Insurable Interest Handout

7/25/2019 Insurable Interest Handout

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PERFECTION OF AN

INSURANCE CONTRACT

Binding Receipt

Cover Note

Riders

Clauses

Endorsements

POLICY OF INSURANCE

Contents

As to recovery Kinds of Policy Open,

Valued, Running)1

Who may be insurers

Insurers may be partnerships,

associations orcorporations who are dulyauthorized by the IC to engage in

insurance business - S190 to 193

ICP

2

"Insurers" do not include

"individuals" so anindividual natural person

cannot be an insurer.

3

The term "insurer" includes

the following:

(1)Professional reinsurer

- Any person, partnership,

association or corporation

that exclusively transacts in

reinsurance in the

Philippines.

4

(2) Mutual insurance companies

- Insurance companies which insureeach other

(3) Cooperatives(a) Must have sufficient capital

requirements under regulations issuedby the commission

(b) Must have a certificate of authorityissued by the commission whichshould be renewed every year

5

(4) Foreign insurancecorporations

The ICP now allows foreign insurancecorporations to conduct business in the

Philippines provided the followingrequirements are met:

(a) Appointment of resident agent to servenotices, proof of loss and summons;

(b) Unimpaired paid-up capital of P1 billion

pesos

(c) Deposit as security for policy holdersand securities to satisfy the commission;

(d) Investments should not exceed 20% ofits net worth or 20% of its capital. 6


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MUTUAL INSURANCE

COMPANY

- A cooperative enterprise where the

members are both the insurer and

insured.

- Members contribute, by a system of

premiums or assessments, to the

creation of a fund from which all

losses and liabilities are paid, and

where the profits are divided among

themselves, in proportion to their

interest.7

Certificate of authorityNo insurance company can

transact business in the

Philippines until it obtains a

certificate of authority.

It is issued by the insurance

commissioner and expires on the

last day of December,

3 years after issuance and

renewable every three years

thereafter.8

Beneficiary

Person designated to

receive the proceeds of

the policy when risk

attaches.

9

Designation of the

beneficiary

General rule -

When one insures his own life,

he may designate ANY person

as the beneficiary whether or

not the beneficiary has

insurable interest in the life of

the insured.

10

(b) Exceptions

Art. 739 in relation to Art. 2012 NCC.

i) Made between persons guilty of

adultery or concubinage at the time ofdonation,

- Actual conviction is not necessary;

ii) Between persons found guilty of thesame criminal offense or inconsideration of it;

iii) Made to a public officer, his wife,descendants, ascendants by reason ofhis office.

11

Article 2012, NCC disqualification

APPLIES to life insurance and the

insurance contract itself remains

valid, ONLY the designation of

beneficiary is VOID.

12


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Note that when the

insurance falls in the

exceptions, only thedesignation is void.

The contract itself is

binding and the proceeds

will go to the estate.

13

Forfeiture in life insurance policy

(a) The interest of a beneficiary in alife insurance policy is forfeitedwhen the beneficiary is theprincipal, accomplice or accessory

in willfully bringing about the deathof the insured, in which case, theforfeited share will be disposed inthe following order of priority:

i) other beneficiaries, unlessdisqualified;

ii) based on the stipulations in thepolicy;

iii) silent policy, estate.14

Generally revocable

The designation of a

beneficiary is revocable

unless the right to revoke

is expressly waived in the

policy.

15

Various rules in revocability

and irrevocability

i) The innocent spouse can

revoke the designation of

the guilty spouse

notwithstanding stipulated

irrevocability after legal

separation

16

ii) When the contract isIRREVOCABLE, the

insured cannot assign

the beneficiary as the

beneficiary has a vested

right.

17

iii) Without waiver of right torevoke based on Section

181 of the ICP, the

assignment of the policy is

considered as IMPLIED

REVOCATION.

18


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Effects of Irrevocable

Designation Of Beneficiary

Insured cannot:

1. Assign the policy

2. Take the cash surrender

value of the policy

3. Allow his creditors to

attach or execute on the

policy;

19



Insured cannot:

4. Add new beneficiary; or

5. Change the irrevocable

designation to revocable,

even though the change is

just and reasonable.

20



The insured does not even retain

the power to destroy the contract

by refusing to pay the premiums

for the beneficiary can protect his

interest by paying such premiums

for he has an interest in the

fulfillment of the obligation.

21

iv) If the insured refuses to

pay the premiums, the

designated irrevocable

beneficiary may continue

the policy by paying the

premium.

22

Minor as beneficiary in life insurance

(1) Who can act in behalf of minor

(a)Generally, the JUDICIAL GUARDIAN.

In the absence of a judicial guardian,

the father, mother without necessity

of a bond when the proceeds do not

exceed 500 thousand or in a

reasonable amount determined by

the commissioner.

