or not. Appellants also contend that there was no fraudulent concealment of the truth inasmuch as the insured herself did not know, since her doctor never told her, that the disease for which she had been operated on was cancer. In the first place, concealment of the fact of the operation itself was fraudulent, as there could not have been any mistake about it, no matter what the ailment. Secondly, in order to avoid a policy, it is not necessary to show actual fraud on the part of the insured. In this jurisdiction, concealment, whether intentional or unintentional entitled the insurer to rescind the contract of insurance, concealment being defined as “negligence to communicate that which a party knows and ought to communicate.” The basis of the rule vitiating the contract in cases of concealment is that it misleads or deceives the insurer into accepting the risk, or accepting it at a rate of premium agreed upon. The insurer, relying upon the belief that the insured will disclose every material fact within his actual or presumed knowledge, is misled into a belief that the circumstances withheld does not exist, and he is thereby induced to estimate the risk upon a false basis that it does not exist. (47)

Grepalife v. CA (repeat – case #15)

Facts:  On Mar 4, 1957, Ngo Hing filed an application with Grepalife for a 20-yr endowment policy for P50T on the life of his 1-yr old daughter Helen Go.  Upon payment of the insurance premium, a binding deposit receipt was issued to HIng by the branch manager of the insurer in Cebu.  On May 28, 1957, Helen died of influenza with complication of broncho pneumonia.  Hing filed a claim with Grepalife, but the latter denied liability on the ground of concealment. Issue: WON Grepalife is liable to HIng. Held: NO. There was concealment. The SC was of the firm belief that Ngo Hing had deliberately concealed the state of health and physical condition of his daughter Helen. When he supplied the required essential data for the insurance form, he was fully aware that Helen was a mongoloid.

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Such a congenital defect could not be ensconced or disguised. Nonetheless, Ngo Hing, in apparent gad faith, withheld such fact which is material to the risk to be assumed by the insurance company. Had he divulged said significant fact in the insurance form, Grepalife would have verified the same and would have had no obvious choice but to disapprove the application outright. Concealment entitles the insurer to resolve the contract of insurance. (48) Henson v. Philamlife 56 OG 7328 Facts:  Celestino Henson was insured by Philamlife in 1954 upon his application or a 20-yr endowment life policy.  In 1955, the policy lapsed due to non-payment of the premiums.  Upon payment of the premiums due, the policy was reinstated, but in the application for reinstatement, Henson did not disclose the fact that he had been previously diagnosed for pyelonephritis, enlarged liver and hernia. He also did not disclose that he had been examined by a physician.  In 1956, Henson died, and his beneficiaries’ claim was rejected by Philamlife on the ground of concealment.  The company then filed for rescission. Beneficiaries’ contend that the intent to conceal must be proven to warrant rescission. Issue: WON there is need to prove intent to conceal to warrant rescission. Held: NO. Sec. 26 provides that “a concealment whether intentional or unintentional entitles the injured party to rescind the contract of insurance”. And aside from this, intent, being a state of the mind is hard to prove. According to Sec. 30 of the Insurance Code: 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. In essence therefore, the insured need not have died of the very diseases he had failed to reveal to the insurance company. It is sufficient that his non-revelation had misled the insurer in forming its estimate of the disadvantages of the proposed policy reinstatement or in making its inquiries, in order to entitle the latter to rescind the contract. (49) Soliman v. US Life 104 PHIL 1046 Facts:  US Life issued a 20yr endowment life policy on the joint lives of Patricio Soliman and his wife Rosario, each of them being the beneficiary of the other.  In March 1949, the spouses were informed that the premium for Jan 1949 was still unpaid notwithstanding that the 31-day grace period had already expired, and they were furnished at the same time long-form health certificates for the reinstatement of the policies.  In Aprl 1949, they submitted the health certificates and paid the premium due up to said month.  In Jan. 1950, Rosario died of acute dilatation of the heart, and thereafter Patricio filed a claim for the proceeds of the insurance.  US Life denied the claim and it filed a case for rescission on the ground that the health certificates failed to disclose that Rosario had been suffering from bronchial asthma for three years prior to the submission.  Patricio claims that the answers to the questions in the health certificates were made by US Life’s agent. Issue: WON the policy can be rescinded. Held: YES. The spouses in allowing the agent to answer some of the blanks in the certificates and afterwards stamping their signature thereon are presumed to have at least acquiesced in and approved all that had bee stated therein in their behalf. (50) Bautista v. Capital Insurance 1 CA Rep. 228

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Facts:  In 1952, a contract of insurance was entered by the parties, upon PIlar Bautista’s house.

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 

The policy described the building as “occupied as dwelling only”. There was a stipulation to the effect that any misrepresentation of material fact or misdescription of the property shall render the insurer not liable for its loss. Before the policy was issued however, Manuel Leyson, Bautista’s lessee, subleased the ground floor to ONg, who used it as a factory for the manufacture of shoes. A month later, rubber heels, soles and canvass were stored therein. Subsequently, the house was destroyed by fire. Bautista filed her claims with Capital Insurance, but the latter denied her claim on the ground of breach of warranty. Bautista said that the statement “occupied as dwelling only” was not hers, but of the insurance agent, and that the policy was in English (which she did not understand) and was never read to her.

Issue: WON Capital may rescind the contract. Held: It can. Bautista was bound to know the contents of the policy in accepting it. In the absence of fraud, she is presumed to know the contents of the contract and to have assented to them. Failure to read the policy is negligence, and the insured is regarded as having assumed the risk of the falsity or misstatements of its contents. (51) Gen. Insurance & Surety Corp v. NG Hua 106 PHIL 1117 Facts:  In 1952, General issued a fire policy to Ng Hua to cover the contents of the Central Pomade Factory owned by him.  There was a provision in the policy that should there be any insurance already effected or to be subsequently procured, the insured shall give notice to the insurer.  Ng Hua declared that there was non. The very next day, the building and the goods stored therein burned.  Subsequently, the claim of Ng Hua for the proceeds was denied by General since it discovered that Ng Hua had obtained an insurance from General Indemnity for the same goods and for the same period of time. Issue: WON General Insurance can refuse to pay the proceeds. Held: Yes. Violation of the statement which is to be considered a warranty entitles the insurer to rescind the contract of insurance. Such misrepresentation is fatal. (52) Vda. De Canilang v. CA 223 SCRA 443 (1993) Facts:  Canilang consulted Dr. Claudio and was diagnosed as suffering from "sinus tachycardia." Mr. Canilang consulted the same doctor again on 3 August 1982 and this time was found to have "acute bronchitis."



On the next day, 4 August 1982, Canilang applied for a "non-medical" insurance policy with Grepalife naming his wife, as his beneficiary. Canilang was issued ordinary life insurance with the face value of P19,700.



On 5 August 1983, Canilang died of "congestive heart failure," "anemia," and "chronic anemia." The wife as beneficiary, filed a claim with Grepalife which the insurer denied on the ground that the insured had concealed material information from it. Vda Canilang filed a complaint with the Insurance Commissioner against Grepalife contending that as far as she knows her husband was not suffering from any disorder and that he died of kidney disorder.





Grepalife was ordered to pay the widow by the Insurance Commissioner holding that there was no intentional concealment on the Part of Canilang and that Grepalife had waived its right to inquire into the health condition of the applicant by the issuance of the policy despite the lack of answers to "some of the pertinent questions" in the insurance application. CA reversed.

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INSURANCE REVIEWER– Atty. Quimson

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Issue: WON Grepalife is liable. Held: SC took note of the fact that Canilang failed to disclose that hat he had twice consulted Dr. Wilfredo B. Claudio who had found him to be suffering from "sinus tachycardia" and "acute bronchitis. Under the relevant provisions of the Insurance Code, the information concealed must be information which the concealing party knew and "ought to [have] communicate[d]," that is to say, information which was "material to the contract. The information which Canilang failed to disclose was material to the ability of Grepalife to estimate the probable risk he presented as a subject of life insurance. Had Canilang disclosed his visits to his doctor, the diagnosis made and the medicines prescribed by such doctor, in the insurance application, it may be reasonably assumed that Grepalife would have made further inquiries and would have probably refused to issue a non-medical insurance policy or, at the very least, required a higher premium for the same coverage. The materiality of the information withheld by Canilang from Grepalife did not depend upon the state of mind of Jaime Canilang. A man's state of mind or subjective belief is not capable of proof in our judicial process, except through proof of external acts or failure to act from which inferences as to his subjective belief may be reasonably drawn. Neither does materiality depend upon the actual or physical events which ensue. Materiality relates rather to the "probable and reasonable influence of the facts" upon the party to whom the communication should have been made, in assessing the risk involved in making or omitting to make further inquiries and in accepting the application for insurance; that "probable and reasonable influence of the facts" concealed must, of course, be determined objectively, by the judge ultimately. SC found it difficult to take seriously the argument that Grepalife had waived inquiry into the concealment by issuing the insurance policy notwithstanding Canilang's failure to set out answers to some of the questions in the insurance application. Such failure precisely constituted concealment on the part of Canilang. Petitioner's argument, if accepted, would obviously erase Section 27 from the Insurance Code of 1978.

(53) Sun Life v. CA 245 SCRA 268 (1995) Facts:



On April 15, 1986, Bacani procured a life insurance contract for himself from Sun Life. He was issued a life insurance policy with double indemnity in case of accidental death. The designated beneficiary was his mother, Bernarda.



On June 26, 1987, the insured died in a plane crash. Bernarda Bacani filed a claim with Sun Life, seeking the benefits of the insurance. Sun Life conducted an investigation and its findings prompted it to reject the claim.



Sun Life discovered that 2 weeks prior to his application, Bacani was examined and confined at the Lung Center of the Philippines, where he was diagnosed for renal failure. During his confinement, the deceased was subjected to urinalysis, ultra-sonography and hematology tests. He did not reveal such fact in his application.



In its letter, Sun Life informed Berarda, that the insured did not disclosed material facts relevant to the issuance of the policy, thus rendering the contract of insurance voidable. A check representing the total premiums paid in the amount of P10,172.00 was attached to said letter.



Bernarda and her husband, filed an action for specific performance against Sun Life. RTC ruled for Bernarda holding that the facts concealed by the insured were made in good faith and under the belief that they need not be disclosed. Moreover, it held that the health history of the insured was immaterial since the insurance policy was "non-medical." CA affirmed.

Issue: WON the beneficiary can claim despite the concealment. Held: NOPE.

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INSURANCE REVIEWER– Atty. Quimson

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Section 26 of the Insurance Code is explicit in requiring a party to a contract of insurance to 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 no means of ascertaining. 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 communication is due, in forming his estimate of the disadvantages of the proposed contract or in making his inquiries (The Insurance Code, Sec 31) The terms of the contract are clear. The insured is specifically required to disclose to the insurer matters relating to his health. The information which the insured failed to disclose were material and relevant to the approval and the issuance of the insurance policy. The matters concealed would have definitely affected petitioner'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 the insured by petitioner in order for it to reasonably assess the risk involved in accepting the application. Thus, "good faith" is no defense in concealment. The insured's failure to disclose the fact that he was hospitalized for two weeks prior to filing his application for insurance, raises grave doubts about his bonafides. It appears that such concealment was deliberate on his part.

Section 28. Each party to a contract of insurance must communicate to the other, in good faith, all facts within his knowledge which are material to the contract and as to which he makes no warranty, and which the other has not the means of ascertaining. According to Sec. 28, what are the matters that must be communicated by the party to the other? This section makes it the duty of each party to a contract of insurance to communicate in good faith all facts that are material to the contract within his knowledge when: 1. the party with the duty to communicate makes no warranty; and 2. the other party has no means of ascertaining the facts Any exceptions to the duty to communicate? Those falling under Sec. 30. What is the test to determine whether or not one must communicate the facts to the other party? The test is: If the applicant is aware of the existence of some circumstance which he knows would influence the insurer in acting upon his application, GOOD FAITH requires him to disclose that circumstance, though unasked. Problem. If A consulted Dr. B for treatment of syphilis and gonorrhea when must A disclose the fact? He must disclose such fact even if not inquired into, if such fact is material to the risk assumed by the insurer. In the problem above, how will A know if the fact is material or not? The fact must be related to the insurance applied for. In the above example, such fact is material in cases of life or health insurance and may even be material up to a certain extent for accident insurance. It is far-fetched to require disclosing such information if he is applying for fire or marine insurance. What if the insurer with reasonable diligence could have known or discovered such facts for himself, can the Insured be excused for his concealment and deny the remedy of rescission to the insurer? NO. The effect of the material concealment cannot be avoided by the allegation that the insurer could have known and discovered a fact which the insured had concealed. An allegation like this implies that there is an obligation on the part of the insurance company to verify all the statements made by the insured in his application. No such obligation exists on the part of the insurer. The insurer has the right to rely upon the statements of the insured for he knows the facts and the insurer does not.

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What is deemed material? See sec. 31. Atty Quimson asked us to look at Sec. 107. What does this provision say? Sec. 107 provides that “in marine insurance each party is bound to communicate, in addition to what is required by section twenty-eight, all the information which he possesses, material to the risk, except such as is mentioned in Section thirty, and to state the exact and whole truth in relation to all matters that he represents, or upon inquiry discloses or assumes to disclose. Cases: (54) Fieldman’s Insuranc v. Songco 25 SCRA 70 Facts:  In 1960, Sambat, an agent of Fieldman’s Insurance, induced Songco, a man of scant education to enter into a common carrier insurance contract with Fieldman.  During the inducement, a son of Songco butted in and said that they could not accept the type of insurance offered because theirs was an owner-type jeepney and not a common carrier.  Sambat answered that it did not matter because the insurance company was not owned by the government and therefore had nothing to do with rules and regulations of the latter (Fieldman).  The insurance was executed and approved for a year from Sept. 1960-1961. It was renewed in 1961 for another year.  In Oct. 1961, the jeepney collided with a car in Bulacan and as a result, Sonco died. The remaining members of the family claimed the proceeds of the insurance with the company but it refused to pay on the ground that the vehicle was not a common carrier. Issue: WON the Songcos’ can claim the insurance proceeds despite the fact that the vehicle concerned was an owner and not a common carrier. Held: Yes. The company is estopped from asserting that the vehicle was not covered. After it had led Federico Songco to believe that he could qualify under the common carrier liability insurance policy, and to enter into a contract of insurance paying the premiums due, it could not thereafter be permitted to change its stand to the detriment of the heirs of the insured. It knew all along that Frederico owned a private vehicle. Its agent Sambat twice exerted the utmost pressure on the insured, a man of scant education, and the company did not object to this.

Section 29. An intentional and fraudulent omission, on the part of one insured, to communicate information of matters proving or tending to prove the falsity of a warranty, entitles the insurer to rescind. What type of concealment is referred to here? The type of concealment referred to here relates to the “falsity of a warranty”. Unlike the ordinary concealment provided for in Sec. 27, the non-disclosure under this section must be intentional and fraudulent in order that the contract may be rescinded. What is an example of this kind of concealment? In every contract of marine insurance, there is an implied warranty of seaworthiness of the vessel. The intentional and fraudulent omission on the part of the insured to communicate the fact that his ship is in distress or in special peril entitles the insurer to rescind because the concealment refers to matters proving or tending to prove the falsity of the warranty that the ship is seaworthy.

Section 30. Neither party to a contract of insurance is bound to communicate information of the matters following, except in answer to the inquiries of the other: (a) Those which the other knows; (b) Those which, in the exercise of ordinary care, the other ought to know, and of which the former has no reason to suppose him ignorant;

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(c) Those of which the other waives communication; (d) Those which prove or tend to prove the existence of a risk excluded by a warranty, and which are not otherwise material; and (e) Those which relate to a risk excepted from the policy and which are not otherwise material. What is the general rule? Communicate the necessary material facts. What is the exception? Those provided for under Section 30. When will the insured be required to communicate information covered by Sec. 30(exception to the exception)? If the insurer asks about them, the insured becomes duty bound to communicate such information. Cases: (55) Insular Life v. Feliciano 73 PHIL 201 Facts:  Evaristo Feliciano filed an application with Insular Life upon the solicitation of one of its agents.  It appears that during that time, Evaristo was already suffering from tuberculosis. Such fact appeared during the medical exam, but the examiner and the company’s agent ignored it.  After that, Evaristo was made to sign an application form and thereafter the blank spaces were filled by the medical examiner and the agent making it appear that Evaristo was a fit subject of insurance. (Evaristo could not read and understand English)  When Evaristo died, Insular life refused to pay the proceeds because of concealment. Issue: WON Insular Life was bound by their agent’s acts. Held: Yes. The insurance business has grown so vast and lucrative within the past century. Nowadays, even people of modest means enter into insurance contracts. Agents who solicit contracts are paid large commissions on the policies secured by them. They act as general representatives of insurance companies. IN the case at bar, the true state of health of the insured was concealed by the agents of the insurer. The insurer’s medical examiner approved the application knowing fully well that the applicant was sick. The situation is one in which of two innocent parties must bear a loss for his reliance upon a third person. In this case, it is the one who drafted and accepted the policy and consummated the contract. It seems reasonable that as between the two of them, the one who employed and gave character to the third person as its agent should be the one to bear the loss. Hence, Insular is liable to the beneficiaries. (56) Insular life v. Feliciano 74 PHIL 4681 Facts:  Insular life filed a motion for reconsideration of the decision in the preceding case. Issue: WON Insular Life was bound by their agent’s acts. Held: NO (what the f…?) There was collusion between Evaristo and the agent and the medical examiner in making it appear that Evaristo was a fit subject for insurance. When Evaristo authorized them to write the answers for him, he made them his own agents for that purpose and he was responsible for their acts in that connection. If they falsified the answers for him, he could not evade liability for the falsification. He was not supposed to sign the application in blank. He knew that his answers would be the basis for the policy, and was required with his signature to vouch for their truth. The judgment rendered therefore in the preceding case is thus reversed, and Insular Life is absolved from liability. (bakit kaya nagreverse?... the plot thickens… Hmm….)