23

SUBSTITUTE OF PARENTS

- In the absence or incapacity of

father or mother; the grandparent,

eldest brother or sister at least 18years old, or any relative who has

custody of the minor insured or

beneficiary, shall act as a guardian

without need of a court order of a

judicial appointment as guardian as

long as he is not disqualified or

incapacitated.

- Payment made by the insurer to him,

relieves the insurer of any liability. 24


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Illegitimate children as

beneficiary - The designation

of an illegitimate children as

beneficiary in a deceased

father's (perhaps, mother too)insurance policy is valid since

there is no legal prohibition

that bars

illegitimate c h i l d r e n from

b e i n g d e s i g n a t e d as

beneficiaries25

SURETYSHIP- An agreement whereby a party called

the surety, guarantees the performanceby another party, called the principal or

obligor, of an obligation or undertakingin favor of another party called theobligee.

- The liability of the surety is joint andseveral but is limited to the amount ofthe bond.

- Its terms are determined strictly by theterms of the contract of suretyship inrelation to the principal contractbetween the obligor and the obligee. 26

SURETYSHIP- American Home Insurance Co. of New

York vs. F.F. Cruz & Co., Inc., 655

SCRA 248, August 10, 2011

- Although the contract of suretyship is, in

essence, secondary only to a valid

principal obligation, the suretys liability

to the creditor is DIRECT, PRIMARY, and

ABSOLUTE; hence, he becomes liable for

the debt and duty of another although he

possesses no direct or personal interestover the obligations nor does he receive

any benefit therefrom.27

A suretyship is different from a

contract of insurance but a

suretyship shall be deemed an

insurance contract only if made

by a surety who or which, as

such, is doing an insurance

business as defined under the

Insurance Code.

28

INSURABLE INTEREST

29

GENERAL CONCEPTAn insurable interest is one of the most

basic and essential requirements in an

insurance contract.

is that interest which a person is deemedto have in the subject matter insured,where he has a relation or connectionwith or concern in it, such that theperson will derive pecuniary benefit oradvantage from the preservation of thesubject matter insured and will sufferpecuniary loss or damage from itsdestruction, termination, or injury by thehappening of the event insured against

30


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Generally, the litmus test is

whether the person isinterested in the

preservation of the insured

life despite the insurance.

31

REASON FOR THE REQTThe existence of an insurable

interest gives a person thelegal right to insure the subject

matter of the policy ofinsurance.

Section 10 of the Insurance Code indeedprovides that every person has aninsurable interest in his own life.

Section 19 of the same code also statesthat an interest in the life or health of aperson insured must exist when theinsurance takes effect, but need notexist thereafter or when the loss occurs.

32

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 merewagering contract.

33

II IN LIFE INSURANCE

Secs. 10, 11, 12 RA 10607

34

SECTION 10 Every person has an insurable interest in the

life and health:

(a) Of himself, of his spouse and of hischildren;

(b) Of any person on whom he dependswholly or in part for education or support, orin whom he has a pecuniary interest;

(c) Of any person under a legal obligation tohim for the payment of money, or respectingproperty or services, of which death orillness might delay or prevent theperformance; and

(d) Of any person upon whose life any estateor interest vested in him depends. 35

The codal provision can be

categorized as follows:

(a) Mere relationship:

- in the first enumeration.

(b) Pecuniary interest:

- last three enumeration.

- Hence, the interest of the

creditor over the life of the debtor

ceases upon full payment.

36


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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.37

Person insuring life of

another

If a person will insure thelife of another payable to

himself, he must have

insurable interest on the

life of the person whose

life he is insuring.

38

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

affectionwith A as a beneficiary.

Which of the two insurances, ifany, is valid and which, if any, is

void? 39

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 it goes without saying that

one has an insurable interest inhis own life and health.

40

ON the other hand, theinsurance taken by A on the life

of Y is VOID because love and

affection for the insuredon the

part of the person insuring is

NOT sufficient ground to qualify

as insurable interest.

41

The requirement of insurable interestto support a contract of insurance isbased upon consideration of publicpolicy which renders wager policies

INVALID. To sustain a contract of thischaracter it must appear that there isa real concern in the life of the partywhose death would be the cause ofsubstantial loss to those who arenamed as a beneficiary.

Mere relationship of uncle andnephew, employer and employee isNOT sufficient to provide an insurableinterest on the life of the insured.

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Friendship or a dating relationship

is not an insurable interest in life

insurance.

A person has insurable interestover the life of another only if he

has a pecuniary interest over the

life of such person except if the

person is his spouse or child.

43

A parent can insure the life

of his child who is no longer

a minor or married since

insurable interest over thelife of one's children is

unqualified and imposes no

distinction to a minor or

married child.