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INSURANCE REVIEWER– Atty. Quimson

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(57) Aranilla v. Insular LIfe 69 OG No. 4 637 Facts:  In 1959, Jose Aranilla applied for life insurance with Insular. In his application, these 2 questions appeared: o WON he has suffered from any disease of the kidney and urinary tract, to which he answered NO. o WON he has been confined in a hospital for consultation and treatment, to which he answered that in 1947, he was confined due to influenza.  The truth however, was that a few months prior to his application, he was confined and treated for nephritis, a disease of the kidney and urinary tract, and he was accordingly informed of the cause.  When Aranilla died of cirrhosis of the liver, Insular refused to pay the proceeds due to concealment. Issue: WON the contract can be rescinded. Held: Yes. If an answer given by the insured to a specific question asked by the insurer in an application for life insurance turns out to be false, it is a concealment of a material fact which entitles the insurer to rescind, even if the insured died of an ailment which has NO connection with the specific questions falsely answered by him. This is because materiality is to be determined NOT by the event but ONLY 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.

Section 31. Materiality is to be determined not by the event, but solely by the probable and reasonable influence of the facts upon the party to whom the communication is due, in forming his estimate of the disadvantages of the proposed contract, or in making his inquiries.

What is the test of materiality? The test is simply: IF the knowledge of a fact would cause the insurer to reject the risk , or to accept it only at a higher premium rate, that fact is material, though it may not even remotely contribute to the contingency upon which the insurer would become liable, or in any wise affect the risk. What is the principal question that must be asked? The principal question in determining whether the concealment is material is: Was the insurer misled or deceived into entering a contract, obligation or in fixing the premium of insurance by a withholding of material information or facts within the insured’s actual or presumed knowledge? If so, then the contract is avoided, even if the cause of the loss which subsequently occurred be unconnected with the fact concealed. Cases: (58) Saturnino v. Philamlife (repeat – case #46) 7 SCRA 316 Facts:  2 months prior to the insurance of the policy, Saturnino was operated on for cancer, involving complete removal of the right breast, including the pectoral muscles and the glands, found in the right armpit.  Notwithstanding the fact of her operation, Saturnino did not make a disclosure thereof in her application for insurance.  She stated therein that she did not have, nor had she ever had, among others listed in the application, cancer or other tumors; that she had not consulted any physician, undergone any operation or suffered any injury within the preceding 5 years.  She also stated that she had never been treated for, nor did she ever have any illness or disease peculiar to her sex, particularly of the breast, ovaries, uterus and menstrual disorders.  The application also recited that the declarations of Saturnino constituted a further basis for the issuance of the policy. Issue: WON the insured made such false representation of material facts as to avoid the policy.

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Held: YES. There can be no dispute that the information given by her in the application for insurance was false, namely, that she never had cancer or tumors or consulted any physician or undergone any operation within the preceding period of 5 years. The question to determine is: Are the facts then falsely represented material? The Insurance Law 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 proposed contract, or making his inquiries. The contention of appellants is that the facts subject of the representation were not material in view of the non-medical nature of the insurance applied for, which does away with the usual requirement of medical examination before the policy is issued. The contention is without merit. If anything, the waiver of medical examination renders even more material the information required of the applicant concerning previous condition of health and diseases suffered, for such information necessarily constitutes an important factor which the insurer takes into consideration in deciding whether to issue the policy or not. Appellants also contend that there was no fraudulent concealment of the truth inasmuch as the insured herself did not know, since her doctor never told her, that the disease for which she had been operated on was cancer. In the first place, concealment of the fact of the operation itself was fraudulent, as there could not have been any mistake about it, no matter what the ailment. Secondly, in order to avoid a policy, it is not necessary to show actual fraud on the part of the insured. In this jurisdiction, concealment, whether intentional or unintentional entitled the insurer to rescind the contract of insurance, concealment being defined as “negligence to communicate that which a party knows and ought to communicate.” The basis of the rule vitiating the contract in cases of concealment is that it misleads or deceives the insurer into accepting the risk, or accepting it at a rate of premium agreed upon. The insurer, relying upon the belief that the insured will disclose every material fact within his actual or presumed knowledge, is misled into a belief that the circumstances withheld does not exist, and he is thereby induced to estimate the risk upon a false basis that it does not exist. (59) Henson v. Philamlife (repeat – case #48) 56 OG 7328 Facts:  Celestino Henson was insured by Philamlife in 1954 upon his application or a 20-yr endowment life policy.  In 1955, the policy lapsed due to non-payment of the premiums.  Upon payment of the premiums due, the policy was reinstated, but in the application for reinstatement, Henson did not disclose the fact that he had been previously diagnosed for pyelonephritis, enlarged liver and hernia. He also did not disclose that he had been examined by a physician.  In 1956, Henson died, and his beneficiaries’ claim was rejected by Philamlife on the ground of concealment.  The company then filed for rescission. Beneficiaries’ contend that the intent to conceal must be proven to warrant rescission. Issue: WON there is need to prove intent to conceal to warrant rescission. Held: NO. Sec. 26 provides that “a concealment whether intentional or unintentional entitles the injured party to rescind the contract of insurance”. And aside from this, intent, being a state of the mind is hard to prove. According to Sec. 30 of the Insurance Code: 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. In essence therefore, the insured need not have died of the very diseases he had failed to reveal to the insurance company. It is sufficient that his non-revelation had misled the insurer in forming its estimate of the disadvantages of the proposed policy reinstatement or in making its inquiries, in order to entitle the latter to rescind the contract. (60) Sun Life v. CA (repeat – Case # 53)

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245 SCRA 268 (1995) Facts:



On April 15, 1986, Bacani procured a life insurance contract for himself from Sun Life. He was issued a life insurance policy with double indemnity in case of accidental death. The designated beneficiary was his mother, Bernarda.



On June 26, 1987, the insured died in a plane crash. Bernarda Bacani filed a claim with Sun Life, seeking the benefits of the insurance. Sun Life conducted an investigation and its findings prompted it to reject the claim.



Sun Life discovered that 2 weeks prior to his application, Bacani was examined and confined at the Lung Center of the Philippines, where he was diagnosed for renal failure. During his confinement, the deceased was subjected to urinalysis, ultra-sonography and hematology tests. He did not reveal such fact in his application.



In its letter, Sun Life informed Berarda, that the insured did not disclosed material facts relevant to the issuance of the policy, thus rendering the contract of insurance voidable. A check representing the total premiums paid in the amount of P10,172.00 was attached to said letter.



Bernarda and her husband, filed an action for specific performance against Sun Life. RTC ruled for Bernarda holding that the facts concealed by the insured were made in good faith and under the belief that they need not be disclosed. Moreover, it held that the health history of the insured was immaterial since the insurance policy was "non-medical." CA affirmed.

Issue: WON the beneficiary can claim despite the concealment. Held: NOPE. Section 26 of the Insurance Code is explicit in requiring a party to a contract of insurance to 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 no means of ascertaining. 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 communication is due, in forming his estimate of the disadvantages of the proposed contract or in making his inquiries (The Insurance Code, Sec 31) The terms of the contract are clear. The insured is specifically required to disclose to the insurer matters relating to his health. The information which the insured failed to disclose were material and relevant to the approval and the issuance of the insurance policy. The matters concealed would have definitely affected petitioner'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 the insured by petitioner in order for it to reasonably assess the risk involved in accepting the application. Thus, "good faith" is no defense in concealment. The insured's failure to disclose the fact that he was hospitalized for two weeks prior to filing his application for insurance, raises grave doubts about his bonafides. It appears that such concealment was deliberate on his part.

Section 32. Each party to a contract of insurance is bound to know all the general causes which are open to his inquiry, equally with that of the other, and which may affect the political or material perils contemplated; and all general usages of trade. Under this section, what is each party to a contract of insurance bound to know? There are two matters that each party to a contract of insurance is bound to know, namely: 1. General clauses 2. General usages of trade. A party however, is not bound to know all the classes of general clauses but only such general causes: a) Which are open to his inquiry, equally with that of the other; b) Which may affect either the political or material perils contemplated. What is the import of the aforementioned rules?

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The insured need not communicate public events such as that the nation is at war, or what the law is, or political conditions in other countries, the sources of this information being equally open to the insurer who is also presumed to know such events. Likewise, the insurer is charged with the knowledge or general trade usages and rules of navigation, kinds of seasons and all the risks connected with navigation.

Section 33. The right to information of material facts may be waived, either by the terms of the insurance or by neglect to make inquiry as to such facts, where they are distinctly implied in other facts of which information is communicated. May the right to information be waived? Yes. The right to information of material facts may be waived either: 1) Expressly, by the terms of the insurance; or 2) Impliedly, by neglect to make inquiry as to the facts already communicated. If the applicant has answered the questioned asked in the application, he is justified in assuming that no further information is desired. What is an example of the operation of this provision? The insurer asks the insured if he was ever confined in a hospital for more than a month and the insured says “YES”. If the insurer does not inquire for the cause of the long confinement, then he is deemed to have waived the information. Cases: (61) Ng Gan Zee v. Asian Crusader LIfe 122 SCRA 61 Facts:  In 1962, Kwon Nam applied for a 20yr endowment insurance on his life with his wife, Ng Gan Zee as the beneficiary.  He stated in his application that he was operated on for tumor of the stomach associated with ulcer.  In 1963, Kwong died of cancer of the liver with metastasis. Asian refused to pay on the ground of alse information.  It was found that prior to his application, Kwong was diagnosed to have peptic ulcers, and that during the operation what was removed from Kwong’s body was actually a portion of the stomach and not tumor. Issue: WON the contract may be rescinded on the ground of the imperfection in the application form. Held: NO. Kwong did not have sufficient knowledge as to distinguish between a tumor and a peptic ulcer. His statement therefore was made in good faith. Asian should have made an inquiry as to the illness and operation of Kwong when it appeared on the face of the application that a question appeared to be imperfectly answered. Asian’s failure to inquire constituted a waiver of the imperfection in the answer.

Section 34. Information of the nature or amount of the interest of one insured need not be communicated unless in answer to an inquiry, except as prescribed by section fifty-one. What does this provision provide? Under Sec. 51(e), it is required that a policy of an insurance must specify the interest of the insured in the property insured, if he is not the absolute owner thereof. So a mortgagee must disclose his particular interest even if no inquiry is made by the insurer in relation thereto. Such requirement is made so that the insurer may determine the extent of the insured’s insurable interest. This section therefore says, that there is NO NEED to disclose the interest in the property insured if the interest is absolute. The exception of course is the insurer asks. Problem:

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A fire insurance policy was issued in which Imeda (insured) was described as the owner of the insured residential property. But actually, Imelda was only given the privilege of occupying the house rent-free for life. Imelda represented herself as owner. Is the policy valid? NO. She is guilty of misrepresentation. She should have disclosed the nature of her interest in the property in as much as she was not the absolute owner thereof.

Section 35. Neither party to a contract of insurance is bound to communicate, even upon inquiry, information of his own judgment upon the matters in question.

To what is the duty to disclose confined? The duty to disclose is confined to facts. There is no duty to disclose mere opinion, speculation, intention or expectation. This is true even if the insured is asked. Example? Beatrix Kiddo was asked by the insurer: How long do you think you will live? If Beatrix uses the 5-point exploding heart technique on the insurer, she will be convicted of murder…. (not the point of the article) HOWEVER, if she said, “As long as the moon rises over the grave of Pai Mei” and she dies the next day, her error in answering that question which called for an expression of an opinion does not constitute fraud in law. Atty. Quimsons asked us to look at Sec. 108. What does it say? Section 108 provides that “In marine insurance, information of the belief or expectation of a third person, in reference to a material fact, is material.”

TITLE V – REPRESENTATION Section 36.

A representation may be oral or written.

What is a representation? A representation is a factual statement made by the insured at the time of, or prior to, the issuance of the policy to give, information to the insurer and otherwise induce him to enter into the insurance contract. What is the difference between a representation and concealment? A concealment is a negative act, meaning it is the failure to do something which is required while representation is positive act as the insured volunteers such facts. Concealment usually occurs prior to making of the insurance contract, while a representation may be made at the time of the issuance of the contract. What is a misrepresentation? A Misrepresentation is a statement: 1. As a fact of something which is untrue 2. Which the insured stated with knowledge that it is untrue and with an intent to deceive or which he states as true without knowing it to be true and which has the tendency to mislead; and 3. Where such fact in either case is material to the risk. What is the effect of a misrepresentation? A misrepresentation by the insured renders the insurance contract voidable at the option of the insurer, although the policy is not thereby rendered void ab initio. Is misrepresentation synonymous with concealment? NO. De Leon book says misrepresentation is an active form of concealment. What is the duty of the person applying for insurance? It is duty to give the insurer all such information concerning the risk as will be of use to the latter in estimating its character and in determining whether or not to assume it. This information may be given

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orally or written in papers not connected with the contract such as in the application or examiner’s report. Sometimes, it may appear on the policy itself. Why is such information important? The information forms the basis of the contract as made. It describes, marks out and defines the risk assumed. Hence the untruthfulness of any representation will necessarily avoid the contract. Can you give an example of misrepresentations such that the insurer avoids any liability to the insured? If the insurer was made to believe that he was insuring a brick house when in truth and in fact, the house was made of nipa, or when the insurer insured a man of thirty and it turns out that the man who dies was a 130.

Section 37. A representation may be made at the time of, or before, issuance of the policy. Atty. Quimson wants us to look at Sec. 41. What does it say? Section 41 provides that “A representation may be altered or withdrawn before the insurance is effected, but not afterwards.” Section 38. The language of a representation is to be interpreted by the same rules as the language of contracts in general.

How are misrepresentations construed? They are construed liberally in favor of the insured. Must the representations be literally true? No. It is sufficient that they be substantially true. How can a representation be substantially true and not literally true? De Leon cites two examples: If one is asked if he drinks, the question will be construed as referring to habitual use. So if you drink only when there is an occasion, they you can say NO. If you are asked if you had any illnesses, local disease or injury in any organ, you can still say NO even if three weeks before you were suffering from LBM because you ate one kaing of avocados.

Section 39. A representation as to the future is to be deemed a promise, unless it appears that it was merely a statement of belief or expectation. What are the different kinds of representations? They may either be: 1. Oral or written; 2. Made at the time of the issuance of the policy or before; 3. Affirmative or promissory What is an affirmative representation? It is any allegation as to the existence or non-existence of a fact when the contract begins. An example would be when the insured states that the house subject of the insurance is used only for residential purposes. What is a promissory representation? A promissory representation is any promise to be fulfilled after the contract has come into existence or any statement concerning what is to happen during the existence of the insurance. What is the nature of a promissory representation? First, it used to indicate a parol or oral promise made in connection with the insurance, but NOT incorporated in the policy. The non-performance of such a promise CANNOT be shown by the insurer in

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defense to an action on the policy, but proof that the promise was made with fraudulent intent and will serve to defeat the insurance. Second, it is an undertaking by the insured, inserted in the policy, but NOT specifically made a warranty, is called a promissory representation. It is however in such a case merely an executory term of the contract, and not properly a representation. A promissory representation, is therefore, substantially a condition or a warranty. Can you give examples of promissory representations? 1. An applicant for fire insurance on a building orally promised that the building will be occupied. 2. An applicant for fire insurance on a building orally promised to install two fire extinguishers within the bldg. 3. A TV hostess saying “Will be back.. promise.. saranghameda po…” Does a false representation based on an opinion or expectation avoid the policy? IT DEPENDS. A representation of an expectation, intention, belief opinion or judgment of the insured, although false, will NOT avoid the policy of insurance if there is NO actual fraud in inducing the acceptance of the risk or its acceptance at a lower rate of premium and this is likewise the rule although the statement is material to the risk. In such a case, the insurer is not justified in relying upon such statement but is obligated to make further inquiry. What must the insurer then to do to avoid liability? The insurer must prove both the materiality of the insured’s opinion and the latter’s intent to deceive. If the representation is one of fact, all the insurer needs to prove is its falsity and materiality. The intent to deceive is already presumed. When is a representation deemed a mere expression of opinion? An oral representation as to a future event, or condition over which the insured has no control, with reference to property or life insured will be deemed a mere expression of opinion, which will avoid a contract ONLY when made in bad faith.

Problems. Mary applied for insurance. When asked if she was HIV-positive, she said that her body was wholly free from the HIV virus. If it turns out that Mary is wrong, is the insurer free from liability because of the misrepresentation? No. The insurer knows that the insured’s opinion may be mistaken after all, no one can be certain about anything. The insurer should have subjected Mary to a battery of tests before entering into a contract. John applied for a motor vehicle insurance. When asked if he knew how to drive, he said “I’m a very good driver.” It turned out, he doesn’t know how to drive and after a few minutes he crashed into the car of Arvin. Is the insurer liable despite John’s misrepresentation? NO. Allan is guilty of fraudulent misrepresentation of a material fact. He should have disclosed that he doesn’t know how to drive.

Section 40. A representation cannot qualify an express provision in a contract of insurance, but it may qualify an implied warranty. Why is it that a representation cannot qualify an express provision in a contract of insurance? A representation cannot qualify an express provision or an express warranty in a contract of insurance because a representation is not a part of the contract but only a collateral inducement to it. Can you give two examples? 1) If the policy expressly provides that the house insured is used as a warehouse, any representation made by the insured prior to the issuance of the policy to the effect that the

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house was used only as a residence is NOT a defense in the action for the recovery of the amount of the insurance.

2)

The representation of the insured to the effect that the last time the vessel was drydocked was six months ago would NOT qualify the implied warranty that the vessel is seaworthy.

Section 41. A representation may be altered or withdrawn before the insurance is effected, but not afterwards. What is the reason for this provision? As representations induce the insurer in assuming the risk insured against and in issuing the insurance policy, it is but logical that representations may not be altered or withdrawn after the insurance is affected.

Section 42. A representation must be presumed to refer to the date on which the contract goes into effect. To what time does representation refer? Representations refer only to the time of making the contract. We earlier said that promissory statements of conditions that exist subsequent to the completion of the contract are conditions or warranties and not representations (See annotations under Sec. 39). But now, we refer ONLY to conditions represented as ALREADY EXISTING. These conditions must exist during the making of the contract. When is there false representation? There is NO false representation if the representation was true at the time the contract takes effect, although it became false at the time it was made. There is false representation if although the representation was true at the time it was made, it subsequently became false at the time the contract took effect. Problems: A represented that his yacht was in Taiwan when in fact it was in HK. But at the taking effect of the contract, the yacht had already reached the port in Taiwan. Was there false representation? NO. Although the representation was false at the time it was made, it was already true at the time when the contract took effect. A represented that his yacht was in Taiwan and in fact it was in Taiwan. But at the taking effect of the contract the yacht had already sailed to HK and then it was shipwrecked. Is Insurer liable? NO. Here there is false representation. This time, the representation although true when made, subsequently became false at the time the contract took effect. At the time he applied for a life insurance policy on Aug 10, 2004, A had never suffered from any of the diseases enumerated in the policy by the insurer. ON Aug. 17, 2004, A became afflicted with an enumerated disease in the policy. Fortunately, he completely recovered. When the policy was delivered and the first premium paid on Aug. 30, 2004, A did not disclose his having been sick. Is there false representation? YES. When B applied for a life insurance policy on Nov. 5, 2004, she was asked to state her age. She said that she was 24. However, when the policy was delivered to her on Dec. 5, 2004, she had already turned 25. When time to collect the proceeds of the insurance, the insurer denied liability on the ground of false representation, because at the time the policy took effect, B was no longer 24 yrs old as she alleged. Is the insurer correct?

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The insurer is stupid. The truth of the statement made by the insured at the date of the application of her age is surely to be tested as of the date of the application. It would e absurd to say that this representation was fatally false because at the time of the acceptance of the application and the completion of the contract it was no longer true.

Section 43. When a person insured has no personal knowledge of a fact, he may nevertheless repeat information which he has upon the subject, and which he believes to be true, with the explanation that he does so on the information of others; or he may submit the information, in its whole extent, to the insurer; and in neither case is he responsible for its truth, unless it proceeds from an agent of the insured, whose duty it is to give the information.

What is the effect where information is obtained from third persons? Under Sec. 43, the insured is given discretion to communicate to the insurer what he knows of a matter of which he has no personal knowledge. If the representation turns out to be false, he is NOT responsible therefor, provided he gives the explanation that he represents so on the information of others. Example? If the insured has no personal knowledge of the causes of the death of his parents because they died when the injured was still an infant, he may report information obtained from friends and relatives if he likes. In which case, he is not responsible for the truth of the information. What is the effect where information is obtained from the agent of the insured? If the information proceeds from an agent of the insured, whose duty it is in the ordinary course of business to communicate such information to his principal, and it is possible for the agent under such circumstances in the exercise of due diligence to have made such communication before the making of the contract, the insured will be liable for the truth.

Problem. A is the captain of Titanic. James is the shipowner. On Sept. 19, 2004, James apples for an insurance upon Titanic “Lost or Not Lost” with Jack and Rose Insurance Co. However as of Sept. 16, 2004, A already knew that the ship was lost at sea but did not tell James. Can James still recover on the policy? NO. a captain of the ship is bound to communicates its loss to the owner, and if the latter effects an insurance on the ship “lost or not lost” in ignorance of the antecedent loss due to the fraud or negligence of the captain, the insured cannot recover on the policy. Case: (62) Harding v. Commercial Union Assurance Company 38 PHIL 464 Facts:  Henry Harding bought a car for 2T in 1915. He then gave the car to his wife Mrs. Harding.

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While Mrs. Harding was having the car repaired at the Luneta Garage (Luneta was an agent of Smith Bell and Co., which in turn is Commercial Union’s agent), the latter induced Mrs. Harding to insure the care with Commercial. Mrs. Harding agreed, and Smith Bell sent an agent to Luneta Garage, who together with the manager of LUneta, appraised the car and declared that its present value was P3T. This amt was written in the proposal form which Mrs. Harding signed. Subsequently, the car was damaged by fire. Commercial refused to pay because the car’s present value was only 2.8T and not 3T.

Issue: WON Commercial is liable. Held: Commercial is liable.

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Where it appears that the proposal form, while signed by the insured was made out by the person authorized to solicit the insurance (Luneta and Smith Bell) the facts stated in the proposal, even if incorrect, will not be regarded as warranted by the insured, in the absence of willful misstatement. Under such circumstances, the proposal is to be regarded as the act of the insurer.

Section 44. A representation is to be deemed false when the facts fail to correspond with its assertions or stipulations. What is the importance of Sec. 44? This defines misrepresentation. Must representation be literally true? No. See Section 38. Representations are not required to be literally true unlike warranties which must be literally true. It is sufficient that representations are substantially true. Is the same true in cases of marine insurance? NO. In marine insurance, the substantial truth of a representation is NOT sufficient. Accdg. to Sec. 107, the insured is required to state the exact and whole truth in relation to all matters that he represents, or upon inquiry, discloses or assumes to disclose. When will a representation relied upon avoid a policy? In order that a representation shall avoid a policy, it must be relied upon and be falise in a substantial and material respect.

Section 45. If a representation is false in a material point, whether affirmative or promissory, the injured party is entitled to rescind the contract from the time when the representation becomes false. The right to rescind granted by this Code to the insurer is waived by the acceptance of premium payments despite knowledge of the ground for rescission. (As amended by Batasang Pambansa Blg. 874)

What does this section provide? It provides that the falsity of a representation entitles the injured party to rescind the contract from the time when the representation becomes false. And ordinarily, under this section, fraudulent intent is IMMATERIAL. In other words, the injured party can rescind the contract of insurance where there is a misrepresentation even without fraud. And not that the false representation MUST be material. (63) Saturnino v. Philamlife (repeat – case # 46) 7 SCRA 316 Facts:  2 months prior to the insurance of the policy, Saturnino was operated on for cancer, involving complete removal of the right breast, including the pectoral muscles and the glands, found in the right armpit.  Notwithstanding the fact of her operation, Saturnino did not make a disclosure thereof in her application for insurance.  She stated therein that she did not have, nor had she ever had, among others listed in the application, cancer or other tumors; that she had not consulted any physician, undergone any operation or suffered any injury within the preceding 5 years.  She also stated that she had never been treated for, nor did she ever have any illness or disease peculiar to her sex, particularly of the breast, ovaries, uterus and menstrual disorders.  The application also recited that the declarations of Saturnino constituted a further basis for the issuance of the policy. Issue: WON the insured made such false representation of material facts as to avoid the policy. Held: YES.

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There can be no dispute that the information given by her in the application for insurance was false, namely, that she never had cancer or tumors or consulted any physician or undergone any operation within the preceding period of 5 years. The question to determine is: Are the facts then falsely represented material? The Insurance Law 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 proposed contract, or making his inquiries. The contention of appellants is that the facts subject of the representation were not material in view of the non-medical nature of the insurance applied for, which does away with the usual requirement of medical examination before the policy is issued. The contention is without merit. If anything, the waiver of medical examination renders even more material the information required of the applicant concerning previous condition of health and diseases suffered, for such information necessarily constitutes an important factor which the insurer takes into consideration in deciding whether to issue the policy or not. Appellants also contend that there was no fraudulent concealment of the truth inasmuch as the insured herself did not know, since her doctor never told her, that the disease for which she had been operated on was cancer. In the first place, concealment of the fact of the operation itself was fraudulent, as there could not have been any mistake about it, no matter what the ailment. Secondly, in order to avoid a policy, it is not necessary to show actual fraud on the part of the insured. In this jurisdiction, concealment, whether intentional or unintentional entitled the insurer to rescind the contract of insurance, concealment being defined as “negligence to communicate that which a party knows and ought to communicate.” The basis of the rule vitiating the contract in cases of concealment is that it misleads or deceives the insurer into accepting the risk, or accepting it at a rate of premium agreed upon. The insurer, relying upon the belief that the insured will disclose every material fact within his actual or presumed knowledge, is misled into a belief that the circumstances withheld does not exist, and he is thereby induced to estimate the risk upon a false basis that it does not exist. (64) Musngi v. West Coast Life Assurance Co. 61 PHIL 864 Facts:

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Arsenio Garcia was insured by West Coast twice in 1931. In both policies, he was asked to answer the question: “what physician or practitioners have you consulted or been treated by, and for what illness or ailment? In both policies, he answered in the negative. It turned out that from 1929 to 1939, he went to see several physicians for a number of ailments. So when he died in 1942, the company refused to pay the proceeds of the insurance.

Issue: WON the answer given by Arsenio in the policies justifies the company’s refusal to pay? Held: YES. Aresenio knoew that he was suffering from a number of ailments, yet, he concealed this. Such concealment and his false statements constituted fraud, because the insurance company by reasons of such statement accepted the risk which it would otherwise have rejected. (65) Insular Life v. Feliciano (repeat – case # 56) 73 PHIL 201 Facts:  Evaristo Feliciano filed an application with Insular Life upon the solicitation of one of its agents.  It appears that during that time, Evaristo was already suffering from tuberculosis. Such fact appeared during the medical exam, but the examiner and the company’s agent ignored it.  After that, Evaristo was made to sign an application form and thereafter the blank spaces were filled by the medical examiner and the agent making it appear that Evaristo was a fit subject of insurance. (Evaristo could not read and understand English)

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When Evaristo died, Insular life refused to pay the proceeds because of concealment.

Issue: WON Insular Life was bound by their agent’s acts. Held: Yes. The insurance business has grown so vast and lucrative within the past century. Nowadays, even people of modest means enter into insurance contracts. Agents who solicit contracts are paid large commissions on the policies secured by them. They act as general representatives of insurance companies. IN the case at bar, the true state of health of the insured was concealed by the agents of the insurer. The insurer’s medical examiner approved the application knowing fully well that the applicant was sick. The situation is one in which of two innocent parties must bear a loss for his reliance upon a third person. In this case, it is the one who drafted and accepted the policy and consummated the contract. It seems reasonable that as between the two of them, the one who employed and gave character to the third person as its agent should be the one to bear the loss. Hence, Insular is liable to the beneficiaries. (65) Insular life v. Feliciano (repeat – case # 57) 74 PHIL 4681 Facts:  Insular life filed a motion for reconsideration of the decision in the preceding case. Issue: WON Insular Life was bound by their agent’s acts. Held: NO (what the f…?) There was collusion between Evaristo and the agent and the medical examiner in making it appear that Evaristo was a fit subject for insurance. When Evaristo authorized them to write the answers for him, he made them his own agents for that purpose and he was responsible for their acts in that connection. If they falsified the answers for him, he could not evade liability for the falsification. He was not supposed to sign the application in blank. He knew that his answers would be the basis for the policy, and was required with his signature to vouch for their truth. The judgment rendered therefore in the preceding case is thus reversed, and Insular Life is absolved from liability. (bakit kaya nagreverse?... the plot thickens… Hmm….) (66) Edillon v. Manila Bankers Life Insurance Corp. 117 SCRA 187 Facts:  In Apr. 1969, Carmen Lapuz applied for insurance with Manila Bankers. In the application she stated the date of her birth as July 11, 1904 (around 64 yrs old). The policy was thereafter issued.  Subsequently, in May 1969, Carmen died of a car accident. Her sister, as beneficiary claimed the proceeds of the insurance.  Manila Bankers refused to pay because the certificate of insurance contained a provision excluding it’s liability to pay claims to persons under 16 or over 60. Issue: WON the policy is void considering that the insured was over 60 when she applied. Held: NO. The age of Carmen was not concealed to the insurance company. Her application form indicated her true age. Despite such information, Manila Bankers accepted the premium and issued the policy. It had all the time to process the application and notice the applicant’s age. If it failed to act, it was because Manila Bankers was willing to waive such disqualifications or it simply overlooked such fact. It is therefore estopped from disclaiming any liability. (67) Gonzalez Lao v. Yek Tong Lin Fire & Marine Insurance 55 PHIL 386 Facts:  Gonzales was issued 2 fire insurance policies by Yek for 100T covering his leaf tobacco prducts.

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

They were stored in Gonzales’ building on Soler St., which on Jan. 11, 1928, burned down.

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Art. 3 of the Insurance policies provided that: “Any insurance in force upon all or part of the things unsured must be declared in writing by the insured and he (insured) should cause the company to insert or mention it in the policy. Without such requisite, such policy will be regarded as null and void and the insured will be deprived of all rights of indemnity in case of loss.” Notwithstanding said provision, Gonzales entered into other insurance contracts. When he sought to claim from Yek after the fire, the latter denied any liability on the ground of violation of Art. 3 of the said policies. Gonzales however proved that the insurer knew of the other insurance policies obtained by him long efore the fire, and the insurer did NOT rescind the insurance polices in question but demanded and collected from the insured the premiums.

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Issue: WON Yek is still entitled to annul the contract. Held: NOPE. The action by the insurance company of taking the premiums of the insured notwithstanding knowledge of violations of the provisions of the policies amounted to waiver of the right to annul the contract of insurance. (68) Tan Chay Heng v. West Coast Life 51 Phil 80 Facts:

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In 1926, Tan Chay Heng sued West Coast on the policy allegedly issued to his “uncle”, Tan Caeng who died in 1925. He was the sole beneficiary thereof. West Coast refused on the ground that the policy was obtained by Tan Caeng with the help of agents Go Chuilian, Francisco Sanchez and Dr. Locsin of West Coast. West Coast said that it was made to appear that Tan Caeng was single, a merchant, health and not a drug user, when in fact he was married, a laborer, suffering form tuberculosis and addicted to drugs. West Coast now denies liability based on these misrepresentations. Tan Chay contends that West Coast may not rescind the contract because an action for performance has already been filed. Trial court found for Tan Chay holding that an insurer cannot avoid a policy which has been procured by fraud unless he brings an action to rescind it before he is sued thereon.

Issue: WON West Coast’s action for rescission is therefore barred by the collection suit filed by Tan Chay. Held: NO. Precisely, the defense of West Cast was that through fraud in its execution, the policy is void ab initio, and therefore, no valid contract was ever made. Its action then cannot be fore rescission because an action to rescind is founded upon and presupposes the existence of the contract. Hence, West Coast’s defense is not barred by Sec. 47. In the instant case, it will be noted that even in its prayer, the defendant does not seek to have the alleged insurance contract rescinded. It denies that it ever made any contract of insurance on the life of Tan Caeng, or that any such a contract ever existed, and that is the question which it seeks to have litigated by its special defense. In the very nature of things, if the defendant never made or entered into the contract in question, there is no contract to rescind, and, hence, section 47 upon which the lower court based its decision in sustaining the demurrer does not apply. As stated, an action to rescind a contract is founded upon and presupposes the existence of the contract which is sought to be rescinded. If all of the material matters set forth and alleged in the defendant's special plea are true, there was no valid contract of insurance, for the simple reason that the minds of the parties never met and never agreed upon the terms and conditions of the contract. We are clearly of the opinion that, if such matters are known to exist by a preponderance of the evidence, they would constitute a valid defense to plaintiff's cause of action. Upon the question as to whether or not they are or are not true, we do not at this time have or express any opinion, but we are clear that section 47 does not apply to the allegations made in the answer, and that the trial court erred in sustaining the demurrer. (69) Qua Chee Gan v. Law Union & Rock Insurance

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98 PHIL 85 Facts:

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Before the last war, Qua Chee Gan owned 4 warehouses or bodegas (designated as Bodegas nos. 1 to 4) in Tabaco, Albay, used for the storage of stocks of copra and of hemp, baled and loose, in which he dealt extensively.

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They had been, with their contents, insured with Law Union since 1937, and the loss made payable to the Philippine National Bank as mortgagee of the hemp and copra, to the extent of its interest. Fire broke out in, 1940, and lasted almost one week, gutted and completely destroyed Bodegas Nos. 1, 3 and 4, with the merchandise stored therein.

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Qua informed the insurer by telegram on the same date; and on the next day, the insurer sent fire adjusters to estimate the loss. The loss was estimated at 370T. Law Union refused to pay contending that Qua purposely set fire to his bodegas and violation of warranties and conditions as agreed. Law Union then filed a criminal case for arson, but the same was dismissed by the trial court. Qua Chee thereafter instituted this civil case for the collection of the proceeds of insurance.

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As defense, Law Union Rock contends that Qua Chee violated the provisions agreed upon in a rider in the insurance policy where: o a fire hydrants should be placed every 150 feet of the external wall measurement, since there are only 2 and another 2 in a further area owned by the municipality. o Qua Chee failed to maintain the agreed water pressure and the 100 feet of fire hose o He did maintain 20 fire brigade men within the premises

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Insurer also averred that Qua Chee violated the provision of the Hemp Warranty which prohibits the storage of oils when he stored gasoline in bodega 2.

Issue: WON the company can rescind the contract on the basis of such alleged violation. Held: NO. Law Union is barred by waiver (or rather estoppel) to claim violation of the so- called fire hydrants warranty, for the reason that knowing fully all that the number of hydrants demanded therein never existed from the very beginning, the Law Union nevertheless issued the policies in question subject to such warranty, and received the corresponding premiums. It would be perilously close to conniving at fraud upon the insured to allow Law Union to claim now as void ab initio the policies that it had issued to the plaintiff without warning of their fatal defect, of which it was informed, and after it had misled the defendant into believing that the policies were effective. The insurance company was aware, even before the policies were issued, that in the premises insured there were only two fire hydrants installed by Qua Chee Gan and two others nearby, owned by the municipality of Tabaco, contrary to the requirements of the warranty in question. Such fact appears from positive testimony for the insured that appellant's agents inspected the premises; and the simple denials of appellant's representative (Jamiczon) can not overcome that proof. That such inspection was made is moreover rendered probable by its being a prerequisite for the fixing of the discount on the premium to which the insured was entitled, since the discount depended on the number of hydrants, and the fire fighting equipment available The alleged violation of the warranty of 100 feet of fire hose for every two hydrants, must be equally rejected, since the appellant's argument thereon is based on the assumption that the insured was bound to maintain no less than eleven hydrants (one per 150 feet of wall), which requirement appellant is estopped from enforcing. The supposed breach of the water pressure condition is made to rest on the testimony of witness Serra, that the water supply could fill a 5-gallon can in 3 seconds; appellant thereupon inferring that the maximum quantity obtainable from the hydrants was 100 gallons a minute, when the warranty called for 200 gallons a minute. The transcript shows, however, that Serra repeatedly refused and professed inability to estimate the rate of discharge of the water, and only gave the "5-gallon per 3-second" rate because the insistence of appellant's counsel forced the witness to hazard a guess. Obviously, the testimony is worthless and insufficient to establish the violation claimed, specially since the burden of its proof lay on appellant. As to maintenance of a trained fire brigade of 20 men, the record is preponderant that the same was organized, and drilled, from time to give, altho not maintained as a permanently separate unit, which the

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warranty did not require. Anyway, it would be unreasonable to expect the insured to maintain for his compound alone a fire fighting force that many municipalities in the Islands do not even possess. There is no merit in appellant's claim that subordinate membership of the business manager (Co Cuan) in the fire brigade, while its direction was entrusted to a minor employee, renders the testimony improbable. A business manager is not necessarily adept at fire fighting, the qualities required being different for both activities. It is well to note that gasoline is not specifically mentioned among the prohibited articles listed in the socalled "hemp warranty." The cause relied upon by the insurer speaks of "oils (animal and/or vegetable and/or mineral and/or their liquid products having a flash point below 300° Fahrenheit", and is decidedly ambiguous and uncertain; for in ordinary parlance, "Oils" mean "lubricants" and not gasoline or kerosene. And how many insured, it may well be wondered, are in a position to understand or determine "flash point below 003° Fahrenheit. Here, again, by reason of the exclusive control of the insurance company over the terms and phraseology of the contract, the ambiguity must be held strictly against the insurer and liberally in favor of the insured, specially to avoid a forfeiture (70) Colado v. Insular Life 51 OG (No 12) 6269 Facts:

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Vivencio Collado applied for an insurance contract with Insular life in 1948. His application was approved and he began started making premium payments. However, he defaulted and the insurance was cancelled. He then applied for the reinstatement of his insurance policy in Nov. of 1951 and tendered the amount of premium for the years 1950-1951.

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He stated that he was as of Nov. 1951 of good health, and that he had no injuries, ailments or illnesses and had not been sick for any case since 1948 (his medical check up when he applied for insurance) and that he had not consulted any physician or practitioner for any case since the date of such latest medical exam.

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However, when Vivencio applied for the reinstatement, he was already sick of a fatal disease known as carcinoma of the liver and that 4 days prior to his application for insurance, he consulted a doctor regarding his condition. The reinstatement was approved. Vivencio again failed to pay the premiums for the last quarter of Nov. 1951 and as such, Insular life sent him a notice canceling the policy.

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Vivencio then died. The beneificiaries instituted the present action to recover from Insular life the death benefits of a life insurance policy valued at 2T. Insular refused to pay claiming concealment on the part of Vivencio. Collado contends that Insular life had waived the right to rescine the policy in view of its repeated acceptance of the overdue premiums for the second and third years. Municipal court of Manila found for Collado and Insular filed an appeal with CFI of Manila. CFI rendered judgment in favor of Insular and dismissed Collado’s complaint.

Issue: WON Insular life was estopped and could no longer cancel the contract due to the fact that it accepted the tender of overdue payments from Vivencio. Held: NO. It is enormously clear that when the deceased applied for a reinstatement of his policy in Nov. 1951, he had already been afflicted with the fatal ailment for a period of about four months. Furthermore, in submitting together with his application for reinstatement, a health statement to the effect that he was in good health, Vivencio concealed the material fact that he had consulted a doctor and was then found to be afflicted with the malady. The acceptance of Insular life of the overdue premiums did not necessarily deprive it of the right to cancel the policy in case of default incurred by the Insured in the payment of future premiums. The case would be different had the insured died at any time after the payment of overdue premiums but previous to the reinstatement of the policy, for the, Insular, by its acceptance of its overdue premiums is deemed to have waived its right to rescind the policy.

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The evidence at hand shows that insofar as the payment of the last quarterly premium for 1951 was concerned, Insular had availed of the right to rescind the policy by notifying the Insured that the policy had lapsed. (I’m sorry kung magulo yung digest.. sobrang pangit yung copya nung case.. nde ko mabasa.. mas malala pa sa reviewer na Xerox)

Section 46. The materiality of a representation is determined by the same rules as the materiality of a concealment. What is the test of materiality? The materiality of the representation 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 representation is made, in forming his estimates of the disadvantages of the proposed contract or in making his inquiries. Who determines materiality? It is a judicial question. It is NOT left to the insurance company to say after the loss has occurred that it would or would not have issued the policy had an answer been truly given. The matter misrepresented must be of that character which the court can say would reasonably affect the insurer’s judgment. What are the differences and similarities between a concealment and misrepresentation? (already discussed in prior sections, but for the convenience of all… presented in a logical format.) CONCEALMENT Insured withholds information of material facts from the insurer

MISREPRESENTATION Insured makes erroneous statements of facts with the intent of inducing the insurer to enter into the insurance contract. Materiality is determined by the same rules applied in cases of misrepresentation. Concealment on the part of the insured has the same effect as a misrepresentation and gives the insurer the right to rescind the contract. Whether intentional or not intentional, the injured party is entitled to rescind the contract of insurance on ground of concealment or false representation. Rules on concealment and representation apply likewise to the insurer since the contracts of insurance is said to be one of utmost good faith on part of both parties to the agreement.

Section 47. The provisions of this chapter apply as well to a modification of a contract of insurance as to its original formation. What does this section mean? This section means that the provisions of Sec. 26 to 35 governing concealment and Sec. 36-48 governing representation apply NOT ONLY to the original formation of the contract but also to a modification of the same during the time it is in force.

Section 48. Whenever a right to rescind a contract of insurance is given to the insurer by any provision of this chapter, such right must be exercised previous to the commencement of an action on the contract. 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 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. When must the insurer exercise his right to rescind? In a non-life insurance policy, the insurer may rescind a contract of insurance prior to the commencement of an action on the contract.

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INSURANCE REVIEWER– Atty. Quimson

page 77

In a life insurance policy, the insurer may rescind the contract of insurance during the first two years when the policy was in force during the lifetime of the insured from the date of its issue or of its last reinstatement. What are the requisites in order that the insurer may rescind a life insurance policy? 1) There must be a basis for the rescission (breach of warranty, concealment, misrepresentation, etc.) 2) The rescission must be coupled with a check for the amount of premiums already paid. (without this, the rescission is not effective) 3) The rescission must be exercised within the two years that the insurance is in force during the lifetime of the insured. (I just tried to put together all of what Atty. Quimson said in class) What is an “Incontestability Clause”? Incontestability clauses are those clauses in life insurance policies stipulating that the policy shall be incontestable after a stated period. Sec. 48 par. 2 now requires that the incontestability of a life insurance policy starts after the lapse of the 2 years that the insurance was in force during the life time of the insured. What is the reason for this incontestability? As to the Insurer The insurer is given a reasonable opportunity to investigate the statements which the applicant makes in procuring his policy and that after the definite period, the insurer should not be permitted to question the validity of the policy, either by affirmative action, or by defense to a suit brought on the life policy by the beneficiary. As to the insured. Such clauses give assurance to the policy holder that his beneficiaries would receive payment without question as to the validity of the policy or the existence of the coverage once the period of contestability passes. It is designed to protect the policyholder or beneficiary from a lawsuit contesting the validity of the policy after a considerable time has passed and evidence of the facts surrounding the purchase may be unavailable. What are the requisites for INCONTESTABILITY? 1) The policy is a life insurance policy 2) It is payable on the death of the insured; and 3) It has been in force during the lifetime of the insured for at least 2 years from its date of issue or of its last reinstatement. May the period of 2 years be shortened by agreement between the insurer and the insured? It may be shortened but it cannot be extended by stipulation. What does the phase “during the lifetime” of the insured mean? Simply means that the policy is no longer considered in force after the insured has died. What is the effect when the life insurance policy becomes incontestable? The insurer may NOT refuse to pay the same by claiming that: 1) The policy is void ab initio; or 2) It is rescissible by reason of the fraudulent misrepresentations of the insured or his agent, no matter how patent or well-founded; or 3) It is rescissible by reason of the fraudulent misrepresentations of the insured agent. What are the defenses that the insurer may raise to avoid liability even after the lapse of the 2 years? 1) That the person taking the insurance lacked insurable interest as required by law; 2) Cause of death of the insured is an expected risk; 3) That the premiums have not been paid [Secs. 77, 277(b), 228(b), 230(b)]; 4) That the conditions of the policy relating to military or naval service have been violated [Sec. 227(b), 228(b)]; 5) That the fraud is of a particularly vicious type, as where the policy was taken out in furtherance of a scheme to murder the insured, or where the insured substitutes another person for the medical examination, or where the beneficiary feloniously kills the insured.

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INSURANCE REVIEWER– Atty. Quimson

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6) That the beneficiary failed to furnish proof of death or to comply with any condition imposed by the policy after the loss has happened (Sec. 242) 7) That the action was not brought within the time specified. What does Sec. 227(b), Sec. 228 (b) and Sec. 230 (b) provide? Section 227. In the case of individual life or endowment insurance, the policy shall contain in substance the following conditions: xxx (b) A provision that the policy shall be incontestable after it shall have been in force during the lifetime of the insured for a period of two years from its date of issue as shown in the policy, or date of approval of last reinstatement, except for non-payment of premium and except for violation of the conditions of the policy relating to military or naval service in time of war; Section 228. No policy of group life insurance shall be issued and delivered in the Philippines unless it contains in substance the following provisions, or provisions which in the opinion of the Commissioner are more favorable to the persons insured, or at least as favorable to the persons insured and more favorable to the policy-holders: xxx (b) A provision that the validity of the policy shall not be contested, except for non-payment of premiums after it has been in force for two years from its date of issue; and that no statement made by any insured under the policy relating to his insurability shall be used in contesting the validity of the insurance with respect to which such statement was made after such insurance has been in force prior to the contest for a period of two years during such person's lifetime nor unless contained in written instrument signed by him; Section 230. In the case of industrial life insurance, the policy shall contain in substance the following provisions: xxx (b) A provision that the policy shall be incontestable after it has been in force during the lifetime of the insured for a specified period, not more than two years from its date of issue, except for non-payment of premiums and except for violation of the conditions of the policy relating to naval or military service, or services auxiliary thereto, and except as to provisions relating to benefits in the event of disability as defined in the policy, and those granting additional insurance specifically against death by accident or by accidental means, or to additional insurance against loss of, or loss of use of, specific members of the body; Problems. A procured insurance on his life through fraudulent concealment or misrepresentation. What is the effect if A dies within two year from the issuance of the policy, and the insurer learned of the concealment or misrepresentation? His beneficiary cannot recover on the policy because the law says that the policy must have been in force during the lifetime of the insured for a period of two years. The death of the insured makes the policy no longer “in force” and the insurer can still rescind the contract. What if the two years had already lapsed? Then the insurer cannot exercise his right of rescission anymore. Whether A is dead or alive is immaterial, what is important is the fact that two years have already lapsed and has cured the fraud committed by A. B procured a life insurance in Jan 2000. He attested that he was in good health which was true. Before 2000 ended, B defaulted in the payment of the premium and thereafter the insurance company cancelled his policy. In Mar 2001, B applied for the reinstatement of his life insurance policy tendering the overdue amounts. As required, B submitted that a certificate stating that he is still in good health. The truth however was that in Feb. 2001, B was diagnosed with cancer and only had 2 years to live. The insurance was reinstated on April 2001. B died on Feb. 2003 and C, his beneficiary filed a claim against the insurance company. The latter refused claiming that B concealed the fact that he was afflicted with cancer. C contends that the 2 years counting from Jan 2000 had already lapsed and therefore the insurance company cannot contest the concealment made by B. Is C correct?

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INSURANCE REVIEWER– Atty. Quimson

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No. Sec. 48 provides that the two years are counted from the time the date of its issue or of its last reinstatement. Since the reinstatement was made in Apr. 2001, the counting of the two-year period should start from there. The concealment that B made when he applied for the reinstatement is not incontestable. The insurer is once again given two years from the date of reinstatement to investigate the veracity of the facts represented by the insured in the application for reinstatement. (Soliman v. US Life) Counting from Apr. 2001, it is approximately 1 year and 10 mos up until the death of B, and the insurer can raise the defense of concealment. Same facts. But instead, B died on December 2003. Is the answer still the same? This time, C can now collect from the insurance company. Since the date of reinstatement was April 2001, and B died in December 2003, the two year period has lapsed and the policy has become incontestable. Cases: (71) Philamcare v. CA (repeat – case #9) 379 SCRA 356 (2002) Facts:



Ernani Trinos, applied for a health care coverage with Philamcare. In the standard application form, he answered NO to the following question: “Have you or any of your family members ever consulted or been treated for high blood pressure, heart trouble, diabetes, cancer, liver disease, asthma or peptic ulcer? (If Yes, give details)”

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The application was approved for a period of one year from March 1, 1988 to March 1, 1989. He was a issued Health Care Agreement, and under such, he was entitled to avail of hospitalization benefits, whether ordinary or emergency, listed therein. He was also entitled to avail of "out-patient benefits" such as annual physical examinations, preventive health care and other out-patient services. Upon the termination of the agreement, the same was extended for another year from March 1, 1989 to March 1, 1990, then from March 1, 1990 to June 1, 1990. The amount of coverage was increased to a maximum sum of P75,000.00 per disability. During the period of his coverage, Ernani suffered a heart attack and was confined at the Manila Medical Center (MMC) for one month beginning March 9, 1990.

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

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While her husband was in the hospital, Julita tried to claim the benefits under the health care agreement. However, Philamcare denied her claim saying that the Health Care Agreement was void.

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According to Philamcare, there was concealment regarding Ernani's medical history. o Doctors at the MMC allegedly discovered at the time of Ernani's confinement that he was hypertensive, diabetic and asthmatic, contrary to his answer in the application form.

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Julita had no choice but to pay the hospitalization expenses herself, amounting to about P76,000.00

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Julita instituted, an action for damages against Philamcare. She asked for reimbursement of her expenses plus moral damages and attorney's fees. RTC decided in favor of Julita. CA affirmed.

After her husband was discharged from the MMC, he was attended by a physical therapist at home. Later, he was admitted at the Chinese General Hospital (CGH). Due to financial difficulties, Julita brought her husband home again. In the morning of April 13, 1990, Ernani had fever and was feeling very weak. Julita was constrained to bring him back to the CGH where he died on the same day.

Issues and Resolutions: Philamcare brought the instant petition for review, raising the primary argument that a health care agreement is not an insurance contract; hence the "incontestability clause" under the Insurance Code Title 6, Sec. 48 does not apply. SC held that in the case at bar, the insurable interest of respondent's husband in obtaining the health care agreement was his own health. The health care agreement was in the nature of non-life insurance, which is primarily a contract of indemnity. Once the member incurs hospital, medical or any other expense arising from sickness, injury or other stipulated contingent, the health care provider must pay for the same to the extent agreed upon under the contract.

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INSURANCE REVIEWER– Atty. Quimson

page 80

Under the title Claim procedures of expenses, Philamcare. had 12 mos from the date of issuance of the Agreement within which to contest the membership of the patient if he had previous ailment of asthma, and six months from the issuance of the agreement if the patient was sick of diabetes or hypertension. The periods having expired, the defense of concealment or misrepresentation no longer lie. Petitioner argues that respondent's husband concealed a material fact in his application. It appears that in the application for health coverage, petitioners required respondent's husband to sign an express authorization for any person, organization or entity that has any record or knowledge of his health to furnish any and all information relative to any hospitalization, consultation, treatment or any other medical advice or examination. Philamcare cannot rely on the stipulation regarding "Invalidation of agreement" which reads: Failure to disclose or misrepresentation of any material information by the member in the application or medical examination, whether intentional or unintentional, shall automatically invalidate the Agreement from the very beginning and liability of Philamcare shall be limited to return of all Membership Fees paid. An undisclosed or misrepresented information is deemed material if its revelation would have resulted in the declination of the applicant by Philamcare or the assessment of a higher Membership Fee for the benefit or benefits applied for. The answer assailed by petitioner was in response to the question relating to the medical history of the applicant. This largely depends on opinion rather than fact, especially coming from respondent's husband who was not a medical doctor. Where matters of opinion or judgment are called for, answers made in good faith and without intent to deceive will not avoid a policy even though they are untrue. Thus, (A)lthough false, a representation of the expectation, intention, belief, opinion, or judgment of the insured will not avoid the policy if there is no actual fraud in inducing the acceptance of the risk, or its acceptance at a lower rate of premium, and this is likewise the rule although the statement is material to the risk, if the statement is obviously of the foregoing character, since in such case the insurer is not justified in relying upon such statement, but is obligated to make further inquiry. There is a clear distinction between such a case and one in which the insured is fraudulently and intentionally states to be true, as a matter of expectation or belief, that which he then knows, to be actually untrue, or the impossibility of which is shown by the facts within his knowledge, since in such case the intent to deceive the insurer is obvious and amounts to actual fraud. The fraudulent intent on the part of the insured must be established to warrant rescission of the insurance contract. Concealment as a defense for the health care provider or insurer to avoid liability is an affirmative defense and the duty to establish such defense by satisfactory and convincing evidence rests upon the provider or insurer. In any case, with or without the authority to investigate, petitioner is liable for claims made under the contract. Having assumed a responsibility under the agreement, petitioner is bound to answer the same to the extent agreed upon. In the end, the liability of the health care provider attaches once the member is hospitalized for the disease or injury covered by the agreement or whenever he avails of the covered benefits which he has prepaid. Under Section 27 of the Insurance Code, "a concealment entitles the injured party to rescind a contract of insurance." The right to rescind should be exercised previous to the commencement of an action on the contract. In this case, no rescission was made. Besides, the cancellation of health care agreements as in insurance policies require the concurrence of the following conditions: 1. Prior notice of cancellation to insured; 2. Notice must be based on the occurrence after effective date of the policy of one or more of the grounds mentioned; 3. Must be in writing, mailed or delivered to the insured at the address shown in the policy; 4. Must state the grounds relied upon provided in Section 64 of the Insurance Code and upon request of insured, to furnish facts on which cancellation is based. None of the above pre-conditions was fulfilled in this case. When the terms of insurance contract contain limitations on liability, courts should construe them in such a way as to preclude the insurer from noncompliance with his obligation. Being a contract of adhesion, the terms of an insurance contract are to be construed strictly against the party which prepared the contract — the insurer. By reason of the exclusive control of the insurance company over the terms and phraseology of the insurance contract, ambiguity must be strictly interpreted against the insurer and liberally in favor of the insured, especially to avoid forfeiture. This is equally applicable to Health Care Agreements. The phraseology used in medical or hospital service contracts, such as the one at bar, must be liberally construed in favor of the subscriber, and if doubtful or

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INSURANCE REVIEWER– Atty. Quimson

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reasonably susceptible of two interpretations the construction conferring coverage is to be adopted, and exclusionary clauses of doubtful import should be strictly construed against the provider. (72) Soliman v. US Life 104 PHIL 1046 Facts:  US Life issued a 20 yr endowment life policy on the joint lives of Patricio Soliman and his wife Rosario, each of them being the beneficiary of the other.  In Mar. 1949, the spouses were informed that the premium for Jan 1949 was still unpaid notwithstanding that the 31-day grace period has already expired, and they were furnished at the same time long-form health certificates for the reinstatement of the policies.  In Apr 1949, they submitted the certificates and paid the premiums.  In Jan. 1950, Rosario died of acute dilation of the heart, and thereafter, Patricio filed a claim for the proceeds of the insurance.  US life denied the claim and filed for the rescission of the contract on the ground that the certificates failed to disclose that Rosario had been suffering from bronchial asthma for 3 years prior to their submission. Issue: WON the contract can still be rescinded. Held: Yes. The insurer is once again given two years from the date of reinstatement to investigate into the veracity of the facts represented by the insured in the application for reinstatement. When US life sought to rescind the contract on the ground of concealment/misrepresentation, two years had not yet elapsed. Hence, the contract can still be rescinded. (73) Tan v. CA 174 SCRA 403 Facts:  Tan Lee Siong was issued a policy by Philamlife on Nov. 6, 1973.  On Aprl 26, 1975, Tan died of hepatoma. His beneficiaries then filed a claim with Philamlife for the proceeds of the insurance.  Philamlife wrote the beneficiaries in Sep. 1975 denying their claim and rescinding the contract on the ground of misrepresentation. The beneficiaries contend that Philamlife can no longer rescind the contract on the ground of misrepresentation as rescission must allegedly be done “during the lifetime of the insured” within two years and prior to the commencement of the action following the wording of Sec. 48, par. 2. Issue: WON Philamlife can rescind the contract. Held: YES. The phrase “during the lifetime” found in Sec. 48 simply means that the policy is no longer in force after the insured has died. The key phrase in the second paragraph is “for a period of two years”. What is a simpler illustration of the ruling in Tan v. CA? The period to consider in a life insurance poiicy is “two years” from the date of issue or of the last reinstatement. So if for example the policy was issued/reinstated on Jan 1, 2000, the insurer can still exercise his right to rescind up to Jan. 1, 2003 or two years from the date of issue/reinstatement, REGARDLESS of whether the insured died before or after Jan. 1, 2003. (74) Tan Chay Heng v. West Coast Life (repeat – case #68) 51 PHIL 80 Facts:  In 1926, Tan Chay Heng sued West Coast on the policy allegedly issued to his “uncle”, Tan Caeng who died in 1925. He was the sole beneficiary thereof.  West Coast refused on the ground that the policy was obtained by Tan Caeng with the help of agents Go Chuilian, Francisco Sanchez and Dr. Locsin of West Coast.

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West Coast said that it was made to appear that Tan Caeng was single, a merchant, health and not a drug user, when in fact he was married, a laborer, suffering form tuberculosis and addicted to drugs. West Coast now denies liability based on these misrepresentations. Tan Chay contends that West Coast may not rescind the contract because an action for performance has already been filed. Trial court found for Tan Chay holding that an insurer cannot avoid a policy which has been procured by fraud unless he brings an action to rescind it before he is sued thereon.

Issue: WON West Coast’s action for rescission is therefore barred by the collection suit filed by Tan Chay. Held: NO. Precisely, the defense of West Cast was that through fraud in its execution, the policy is void ab initio, and therefore, no valid contract was ever made. Its action then cannot be fore rescission because an action to rescind is founded upon and presupposes the existence of the contract. Hence, West Coast’s defense is not barred by Sec. 47. In the instant case, it will be noted that even in its prayer, the defendant does not seek to have the alleged insurance contract rescinded. It denies that it ever made any contract of insurance on the life of Tan Caeng, or that any such a contract ever existed, and that is the question which it seeks to have litigated by its special defense. In the very nature of things, if the defendant never made or entered into the contract in question, there is no contract to rescind, and, hence, section 47 upon which the lower court based its decision in sustaining the demurrer does not apply. As stated, an action to rescind a contract is founded upon and presupposes the existence of the contract which is sought to be rescinded. If all of the material matters set forth and alleged in the defendant's special plea are true, there was no valid contract of insurance, for the simple reason that the minds of the parties never met and never agreed upon the terms and conditions of the contract. We are clearly of the opinion that, if such matters are known to exist by a preponderance of the evidence, they would constitute a valid defense to plaintiff's cause of action. Upon the question as to whether or not they are or are not true, we do not at this time have or express any opinion, but we are clear that section 47 does not apply to the allegations made in the answer, and that the trial court erred in sustaining the demurrer.

TITLE VI – THE POLICY Section 49. The written instrument in which a contract of insurance is set forth, is called a policy of insurance. Section 50. The policy shall be in printed form which may contain blank spaces; and any word, phrase, clause, mark, sign, symbol, signature, number, or word necessary to complete the contract of insurance shall be written on the blank spaces provided therein. Any rider, clause, warranty or endorsement purporting to be part of the contract of insurance and which is pasted or attached to said policy is not binding on the insured, unless the descriptive title or name of the rider, clause, warranty or endorsement is also mentioned and written on the blank spaces provided in the policy. Unless applied for by the insured or owner, any rider, clause, warranty or endorsement issued after the original policy shall be countersigned by the insured or owner, which countersignature shall be taken as his agreement to the contents of such rider, clause, warranty or endorsement. Group insurance and group annuity policies, however, may be typewritten and need not be in printed form. What is a policy of insurance? Sec. 49 defines a policy of insurance as a written instrument in which the contract of insurance is set forth. Who signs the policy of insurance:

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INSURANCE REVIEWER– Atty. Quimson

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Generally, only the insurer or his duly authorized agent signs the policy. It need not be singed by the insured EXCEPT where the express warranties are contained in a separate instrument forming part of the policy, in which case, Sec. 70 requires that the instrument be so signed. Why are the terms of the policy important? They are important because they measure the liability of the insurer on one hand, and the other hand, strict compliance with the terms are required for the recovery on the part of the insured. Is the policy and the Contract one and the same thing? NOPE. A contract is a meeting of the minds of the insured and the insurer. (Remember CLV?) The policy ONLY the formal written instrument evidencing the contract. What is usually the best evidence that a contract has been entered into between the insurer and the insured? Delivery of the policy by the insurer to the insured. What are the effects of the delivery of the policy? If the delivery is conditional, non-fulfillment of the condition bars the contract from taking effect. If the deliver is unconditional, the insurance becomes effective at the time of delivery. What is a rider? It is a printed or typed stipulation contained on a slip of paper attached to the policy and forming an integral part of the policy. Riders are usually attached to the policy because they constitute additional stipulations between the parties. What happens if there is an inconsistency between the policy and the rider? RIDER prevails, as being a more deliberate expression of the agreement of the contracting parties. What are the requirements in order that a rider be binding upon the insured? 1) Descriptive title or name of the rider which is pasted or attached to a policy MUST be mentioned and written on the blank spaces provided for in the policy; and 2) Unless applied for by the insured or owner, said insured or owner MUST countersign the rider. Do the preceding requirements apply only to riders? NO. they apply also to warranties, clauses and endorsements. What are warranties? Warranties are inserted or attached to a policy to eliminate specific potential increases of hazard during the policy term owing to actions of the insured, or conditions of property. What are clauses? Clauses are agreements between the insurer and the insured on certain matters relating to the laibiity of the insurer in case of loss. What are examples of clauses: 1) ¾ Clause – where the insurer is liable for only ¾ of the loss or damage to the insured 2) Loss Payable clause – where the loss if any is payable to the party or parties named, as their interests may appear. 3) Change of Ownership clause where the insurance will insure to the benefit of whomsoever, during the continuance of the risk, may become the owner of the interest insured. What is an endorsement? An endorsement is any provision added to an insurance contract altering its scope or application. Examples would be those additions to the contract changing the amount, the rate or the term of the same. What does Sec. 226 say? Section 226. No policy, certificate or contract of insurance shall be issued or delivered within the Philippines unless in the form previously approved by the Commissioner, and no application form shall be used with, and no rider, clause, warranty or endorsement shall be attached to, printed or stamped upon such policy, certificate or contract unless the form of such application, rider, clause, warranty or endorsement has been approved by the Commissioner.

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INSURANCE REVIEWER– Atty. Quimson

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Cases: (75) Sindayen v. Insular Life 62 PHIL 9 Facts:  Arturo Sindayen was a linotype operator in the Bureau of Printing. He and his wife Fortunat went to Camiling to spend Christmas with his aunt Felicidad Estrada.  On Dec. 26, 1932, while still in Camiling, he made a written application to Insular Life, through its agent, Cristobal Hendoza, for a policy of insurance on his life in the sum of 1,000.  He paid the agent P15 as part of the first premium. It was agreed that the policy, when and if issued, should be delivered to Felicidad with whom Sindayen left the sum P25.06 to complete the payment of the first annual premium of P40.06.  On Jan 1, 1933, Sindayen was examined by Insular’s doctor who made a favorable report to Insular.  The next day, Sindayen returned to Manila and resumed his work. On Jan. 11, 1933, Insular accepted the risk and issued a policy, and mailed the same to its agent for delivery to the insured.  On Jan. 12, 1933, Sindayen complained of a severe headache. ON Jan. 15, 1933, he called a physician who found that Sindayen was suffering from acute nephritis and uremia. His illness did not yield to treatment and on Jan. 19, 1933, he died.

   

  

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The policy which the company issued and mailed in manila on Jan. 11 1933 was received by its agent in Camilin on Jan. 16, 1933. On Jan 18, 1933, the agent, in accordance with his agreement with the insured delivered the policy to Felicided upon her payment of the balance of the 1st year’s premium. The agent asked Felicidad if her nephew was in good health and she replied that she believed so because she had no information that he was sick, and thereupon , the policy was handed to her by the agent. On Jan. 20, 1933, the agent learned of the death of Sindayen, afterwhich he called upon Felicidad and asked her to return the policy. Felicidad did so. On Feb. 4, 1933, the company obtained from Sindayen’s widow Fortunata (also the beneficiary), her signature on a legal document whereby in consideration of the sum 40.06 representing the amount of premium paid, Fortunata thereby releases forever and discharges Insular from any and all claims and obligations she may have against the latter. A check for the above-mentioned amount was drawn in the name of Fortunata, but the same was never encashed. Instead, it was returned to Insular and this complaint to enforce payment under the policy was instituted. The application which Sindayen signed in Camiling contained the following provisions: “xxx (3) That the said policy shall not take effect until the first premium has been paid and the policy has been delivered to and accepted by me, while I am in good health.” The main defense of the company is the policy never took effect because of par. 3 of the application, since at the time of the delivery of the agent, the insured was not in good health.

Issue: WON the policy took effect. Held: YES. There is one line of American cases which holds that the stipulation contained par. 3 is in the nature of a condition precedent, that is to say, that there can be no valid delivery to the insured unless he is in good health at that time; that this condition precedent goes to the very essence of the contract and cannot be waived by the agent making delivery of the policy; HOWEVER, there is also a number of American decision which state the contrary. These decisions say that an agent to whom a life insurance policy (similar to the one at bar) was sent with instruction to deliver it to the insured, has authority to bind the company by making such delivery, ALTHOUGH the insured was NOT in good health at the time of delivery, on the theory that the delivery of the policy being the final act to the consummation of the contract, the condition as to the insured’s good health was WAIVED by the company. These same cases further hold that the delivery of the policy by the agent to the insured consummates the contract even though the agent knew that the insured was NOT in good health at the time, the theory being, that his knowledge is the company’s knowledge; and his delivery is the company’s delivery; that when

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the delivery is made notwithstanding this knowledge of the defect, the company is deemed to have WAIVED such defect. The agent, Mendoza was duly licensed by the Insurance Commission to act for Insular Life. He had the authority given by him by the company to withhold the delivery of the policy to the insured until the first premium has been paid and the policy has been delivered to and accepted by the insured while he is in good health. Whether that condition had been met or not plainly calls for the exercise of discretion. Mendoza’s decision that the condition had been met by the insured and that it was proper to make delivery of the policy to him is just as binding on the company as if the decision had been made by its Board of Directors. Admittedly, Mendoza made a mistake of judgment because he acted on insufficient evidence as to the state of health of the insured, and this mistake cannot be said to be induced by any misconduct on the part of the insured. It is in the interest of not only of the applicant but of all insurance companies as well that there should be some act which gives the applicant the definite assurance that the contract has been consummated. This sense of security and of piece of mind that one’s dependents are provided for without risk of either loss or of litigation is the bedrock of life insurance. A cloud will be thrown over the entire insurance business if the condition of health of the insured at the time of the delivery of the policy may be inquired into years afterwards with the view of avoiding the policy on the ground that it never took effect because of an alleged lack of good health at the time of delivery. It is therefore in the public interest that we are constrained to hold, as we do, that the delivery of the policy to the insured by an agent of the company who is authorized to make delivery or withhold delivery is the final act which binds the company and the insured, in the absence of fraud or other legal grounds for rescission. The fact that the agent to whom it has entrusted this duty is derelict or negligent or even dishonest in the performance of the duty which has been entrusted to him would create an obligation based upon the authorized acts of the agent toward a third party who was not in collusion with the agent. (76) Enriquez v. SunLIfe 41 PHIL 269 Facts:  On Sept. 24 1917, Herrer made an application to SunLife through its office in Manila for life annuity.  2 days later, he paid the sum of 6T to the company’s anager in its Manila office and was given a receipt.

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On Nov. 26, 1917, the head office gave notice of acceptance by cable to Manila. On the same date, the Manila office prepared a letter notifying Herrer that his application has been accepted and this was placed in the ordinary channels of transmission, but as far as known was never actually mailed and never received by Herrer. Herrer died on Dec. 20, 1917. The plaintiff as administrator of Herrer’s estate brought this action to recover the 6T paid by the deceased.

Issue: WON the insurance contract was perfected. Held: NO. The contract for life annuity was NOT perfected because it had NOT been proved satisfactorily that the acceptance of the application ever came to the knowledge of the applicant. An acceptance of an offer of insurance NOT actually or constructively communicated to the proposer does NOT make a contract of insurane, as the locus poenitentiae is ended when an acceptance has passed beyond the control of the party. NOTE: Life annuity is the opposite of a life insurance. In life annuity, a big amount is given to the insurance company, and if after a certain period of time the insured is stil living, he is entitled to regular smaller amounts for the rest of his life. Examples of Life annuity are pensions. Life Insurance on the other hand, the insured during the period of the coverage makes small regular payments and upon his death, the insurer pays a big amount to his beneficiaries. (77) Tang v. CA (90 SCRA 236) Facts:

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On Sept. 25, 2965, Lee Su Guat, widow, 61 years old and illiterate who spoke only Chinese, applied for life insurance for 60T with Philamlife. The application was in two parts, both in English. The second part dealt with her state of health. Her answers having shown that she was health, Philamlife issued her a policy effective Oct. 23, 1965 with her nephew Vicente Tang as beneficiary. On Nov. 15, 1965, Lee again applied for additional insurance of her life for 40T. Since it was only recent from the time she first applied, no further medical exam was made but she accomplished Part 1 (which certified the truthfulness of statements made in Part. 2) The policy was again approved. On Apri 20 1966, Lee Su Guat died of Lung cancer. Tang claimed the amount o 100T but Philamlife refused to pay on the ground that the insured was guilty of concealment and misrepresentation. Both trial court and CA ruled that Lee was guilty of concealment. Tang’s position, however, is that because Lee was illiterate and spoke only Chinese, she could not be held guilty of concealment of her health history because the application for insurance was English, and the insurer has not proven that the terms thereof had been fully explained to her as provided by Art. 1332 of CC.

Issue: WON Art. 1332 applies. Held: NO. Art. 1332 is NOT applicable. Under said article, the obligation to show that the terms of the contract had been fully explained to the party who is unable to read or understand the language of the contract, when fraud or mistake is alleged, devolves on the party seeking to enforce it. Here, the insurance company is NOT seeking to enforce the contract; on the contrary, it is seeking to avoid its performance. It is petitioner who is seeking to enforce it, even as fraud or mistake is NOT alleged. Accordingly, Philamlife was under no obligation to prove that the terms of the insurance contract were fully explained to the other party. Even if we were to say that the insurer is the one seeking the performance of the cont contracts by avoiding paying the claim, it has to be noted as above stated that there has been NO imputation of mistake of fraud by the illiterate insured whose personality is represented by her beneficiary. In sum, Art. 1332 is inapplicable, and considering the findings of both the trial court and the CA as to the Concealment of Lee, the SC affirms their decisions. Concurring: J., Antonio In a contract of insurance, each party must communicate to the other, in good faith, all facts within his knowledge which are material to the contract, and which the other has no means of ascertaining. As a general rule, the failure by the insured to disclose conditions affecting the risk of which he is aware makes the contract voidable at the option of the insurer. The reason for this rule is that insurance policies are traditionally contracts uberrimae fidei, which means “most abundant good faith”, “absolute and perfect candor or openness and honesty,” “absence of any concealment or deception however slight.” Here the CA found that the insured deliberately concealed material facts about her physical condition and history and/or concealed with whoever assisted her in relaying false information to the medical examiner. Certainly, the petitioner cannot assume inconsistent positions by attempting to enforce the contract of insurance for the purpose of collecting the proceeds of the policy and at the same time nullify the contract by claiming that it was executed through fraud or mistake. NOTE: Art. 1332: When one of the parties is unable to read or if the contract is in a language not understood by him, and mistake or fraud is alleged, the person enforcing the contract must show that the terms thereof have been fully explained to him. (78) Perez v. CA 323 SCRA 613 (2000) Facts:

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Primitivo Perez had been insured with the BF Lifeman Insurance Corporation since 1980 for P20,000.00. In October 1987, an agent of Lifeman, Rodolfo Lalog, visited Perez in Quezon and convinced him to apply for additional insurance coverage of P50,000.00, to avail of the ongoing promotional discount of P400.00 if the premium were paid annually.

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Primitivo B. Perez accomplished an application form for the additional insurance coverage. Virginia A. Perez, his wife, paid P2,075.00 to Lalog. The receipt issued by Lalog indicated the amount received was a "deposit."

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Unfortunately, Lalog lost the application form accomplished by Perez and so on October 28, 1987, he asked the latter to fill up another application form. On November 1, 1987, Perez was made to undergo the required medical examination, which he passed.

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Lalog forwarded the application for additional insurance of Perez, together with all its supporting papers, to the office of BF Lifeman Insurance Corporationn in Quezon which office was supposed to forward the papers to the Manila office.

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On November 25, 1987, Perez died while he was riding a banca which capsized during a storm.

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At the time of his death, his application papers for the additional insurance were still with the Quezon office. Lalog testified that when he went to follow up the papers, he found them still in the Quezon office and so he personally brought the papers to the Manila office of BF Lifeman Insurance Corporation. It was only on November 27, 1987 that said papers were received in Manila. Without knowing that Perez died on November 25, 1987, BF Lifeman Insurance Corporation approved the application and issued the corresponding policy for the P50,000.00 on December 2, 1987 Virginia went to Manila to claim the benefits under the insurance policies of the deceased. She was paid P40,000.00 under the first insurance policy for P20,000.00 (double indemnity in case of accident) but the insurance company refused to pay the claim under the additional policy coverage of P50,000.00, the proceeds of which amount to P150,000.00 in view of a triple indemnity rider on the insurance policy. In its letter of January 29, 1988 to Virginia A. Perez, the insurance company maintained that the insurance for P50,000.00 had not been perfected at the time of the death of Primitivo Perez. Consequently, the insurance company refunded the amount of P2,075.00 which Virginia Perez had paid Lifeman filed for the rescission and the declaration of nullity. Perez, on the other hand, averred that the deceased had fulfilled all his prestations under the contract and all the elements of a valid contract are present. RTC ruled in favor of Perez. CA reversed.

Issue: WON there was a perfected additional insurance contract. Held: The contract was not perfected. Insurance is a contract whereby, for a stipulated consideration, one party undertakes to compensate the other for loss on a specified subject by specified perils. A contract, on the other hand, is a meeting of the minds between two persons whereby one binds himself, with respect to the other to give something or to render some service. Consent must be manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. The offer must be certain and the acceptance absolute. When Primitivo filed an application for insurance, paid P2,075.00 and submitted the results of his medical examination, his application was subject to the acceptance of private respondent BF Lifeman Insurance Corporation. The perfection of the contract of insurance between the deceased and respondent corporation was further conditioned upon compliance with the following requisites stated in the application form: "there shall be no contract of insurance unless and until a policy is issued on this application and that the said policy shall not take effect until the premium has been paid and the policy delivered to and accepted by me/us in person while I/We, am/are in good health." The assent of private respondent BF Lifeman Insurance Corporation therefore was not given when it merely received the application form and all the requisite supporting papers of the applicant. Its assent was given when it issues a corresponding policy to the applicant. Under the abovementioned provision, it is only when the applicant pays the premium and receives and accepts the policy while he is in good health that the contract of insurance is deemed to have been perfected. It is not disputed, however, that when Primitivo died on November 25, 1987, his application papers for additional insurance coverage were still with the branch office of respondent corporation in Gumaca and it was only two days later, or on November 27, 1987, when Lalog personally delivered the application papers to the head office in Manila. Consequently, there was absolutely no way the acceptance of the application could have been communicated to the applicant for the latter to accept inasmuch as the applicant at the time was already dead.

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(79) CIR v. Lincoln Phil Life 379 SCRA 423 (2002) Facts:

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In the years prior to 1984, Lincoln issued a special kind of life insurance policy known as the "Junior Estate Builder Policy," the distinguishing feature of which is a clause providing for an automatic increase in the amount of life insurance coverage upon attainment of a certain age by the insured without the need of issuing a new policy. The clause was to take effect in the year 1984.

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Documentary stamp taxes due on the policy were paid to the petitioner only on the initial sum assured.

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Lincoln questioned the deficiency assessments and sought their cancellation in a petition filed in the Court of Tax Appeals. CTA found no basis for the assessment. CA affirmed.

Subsequently, petitioner issued deficiency documentary stamps tax assessment for the year 1984, corresponding to the amount of automatic increase of the sum assured on the policy issued by respondent.

Issue: WON the automatic increase of the sum assured on the policy is taxable. Held: YES. CIR claims that the "automatic increase clause" in the subject insurance policy is separate and distinct from the main agreement and involves another transaction; and that, while no new policy was issued, the original policy was essentially re-issued when the additional obligation was assumed upon the effectivity of this "automatic increase clause" in 1984; hence, a deficiency assessment based on the additional insurance not covered in the main policy is in order. The SC agreed with this contention. The subject insurance policy at the time it was issued contained an "automatic increase clause." Although the clause was to take effect only in 1984, it was written into the policy at the time of its issuance. The distinctive feature of the "junior estate builder policy" called the "automatic increase clause" already formed part and parcel of the insurance contract, hence, there was no need for an execution of a separate agreement for the increase in the coverage that took effect in 1984 when the assured reached a certain age. It is clear from Section 173 of the NIRC that the payment of documentary stamp taxes is done at the time the act is done or transaction had and the tax base for the computation of documentary stamp taxes on life insurance policies under Section 183 of NIRC is the amount fixed in policy, unless the interest of a person insured is susceptible of exact pecuniary measurement. Logically, we believe that the amount fixed in the policy is the figure written on its face and whatever increases will take effect in the future by reason of the "automatic increase clause" embodied in the policy without the need of another contract. Here, although the automatic increase in the amount of life insurance coverage was to take effect later on, the date of its effectivity, as well as the amount of the increase, was already definite at the time of the issuance of the policy. Thus, the amount insured by the policy at the time of its issuance necessarily included the additional sum covered by the automatic increase clause because it was already determinable at the time the transaction was entered into and formed part of the policy. The "automatic increase clause" in the policy is in the nature of a conditional obligation under Article 1181, 8 by which the increase of the insurance coverage shall depend upon the happening of the event which constitutes the obligation. In the instant case, the additional insurance that took effect in 1984 was an obligation subject to a suspensive obligation, 9 but still a part of the insurance sold to which private respondent was liable for the payment of the documentary stamp tax. Section 51. A policy of insurance must specify: (a) The parties between whom the contract is made; (b) The amount to be insured except in the cases of open or running policies; (c) The premium, or if the insurance is of a character where the exact premium is only determinable upon the termination of the contract, a statement of the basis and rates upon which the final premium is to be determined; (d) The property or life insured;

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(e) The interest of the insured in property insured, if he is not the absolute owner thereof; (f) The risks insured against; and (g) The period during which the insurance is to continue. What must a policy contain and what are the reason behind such requirements? A policy must contain: 1. Names of the parties 2. Amount of insurance  to easily and exactly determine the amount of indemnity to be paid in case of loss or damage. This requirement however can be dispensed with in cases of open or running policies. 3. Rate of premium  Because the premium represents the consideration of the contract; these rates are developed on the basis of the nature and character of the risk assumed. Remember Atty. Quimson’s famous words? As the risk increases, the rate of premium also increases. 4. Property or life or thing insured  Constitutes the Subject Matter 5. Interests of the insured in the property  In order to determine actual damage. Remember, an owner gets the full value of the loss while a mortgagee gets only the value of his credit. 6. Risks insured against  In order to know when the insurer is called to indemnify the insured, because if this is NOT stated, and you hold the insurer liable for any loss due to any cause whatsoever, it will result to a big loss on the part of the insurer. 7. Duration of the insurance  This period signifies the life of the policy. If the duration of insurance has already ended, it can no longer be revived. What are the kinds of insurable risks? 1) Personal risks – life or health risks 2) Property risks – loss or damage to property 3) Liability risks – involve liability of the insured for an injury caused to the person or property of another What are the requirements in order that a risk be insurable? 1) The loss to be insured against must be important enough to warrant the existence of an insurance contract 2) Risk must permit a reasonable statistical estimate of the chance of loss in order to determine the amount of premium to be paid 3) The loss should be definite as to cause, time, place and amount 4) The loss is not catastrophic 5) Risk is accidental in nature NOTE: Read sections 227, 228, and 230 for additional matters to be included in individual, group and industrial life policies.

Section 52. Cover notes may be issued to bind insurance temporarily pending the issuance of the policy. Within sixty days after the issue of the cover note, a policy shall be issued in lieu thereof, including within its terms the identical insurance bound under the cover note and the premium therefor. Cover notes may be extended or renewed beyond such sixty days with the written approval of the Commissioner if he determines that such extension is not contrary to and is not for the purpose of violating any provisions of this Code. The Commissioner may promulgate rules and regulations governing such extensions for the purpose of preventing such violations and may by such rules and regulations dispense with the requirement of written approval by him in the case of extension in compliance with such rules and regulations. What are two types of preliminary contracts of insurance? The preliminary contract of present insurance and the preliminary executory contract of insurance.

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What is a preliminary contract of present insurance? By a preliminary contract of insurance, the insurer insures the subject matter usually by what is known as a “binding slip” or “binder” or “cover note” which is the contract to be effective until the formal policy is issued or the risk is rejected. What is a cover note? The cover not is merely a written memorandum of the most important terms of the preliminary contract of insurane, intended to give temporary protection pending the investigation of the risk by the insurer, or until the issuance of a formal policy, provided that it is later determined that the applicant was insurable at the time it was given. By its nature, it is subject to all conditions in the policy expected even though that policy may never issue. In life insurance, where an agreement is made between an applicant and the insurers’ agent, no liability shall attach until the insurer approves the risk. Thus, in life insurance, a binding slip or binding receipt DOES NOT insure itself. Can you explain a preliminary executory contract of insurance? By a preliminary executory contract of insurance, the insurer makes a contract to insure the subject matter at some subsequent time which may be definite or indefinite. Under such an executory contract, the right acquired by the insured is merely to demand the delivery of the policy in accordance with the terms agreed upon and the obligation assumed by the insurer is to deliver the said policy. What are the rules governing cover notes? 1) Insurance companies doing business in the Philippines may issue cover notes to bind insurance temporarily pending the issuance of the policy 2) A cover not shall e deemed to be a contract of insurance within the meaning of Sec. 1(1) of IC. 3) NO cover note shall be issued or renewed unless in the form previously approved by the Insurance Commission.

4)

A cover not shall be valid and binding for a period NOT exceeding 60 days from the date of its issuance, whether or not the premium therefore has been paid or not, BUT such cover note may be canceled by either party upon at least 7 days notice to the other party.

5) If a cover not is not so canceled, a policy of insurance shall, within 60 days after the issuance of the cover not be issued in lieu thereof. Such policy shall include within its terms the identical insurance bound under the cover note and the premiums therefore. 6) A cover note may be extended or renewed beyond the aforementioned period of 60 days with the written approval of the Insurance Commissioner, provided that such written approval may be dispensed with upon the certification of the Pres, VP or General Mgr of the Insurance company concerned, that the risks involved, the values of such risks, and the premiums therefore have not as yet been determined or established and that such extension or renewal is NOT contrary to and is not for the purpose of violating any provision of the IC. 7) The insurance companies may impose on cover notes a deposit premium equivalent to at least 25% of the estimated premium of the intended insurance coverage but in no case less than P500. Cases: (80) Lim v. Sun Life 41 PHIL 263 Facts:  On July 6, 1917, Luis Lim Y Garcia of Zamboanga applied for a policy of life insurance with Sunlife in the amount of 5T.  He designated his wife Pilar Lim as the beneficiary. The first premium of P433 was paid by Lim and company issued a “provisional policy”

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Such policy contained the following provisions “xx the abovementioned life is to be assured in accordance with the terms and conditions contained or inserted by the Company in the policy which may be granted by it in this particular case for 4 months only from the date of the application, PROVIDED that the company shall confirm this agreement by issuing a policy on said application xxx. Should the company NOT issue such a policy, then this agreement shall be null and void ab initio and the Company shall be held not to have been on the risk at all, but in such case, the amount herein shall be returned. Lim died on Aug. 23, 1917 after the issuance of the provisional policy but before the approval of the application by the home office of the insurance company. The instant action is brought by the beneficiary to recover from Sun Life the sum of 5T.

Issue: WON the beneficiary can collect the 5T. Held: NO. The contract of insurance was not consummated by the parties. The above quoted agreement clearly stated that the agreement should NOT go into effect until the home office of the Company shall confirm it by issuing a policy. It was nothing but an acknowledgment by the Company that it has received a sum of money agreed upon as the first year’s premium upon a policy to be issued upon the application if it is accepted by the Company. When an agreement is made between the applicant and the agent whether by signing an application containing such condition or otherwise, that no liability shall attach until the principal approves the risk and a receipt is given by the agent, such acceptance is merely conditional and is subordinated to the company’s act in approving or rejecting; so in life insurance a “binding slip or receipt” does not insure itself.

(81) Grepalife v. CA 89 SCRA 543 Facts:

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On March 14, 1957, respondent Ngo Hing filed an application with Grepalife for a 20-yr endowment policy for 50T on the life of his one year old daughter Helen Go. All the essential data regarding Helen was supplied by Ngo to Lapu-Lapu Mondragon, the branch manager of Grepalife-Cebu. Mondragon then typed the data on the application form which was later signed by Ngo.

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Ngo then paid the insurance premium and a binding deposit receipt was issued to him. The binding receipt contained the following provision: “If the applicant shall not have been insurable xxx and the Company declines to approve the application, the insurance applied for shall not have been in force at any time and the sum paid shall be returned to the applicant upon the surrender of this receipt.”

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Mondragon wrote on the bottom of the application form his strong recommendation for the approval of the insurance application.

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On Apr 30, 1957, Mondragon received a letter from Grepalife Main office disapproving the insurance application of Ngo for the simple reason that the 20yr endowment plan is not available for minors below 7 yrs old. Mondragon wrote back the main office again strongly recommending the approval of the endowment plan on the life of Helen, adding that Grepalife was the only insurance company NOT selling endowment plans to children. On may 1957, Helen died of influenza with complication of broncho pneumonia. Ngo filed a claim with Gepalife, but the latter denied liability on the ground that there was no contract between the insurer and the insured and a binding receipt is NOT evidence of such contract.

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Issue: WON the binding deposit receipt, constituted a temporary contract of life insurance. Held: NO. The binding receipt in question was merely an acknowledgement on behalf of the company, that the latter’s branch office had received from the applicant, the insurance premium and had accepted the application subject for processing by the insurance company, and that the latter will either approve or reject the same on the basis of whether or not the applicant is insurable on standard rates.

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Since Grepalife disapproved the insurance application of Ngo, the binding deposit receipt had never became on force at any time, pursuant to par. E of the said receipt. A binding receipt is manifestly merely conditional and does NOT insure outright. Where an agreement is made between the applicant and the agent, NO liability shall attach until the principal approves the risk and a receipt is given by the agent. The acceptance is merely conditional, and is subordinated to the act of the company in approving or rejecting the application. Thus in life insurance, a binding slip or binding receipt does NOT insure by itself. (82) Pacific Timber v. CA 112 SCRA 199 Facts:

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On March 13, 1963, Pacific secured temporary insurance from the Workemen’s Insurance Co. for its exportation of logs to Japan. Workmen issued on said date Cover Note 1010 insuring said cargo. The regular marine policies were issued by the company in favor of Pacific on Apr 2, 1963. The 2 marine policies bore the number 53H01032 and 53H01033. After the issuance of the cover note but BEFORE the issuance of the 2 policies, some of the logs intended to be exported were lost due to a typhoon. Pacific filed its claim with the company, but the latter refused, contending that said loss may not be considered as covered under the cover note because such became null and void by virtue of the issuance of the marine policies.

Issue: WON the cover not was without consideration, thus null and void. Held: It was with consideration. SC upheld Pacific’s contention that said cover not was with consideration. The fact that no separate premium was paid on the cover note before the loss was insured against occurred does not militate against the validity of Pacific’s contention, for no such premium could have been paid, since by the nature of the cover note, it did not contain, as all cover notes do not contain, particulars of the shipment that would serve as basis for the computation of the premiums. As a logical consequence, no separate premiums are required to be paid on a cover note. If the note is to be treated as a separate policy instead of integrating it to the regular policies subsequently issued, its purpose would be meaningless for it is in a real sense a contract, not a mere application. (83) Gloria v. Philamlife Insurance Co. 73 OG 8660 Facts:  In 1966, Roberto Narito applied for a 100T life insurance policy with Philamlife Insurance Company. Narito was examined by Dra. Vergel de dios, the insurer’s medical examiner.  She opined that Narito was insurable. Her opinion was confirmed by Dr. Orobia, the Associate Medical Director of the insurer.  On Oc. 31, 1966, an agent of the insured prepared an application for the life insurance whose annual premium was P1,178. On the same date, the application was signed by Narito.  Narito paid the first annual premium on the policy applied for. The insurer’s application form contained a so-called “Binding Receipt” which was detachable.  It is not sure whether or not Narito was given the Binding Receipt upon his payment of the first premium, but what is certain that he was handed a Cashier’s Receipt.  From the time the insured received the application form its agent on Nov. 5, 1966, up to Dec. 6, 1966, it did not take any action with regard to the controverted insurance coverage.  On Dec. 6, 1966, Narito was shot and killed. The beneficiaries submitted a claim to the insurer. After an underwriting analysis conducted by the insurer, it found out that Narito was unacceptable as an insurance risk. The claim was denied. Issue: WON the beneficiaries can claim. Held: YUP

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The application for insurance signed by the deceased contained the following stipulation: “The binding receipt must NOT be issued unless a binding deposit is paid which must be at least equal to the first full premium.” The preponderance of evidence is to the effect that the binding receipt was not issued to the deceased when he paid the company’s agent, the first annual premium of P1,178. Hence the rights of the beneficiaries and the obligation of the company have to be determined solely in the application for insurance an in the Cashier’s receipt. The application for insurance contained the following clause: “There shall be no contract of insurance unless a policy is issued on this application and the full first premium thereon actually paid.” It should be conceded that there shall be a contract of insurance once the first premium is paid and a policy is issued. There is no question that the first premium was paid. The problem is to resolve whether or not it can be said that the policy has been issued. IN this connection, what may be noted is that, in contrast to the requirement of actual payment of the premium, it was NOT required that the policy be actually issued. An assuming that no policy had indeed been issued, it should still be held that the application for insurance was approved by the company, with the actual issuance of the policy being a mere technicality. When an insurer accepts and retains the first premium for an unreasonable length of time, it should be presumed that the insurer had assumed the risk. It should therefore be liable for loss before the application is subsequently rejected. In the case at bar, the company did NOT act on the application for insurance, one way or the other, from Nov. 2 to Dec. 5, 1966, and no justification for the delay had been proven. Hence, it should be held that the application for insurance of the deceased had been approved prior to his death, although the policy had not actually been issued, for which reason, the company should be liable to the beneficiaries. (84) San Miguel Brewery v. Law Union Rock Insurance Company (repeat – case #12) 40 PHIL 674 Facts:  On Jan. 12, 1918, Dunn mortgaged a parcel of land to SMB to secure a debt of 10T.  Mortgage contract stated that Dunn was to have the property insured at his own expense, authorizing SMB to choose the insurers and to receive the proceeds thereof and retain so much of the proceeds as would cover the mortgage debt.  Dunn likewise authorized SMB to take out the insurance policy for him.  Brias, SMB’s general manager, approached Law Union for insurance to the extent of 15T upon the property. In the application, Brias stated that SMB’s interest in the property was merely that of a mortgagee.  Law Union, not wanting to issue a policy for the entire amount, issued one for P7,500 and procured another policy of equal amount from Filipinas Cia de Seguros. Both policies were issued in the name of SMB only and contained no reference to any other interests in the propty. Both policies required assignments to be approved and noted on the policy.  Premiums were paid by SMB and charged to Dunn. A year later, the policies were renewed.  In 1917, Dunn sold the property to Harding, but no assignment of the policies was made to the latter.  Property was destroyed by fire. SMB filed an action in court to recover on the policies. Harding was made a defendant because by virtue of the sale, he became the owner of the property, although the policies were issued in SMB’s name.  SMB sought to recover the proceeds to the extent of its mortgage credit with the balance to go to Harding.  Insurance Companies contended that they were not liable to Harding because their liability under the policies was limited to the insurable interests of SMB only.  SMB eventually reached a settlement with the insurance companies and was paid the balance of it’s mortgage credit. Harding was left to fend for himself. Trial court ruled against Harding. Hence the appeal. Issue: WON the insurance companies are liable to Harding for the balance of the proceeds of the 2 policies. Held: NOPE. Under the Insurance Act, the measure of insurable interest in the property is the extent to which the insured might be daminified by the loss or injury thereof. Also it is provided in the IA that the insurance shall

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be applied exclusively to the proper interest of the person in whose name it is made. Undoubtedly, SMB as the mortgagee of the property, had an insurable interest therein; but it could NOT, an any event, recover upon the two policies an amount in excess of its mortgage credit. By virtue of the Insurance Act, neither Dunn nor Harding could have recovered from the two policies. With respect to Harding, when he acquired the property, no change or assignment of the policies had been undertaken. The policies might have been worded differently so as to protect the owner, but this was not done. If the wording had been: “Payable to SMB, mortgagee, as its interests may appear, remainder to whomsoever, during the continuance of the risk, may become owner of the interest insured”, it would have proved an intention to insure the entire interest in the property, NOT merely SMB’s and would have shown to whom the money, in case of loss, should be paid. Unfortunately, this was not what was stated in the policies. If during the negotiation for the policies, the parties had agreed that even the owner’s interest would be covered by the policies, and the policies had inadvertently been written in the form in which they were eventually issued, the lower court would have been able to order that the contract be reformed to give effect to them in the sense that the parties intended to be bound. However, there is no clear and satisfactory proof that the policies failed to reflect the real agreement between the parties that would justify the reformation of these two contracts. Aside from the ruling, for what other reason did Atty. Quimson ask us to read the case of Gloria v. Philamlife? The case defined a binding receipt.

What is a binding receipt according to Glora v. Philamlife? A binding receipt or slip is ordinarily a document, slip or memorandum given to the insured, which binds the insurance company to pay insurance should a loss occur pending action upon the application and actual issuance of a policy. The purpose of a binder is to provide temporary insurance pending an inquiry by the insurer as to the character of the risk and to take the place of the policy until the latter can be issued. The issuance of a binder evidences, a complete, temporary or preliminary contract of insurance effective from that time until the issuance of the formal policy or until rejection of the risk. Under a life policy, it would establish liability upon the insurer if death occurred prior to the issuance of the policy. A binder receipt would be misnamed if it does NOT bind the insurer. If the insurer issues a binder receipt with terms which will negate, or neutralize the binding result of the receipt, then the insurer would have actually practiced fraud on the applicant for insurance.

Section 53. The 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. Recall Section 12. Section 12 provides: The interest of a 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; in which event, the nearest relative of the insured shall receive the proceeds of said insurance if not otherwise qualified. So? It is an exception to Section 53. What does Art. 2127 of the CC say? Art. 2127. The mortgage extends to the natural accession, to the improvements, growing fruits and the rents or income not yet received when the obligation becomes due, and the amount of the indemnity granted or owing to the proprietor from the insurers of the property mortgaged, or in virtue of expropriation

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for public use, with declarations, amplifications and limitations established by law, whether the estate remains in the possession of the mortgagor or it passes into the hands of a third person. Problems. A had taken out a policy on his car with the stipulation: “loss if any payable to Z, the mortgagee of the car”. The car got lost and X, the owner of the auto repair shop where the car was fixed filed a claim with the insurance company. Is X entitled to collect the cost of repair? NO. As far as the insurance company is concerned, X is not privy to the insurance contract. Even if there was a provision in the contract authorizing either A or Z to contract for repairs, this does not mean that X became entitled to claim the proceeds. In this case, the proceeds must be paid to Z, and in case Z was the one who contracted for the repairs, Z must pay X. Cases: (85) Bonifacio Bros. v. Mora 20 SCRA 262 Facts:  Enrique Mora mortgaged his Odlsmobile sedan car to HS Reyes Inc. with the condition that Mora would insure the car with HS Reyes as beneficiary.  The car was then insured with State Insurance Company and the policy delivered to Mora.  During the effectivity of the insurance contract, the car figured in an accident. The company then assigned the accident to an insurance appraiser for investigation and appraisal of the damage.  Mora without the knowledge and consent of HS Reyes, authorized Bonifacio Bros to fix the car, using materials supplied by the Ayala Auto Parts Company.

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For the cost of Labor and materials, Mora was billed P2,102.73. The bill was sent to the insurer’s appraiser. The insurance company drew a check in the amount of the insurance proceeds and entrusted the check to its appraiser for delivery to the proper party. The car was delivered to Mora without the consent of HS Reyes, and without payment to Bonifacio Bros and Ayala. Upon the theory that the insurance proceeds should be directly paid to them, Bonifacio and Ayala filed a complaint against Mora and the insurer with the municipal court for the collection of P2,102.73. The insurance company filed its answer with a counterclaim for interpleader, requiring Bonifacio and HS Reyes to interplead in order to determine who has a better right to the proceeds.

Issue: WON there is privity of contract between Bonficacio and Ayala on one hand and State Insurance on the other. Held: NONE. It is fundamental that contracts take effect only between the parties thereto, except in some specific instance provided by law where the contract contains some stipulation in favor of a third person. Such stipulation is known as a stipulation pour autrui; or a provision in favor of a third person not a party to the contract. Under this doctrine, a third person is allowed to avail himself of a benefit granted to him by the terms of the contract, provided that the contracting parties have clearly and deliberately conferred a favor upon such person. Consequently, a third person NOT a party to the contract has NO action against the aprties thereto, and cannot generally demand the enforcement of the same. The question of whether a third person has an enforceable interest in a contract must be settled by determining whether the contracting parties intended to tender him such an interest by deliberately inserting terms in their agreement with the avowed purpose of conferring favor upon such third person. IN this connection, this court has laid down the rule that the fairest test to determine whether the interest of a 3 rd person in a contract is a stipulation pour autrui or merely an incidental interest, is to rely upon the intention of the parties as disclosed by their contract. In the instant case the insurance contract does not contain any words or clauses to disclose an intent to give any benefit to any repairmen or material men in case of repair of the car in question. The parties to the

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insurance contract omitted such stipulation, which is a circumstance that supports the said conclusion. On the other hand, the "loss payable" clause of the insurance policy stipulates that "Loss, if any, is payable to H.S. Reyes, Inc." indicating that it was only the H.S. Reyes, Inc. which they intended to benefit. A policy of insurance is a distinct and independent contract between the insured and insurer, and third persons have no right either in a court of equity, or in a court of law, to the proceeds of it, unless there be some contract of trust, expressed or implied, by the insured and third person. In this case, no contract of trust, express or implied. In this case, no contract of trust, expressed or implied exists. We, therefore, agree with the trial court that no cause of action exists in favor of the appellants in so far as the proceeds of insurance are concerned. The appellant's claim, if at all, is merely equitable in nature and must be made effective through Enrique Mora who entered into a contract with the Bonifacio Bros Inc. This conclusion is deducible not only from the principle governing the operation and effect of insurance contracts in general, but is clearly covered by the express provisions of section 50 of the Insurance Act (now Sec. 53). The policy in question has been so framed that "Loss, if any, is payable to H. S. Reyes, Inc." which unmistakably shows the intention of the parties. (86) Coquia v. Fieldmen’s Insurance 26 SCRA 172 Facts:

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On Dec. 1, 1961, Fieldmen’s Insurance co. Issued in favor of the Manila Yellow Taxicab a common carrier insurance policy with a stipulation that the company shall indemnify the insured of the sums which the latter wmy be held liable for with respect to “death or bodily injury to any faire-paying passenger including the driver and conductor”.

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The policy also stated that in “the event of the death of the driver, the Company shall indemnify his personal representatives and at the Company’s option may make indemnity payable directly to the claimants or heirs of the claimants.” During the policy’s lifetime, a taxicab of the insured driven by Coquia met an accident and Coquia died. When the company refused to pay the only heirs of Coquia, his parents, they institued this complaint. The company contends that plaintiffs have no cause of action since the Coquias have no contractual relationship with the company.

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Issue: WON plaintiffs have the right to collect on the policy. Held: YES. Athough, in general, only parties to a contract may bring an action based thereon, this rule is subject to exceptions, one of which is found in the second paragraph of Article 1311 of the Civil Code of the Philippines, reading: "If a contract should contain some stipulation in favor of a third person, he may demand its fulfillment provided he communicated his acceptance to the obligor before its revocation. A mere incidental benefit or interest of a person is not sufficient. The contracting parties must have clearly and deliberately conferred a favor upon a third person." This is but the restatement of a well-known principle concerning contracts pour autrui, the enforcement of which may be demanded by a third party for whose benefit it was made, although not a party to the contract, before the stipulation in his favor has been revoked by the contracting parties In the case at bar, the policy under consideration is typical of contracts pour autrui this character being made more manifest by the fact that the deceased driver paid fifty percent (50%) of the corresponding premiums, which were deducted from his weekly commissions. Under these conditions, it is clear that the Coquias — who, admittedly, are the sole heirs of the deceased — have a direct cause of action against the Company, and, since they could have maintained this action by themselves, without the assistance of the insured it goes without saying that they could and did properly join the latter in filing the complaint herein. (87) Guingon v. Del Monte 80 SCRA 181 Facts:

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The insured owned a fleet of jeepneys. He insured the operation of his jeepneys against “accidents with third part liability” with Capital Insurance and Surety Co. One day, one of his jeepney dirivers, bumped and killed Guingon.

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An action for damages was then filed against the owner-insured, the driver and the company. The company sough to dismiss the charges against it on the ground of lack of cause of action against it.

Issue: WON there is a cause of action against the company. Held: YES. The right of a person injured to sue the insurer of the party at fault depends on whether the contract of insurance was intended to benefit third persons. The test applied here is: Where the contract provides for indemnity against liability to third persons, then third persons to whom the insured is liable, can sue the insurer. On the other hand, where the contract is for indemnity against actual loss or payment, then third persons cannot proceed against the insurer, the contract being solely to reimburse the insured for liability actually discharged by him through payment to third persons, said third persons' recourse being thus limited to the insured alone The policy in the present case, is one whereby the insurer agreed to indemnify the insured "against all sums . which the Insured shall become legally liable to pay in respect of: a. death of or bodily injury to any person . . ." Clearly, therefore, it is one for indemnity against liability from the fact then that the insured is liable to the third person, such third person is entitled to sue the insurer. Since the policy in questioned contained a stipulation pour autrui, then the insurance company must deliver the proceeds to the claimants.

(88) Del Val v. Del Val 29 Phil 535 Facts:

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Petitioners and private respondents are brothers and Sisters and are the only heirs and next of kin of Gregorio del Val who died intestate. It was found out that the deceased took out insurance on his life for the sum of 40T and made it payable to private respondents as sole beneficiary. After Gregorio’s death, Andres collected the proceeds of the policy. Of the said policy, Andres paid 18T to redeem some real property which Gregorio had sold to third persons during his lifetime. Said redemption of the property was made by Andres’ laywer in the name of Andres and the petitioners. (Accdg to Andres, said redemption in the name of Petitioners and himself was without his knowledge and that since the redemption, petitioners have been in possession of the property) Petitioners now contend that the amount of the insurance policy belonged to the estate of the deceased and not to Andres personally. Pet filed a complaint for partition of property including the insurance proceeds Andress claims that he is the sole owner of the proceeds and prayed that he be declared: Sole owner of the real property, redeemed with the use of the insurance proceeds and its remainder; Petitioners to account for the use and occupation of the premises.

Issue: WON the petitioners have a right to the insurance proceeds? Held: NOPE. The contract of life insurance is a special contract and the destination of the proceeds thereof is determined by special laws which deal exclusively with the subject. Our civil code has no provisions which relate directly and specifically to life-insurance contracts of to the destination of life-insurance proceeds that subject is regulated exclusively by the Code of Commerce. Thus, contention of petitioners that proceeds should be considered as a dontation or gift and should be included in the estate of the deceased is UNTENABLE. Since the repurchase has been made n the names of all the heirs instead of the defendant alone, petitioners claim that the property belongs to the heirs in common and not to the defendant alone. The SC held that if it is established by evidence that that was his intention and that the real estate was delivered to

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the plaintiffs with that understanding, then it is probable that their contention is correct and that they are entitled to share equally with the defendant. HOWEVER, it appears from the evidence that the conveyances were taken in the name of the plaintiffs without the knowledge and consent of Andres, or that it was not his intention to make a gift to them of real estate, when it belongs to him. (89) Insular Life. Ebrado 80 SCRA 181 Facts:  Buenaventura Ebrado was issued al life plan by Insular Company. He designated Capriona as his beneficiary, referring to her as his wife.  The insured then died and Carponia tried to claim the proceeds of the said plan.  She admitted to being only the common law wife of the insured.  Pascuala, the legal wife, also filed a claim asserting her right as the legal wife. The company then filed an action for interpleader. Issue: WON the common law wife named as beneficiary can collect the proceeds. Held: NOPE. The civil code prohibitions on donations made between persons guilty of adulterous concubinage applies to insurance contracts. On matters not specifically provided for by the Insurance Law, the general rules on Civil law shall apply. A life insurance policy is no different from a civil donation as far as the beneficiary is concerned, since both are founded on liberality. Why was the common law wife not allowed to collect the proceeds despite the fact that she was the beneficiary? Isn’t this against Sec. 53? It is true that SC went against Sec. 53. However, Sec. 53 is NOT the only provision that the SC had to consider. Art. 739 and 2012 of CC prohibit persons who are guilty of adultery or concubinage from being beneficiaries of the life insurance policies of the persons with whom they committed adultery or concubinage. If the SC used only Sec. 53, it would have gone against Art. 739 and 2012. (90) RCBC v. CA 289 SCRA 292 (1998) Facts:

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GOYU applied for credit facilities and accommodations with RCBC. After due evaluation, a credit facility in the amount of P30 million was initially granted. Upon GOYU's application increased GOYU's credit facility to P50 million, then to P90 million, and finally to P117 million

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As security for its credit facilities with RCBC, GOYU executed two REM and two CM in favor of RCBC, which were registered with the Registry of Deeds at. Under each of these four mortgage contracts, GOYU committed itself to insure the mortgaged property with an insurance company approved by RCBC, and subsequently, to endorse and deliver the insurance policies to RCBC.

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GOYU obtained in its name a total of 10 insurance policies from MICO. In February 1992, Alchester Insurance Agency, Inc., the insurance agent where GOYU obtained the Malayan insurance policies, issued nine endorsements in favor of RCBC seemingly upon instructions of GOYU On April 27, 1992, one of GOYU's factory buildings in Valenzuela was gutted by fire. Consequently, GOYU submitted its claim for indemnity.

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MICO denied the claim on the ground that the insurance policies were either attached pursuant to writs of attachments/garnishments issued by various courts or that the insurance proceeds were also claimed by other creditors of GOYU alleging better rights to the proceeds than the insured.

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GOYU filed a complaint for specific performance and damages. RCBC, one of GOYU's creditors, also filed with MICO its formal claim over the proceeds of the insurance policies, but said claims were also denied for the same reasons that AGCO denied GOYU's claims.

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However, because the endorsements do not bear the signature of any officer of GOYU, the trial court, as well as the Court of Appeals, concluded that the endorsements are defective and held that RCBC has no right over the insurance proceeds.

Issue: WON RCBC has a right over the insurance proceeds.

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Held: RCBC has a right over the insurance proceeds. It is settled that a mortgagor and a mortgagee have separate and distinct insurable interests in the same mortgaged property, such that each one of them may insure the same property for his own sole benefit. There is no question that GOYU could insure the mortgaged property for its own exclusive benefit. In the present case, although it appears that GOYU obtained the subject insurance policies naming itself as the sole payee, the intentions of the parties as shown by their contemporaneous acts, must be given due consideration in order to better serve the interest of justice and equity. It is to be noted that 9 endorsement documents were prepared by Alchester in favor of RCBC. The Court is in a quandary how Alchester could arrive at the idea of endorsing any specific insurance policy in favor of any particular beneficiary or payee other than the insured had not such named payee or beneficiary been specifically disclosed by the insured itself. It is also significant that GOYU voluntarily and purposely took the insurance policies from MICO, a sister company of RCBC, and not just from any other insurance company. Alchester would not have found out that the subject pieces of property were mortgaged to RCBC had not such information been voluntarily disclosed by GOYU itself. Had it not been for GOYU, Alchester would not have known of GOYU's intention of obtaining insurance coverage in compliance with its undertaking in the mortgage contracts with RCBC, and verify, Alchester would not have endorsed the policies to RCBC had it not been so directed by GOYU. On equitable principles, particularly on the ground of estoppel, the Court is constrained to rule in favor of mortgagor RCBC. RCBC, in good faith, relied upon the endorsement documents sent to it as this was only pursuant to the stipulation in the mortgage contracts. We find such reliance to be justified under the circumstances of the case. GOYU failed to seasonably repudiate the authority of the person or persons who prepared such endorsements. Over and above this, GOYU continued, in the meantime, to enjoy the benefits of the credit facilities extended to it by RCBC. After the occurrence of the loss insured against, it was too late for GOYU to disown the endorsements for any imagined or contrived lack of authority of Alchester to prepare and issue said endorsements. If there had not been actually an implied ratification of said endorsements by virtue of GOYU's inaction in this case, GOYU is at the very least estopped from assailing their operative effects. To permit GOYU to capitalize on its non-confirmation of these endorsements while it continued to enjoy the benefits of the credit facilities of RCBC which believed in good faith that there was due endorsement pursuant to their mortgage contracts, is to countenance grave contravention of public policy, fair dealing, good faith, and justice. Such an unjust situation, the Court cannot sanction. Under the peculiar circumstances obtaining in this case, the Court is bound to recognize RCBC's right to the proceeds of the insurance policies if not for the actual endorsement of the policies, at least on the basis of the equitable principle of estoppel. GOYU cannot seek relief under Section 53 of the Insurance Code which provides that the proceeds of insurance shall exclusively apply to the interest of the person in whose name or for whose benefit it is made. The peculiarity of the circumstances obtaining in the instant case presents a justification to take exception to the strict application of said provision, it having been sufficiently established that it was the intention of the parties to designate RCBC as the party for whose benefit the insurance policies were taken out. Consider thus the following: 1. It is undisputed that the insured pieces of property were the subject of mortgage contracts entered into between RCBC and GOYU in consideration of and for securing GOYU's credit facilities from RCBC. The mortgage contracts contained common provisions whereby GOYU, as mortgagor, undertook to have the mortgaged property properly covered against any loss by an insurance company acceptable to RCBC. 2. GOYU voluntarily procured insurance policies to cover the mortgaged property from MICO, no less than a sister company of RCBC and definitely an acceptable insurance company to RCBC. 3. Endorsement documents were prepared by MICO's underwriter, Alchester Insurance Agency, Inc., and copies thereof were sent to GOYU, MICO and RCBC. GOYU did not assail, until of late, the validity of said endorsements. 4. GOYU continued until the occurrence of the fire, to enjoy the benefits of the credit facilities extended by RCBC which was conditioned upon the endorsement of the insurance policies to be taken by GOYU to cover the mortgaged properties. This Court can not over stress the fact that upon receiving its copies of the endorsement documents prepared by Alchester, GOYU, despite the absence written conformity thereto, obviously considered said endorsement to be sufficient compliance with its obligation under the mortgage contracts since RCBC

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accordingly continued to extend the benefits of its credit facilities and GOYU continued to benefit therefrom. Just as plain too is the intention of the parties to constitute RCBC as the beneficiary of the various insurance policies obtained by GOYU. The intention of the parties will have to be given full force and effect in this particular case. The insurance proceeds may, therefore, be exclusively applied to RCBC, which under the factual circumstances of the case, is truly the person or entity for whose benefit the policies were clearly intended.

Section 54. When an insurance contract is executed with an agent or trustee as the insured, the fact that his principal or beneficiary is the real party in interest may be indicated by describing the insured as agent or trustee, or by other general words in the policy. Who may take insurance? An insurance may be taken by a person, personally or through his agent or trustee. If the insurance is taken by an agent or trustee, what must the agent or trustee do? Since the insurance is to be applied exclusively to the interest of the person in whose name and for whose benefit it is made, the agent or trustee when making an insurance contract for or on behalf of his principal should, indicate that he is merely acting in a representative capacity by signing as such agent or trustee, or by other general terms in the policy.

Section 55. To render an insurance effected by one partner or part-owner, applicable to the interest of his co-partners or other part-owners, it is necessary that the terms of the policy should be such as are applicable to the joint or common interest.

What happens when the insurance is effected by a partner or a part-owner? A partner or part-owner who insures partnership property in his own name limits the contract to his individual share UNLESS the terms of the policy clearly show that the insurance was meant to cover also the shares of the other partners.

Section 56. When the description of the insured in a policy is so general that it may comprehend any person or any class of persons, only he who can show that it was intended to include him can claim the benefit of the policy. What happens when the description of the insured is general? In order that the insurance may be applied to the interest of the person claiming the benefit of the policy, he must show that he is the person named or described or that he belongs to the class of persons comprehended in the policy. Example? If the policy is payable “to the children”, you must show that you are a child of the deceased. Not a grand-child, nor a great-grand-child.

Section 57. A policy may be so framed that it will inure to the benefit of whomsoever, during the continuance of the risk, may become the owner of the interest insured. Section 58. The mere transfer of a thing insured does not transfer the policy, but suspends it until the same person becomes the owner of both the policy and the thing insured. What is the reason behind Sec. 58? Sec. 58 follows from the well established principle that a policy is a personal contract with the insured and does NOT run with the insured property unless so expressly stipulated, and in the absence of an assignment of the policy with the insurer’s consent, the purchaser of the interest of the property requires no privity with the insurer. In reading sec. 58, take not of Sec. 19 and 20.

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Section 19. An interest in property insured must exist when the insurance takes effect, and when the loss occurs, but need not exist in the meantime; and 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. Section 20. Except in the cases specified in the next four sections, and in the cases of life, accident and health insurance, a change of interest in any part of a thing insured, unaccompanied by a corresponding change of interest in the insurance, suspends the insurance to an equivalent extent, until the interests in the thing and the interest in the insurance are vested in the same person. Problem. A borrowed 5,000 from B, and to secure payment of his obligation, he mortgaged his house to B. B then insured the house for 5T. Subsequently, B assigned his mortgage credit to X, but did not make the corresponding transfer of his right over the insurance policy. IF the house burns down, is Paul entitled to collect the insurance money as assignee-mortgagee? NO, since B did not assign his right over the insurance policy to X. A purchaser of insured property who does Not take the precaution to obtain a transfer of the policy on the insurance, cannot in case of loss, recover upon the contract, as the transfer of the property has the effect of suspending the insurance until the purchaser becomes the owner of the policy as well as the property insured. Case: (91) San Miguel v. Law Union Rock (repeat – Case # 12) 40 PHIL 674 Facts:  On Jan. 12, 1918, Dunn mortgaged a parcel of land to SMB to secure a debt of 10T.  Mortgage contract stated that Dunn was to have the property insured at his own expense, authorizing SMB to choose the insurers and to receive the proceeds thereof and retain so much of the proceeds as would cover the mortgage debt.  Dunn likewise authorized SMB to take out the insurance policy for him.  Brias, SMB’s general manager, approached Law Union for insurance to the extent of 15T upon the property. In the application, Brias stated that SMB’s interest in the property was merely that of a mortgagee.  Law Union, not wanting to issue a policy for the entire amount, issued one for P7,500 and procured another policy of equal amount from Filipinas Cia de Seguros. Both policies were issued in the name of SMB only and contained no reference to any other interests in the propty. Both policies required assignments to be approved and noted on the policy.  Premiums were paid by SMB and charged to Dunn. A year later, the policies were renewed.  In 1917, Dunn sold the property to Harding, but no assignment of the policies was made to the latter.  Property was destroyed by fire. SMB filed an action in court to recover on the policies. Harding was made a defendant because by virtue of the sale, he became the owner of the property, although the policies were issued in SMB’s name.  SMB sought to recover the proceeds to the extent of its mortgage credit with the balance to go to Harding.  Insurance Companies contended that they were not liable to Harding because their liability under the policies was limited to the insurable interests of SMB only.  SMB eventually reached a settlement with the insurance companies and was paid the balance of it’s mortgage credit. Harding was left to fend for himself. Trial court ruled against Harding. Hence the appeal. Issue: WON the insurance companies are liable to Harding for the balance of the proceeds of the 2 policies. Held: NOPE. Under the Insurance Act, the measure of insurable interest in the property is the extent to which the insured might be daminified by the loss or injury thereof. Also it is provided in the IA that the insurance shall be applied exclusively to the proper interest of the person in whose name it is made. Undoubtedly, SMB as

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the mortgagee of the property, had an insurable interest therein; but it could NOT, an any event, recover upon the two policies an amount in excess of its mortgage credit. By virtue of the Insurance Act, neither Dunn nor Harding could have recovered from the two policies. With respect to Harding, when he acquired the property, no change or assignment of the policies had been undertaken. The policies might have been worded differently so as to protect the owner, but this was not done. If the wording had been: “Payable to SMB, mortgagee, as its interests may appear, remainder to whomsoever, during the continuance of the risk, may become owner of the interest insured”, it would have proved an intention to insure the entire interest in the property, NOT merely SMB’s and would have shown to whom the money, in case of loss, should be paid. Unfortunately, this was not what was stated in the policies. If during the negotiation for the policies, the parties had agreed that even the owner’s interest would be covered by the policies, and the policies had inadvertently been written in the form in which they were eventually issued, the lower court would have been able to order that the contract be reformed to give effect to them in the sense that the parties intended to be bound. However, there is no clear and satisfactory proof that the policies failed to reflect the real agreement between the parties that would justify the reformation of these two contracts.

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