44

A husband or wife can recover

the insurance upon the death of

the spouse if he or she is the

designated beneficiary since

one has insurable interest over

the life of one's spouse and it

only needs to exist when the

contract takes effect.

45

A decree of legal

separation does not divest

insurable interest a spouse

had over the other spouse

so one can still claim the

insurance proceeds as

insurable interest needs

only to exist upon

perfection.

46

When a creditor took out a

life insurance over his

debtor, he cannot recover

anymore when his debt hasbeen paid in full since he has

no insurable interest by

then;

on partial payment, the insurer

is liable to the outstanding

credit.

47

The heirs of a debtor

whose life has beeninsured by the creditor

do not have any

insurance claim as there

is no privity of contract

between them and the

insurer.48


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There can be recovery of

insurance in case a husband who

took it, when the policy took

effect and when his wife died a

few days after their annulmentsince this is a life insurance so

insurable interest only needs to

exist at the time it takes effect

and need not exist thereafter.

Hence, subsequent annulment is

no bar to recovery.

49

Philamcare Health System vs. Court

of Appeals, 379 SCRA 356, 2002;

Lalican vs. Insular Life Assurance

Company Ltd, 597 SCRA 159,

2009;

El Oriente Fabrica de Tabacos vs.

Posada, 56 Phil 147, 1931

50

Section 12The 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, theNEAREST RELATIVE of the insured

shall receive the proceeds of said

insurance if not otherwise qualified.

51

Who are the n r str l tiv s

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)

52

1. The legitimate children;

2. The father and mother, if living;

3. The grandfather and grandmother; orascendants 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 shallbe entitled to receive the insuranceproceeds. 53

ED, BK & OI are all creditors of B. All

three are instituted as beneficiaries of

B.

ED fails to qualify since she is Bs

concubine. BK on the other hand, eagerto claim the insurance proceeds, killed

B. OI now claims the proceeds of the

insurance. However, her claim is

opposed by BB, Bs legitimate daughter

who contends that according to Sec. 12,

it is the nearest relative who should get

the proceeds, meaning her.

Between BB and OI, who is entitled to

get the proceeds? 54


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OI gets the proceeds because it

was stipulated in the contract of

insurance. Remember that the

insurance contract is the law

between the parties and hence itmust 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.

55

II IN PROPERTY INSURANCE

Secs. 13 to 18 RA 10607

56

SECTION 13

Every interest in property,whether real or personal, orany relation thereto, orliability in respect thereof, ofsuch nature that acontemplated peril might

directly damnify the insured,is an insurable interest.

57

SECTION 14

An insurable interest in propertymay consist in:

(a) An existing interest;

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

(c) An expectancy, coupledwith an existing interest in that

out of which the expectancyarises.

58

SECTION 15

A carrier or depository ofany 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.

59

ProblemM/V Mary Jane, a common carrier, insured

Peter Parkers goods, valued at 1M with

AmAY Insurance Company for 2M. Thevessel was hit by lightning, caught fire, and

sank. Mary Jane is now claiming 2M from

AmAY because the policy stated that the

loss due to lightning is compensable. AmAY

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.60


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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.61

SECTION 16

A mere contingent or

expectant interest inanything, not founded on

an actual right to the thing,

nor upon any valid contract

for it, is not insurable.

62

SECTION 17

The measure of an

insurable interest in

property is the extent to

which the insured might be

damnified by loss or injury

thereof.

63

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

100K and not 120K because

it is against public policy to

profit from a loss.64

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 80K.

Anything that reduces or

diminishes the loss, reduces

and diminished the amount

which the insurer is bound to

pay. Hence the insurer is liable

for 20K. 65

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 paidupon deliver of the house on Aug. 13,

xxxx. A finished the house on July 13,

xxxx 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?

66


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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 thehouse 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.

67

SECTION 18

No contract or policy of

insurance on propertyshall be enforceableexcept for the benefit ofsome person having aninsurable interest in theproperty insured.

68

Simplified, the provision states

that ------

NO insurable interest

= NO contract of

Insurance.

69

Kinds of II in PropertyWhat does insurable interest in

property consist?

Insurable interest in property is

any interest therein, or liability in

respect thereof, and it may

consist in an existing interest, an

inchoate interest founded on an

existing interest, or anyexpectancy coupled with an

existing interest. 70

Examples of Insurable

Interest in Property

Existing Interest May be legal title or

equitable title (e.g.

Trustee/Mortgagor/Lesso

r/Mortgagee)

71

Insurable interest in property need

not be an existing interest. It can

exist as an inchoate or expectant

interest. Inchoate Interest* - Stockholders

inchoate interest in properties of the

corporation

* Inchoatea legal right or entitlement

that is only partial and incomplete,

which may later develop into a full

property right.

72


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However, the expectancy must be

coupled with an existing

interest in which such

expectancy arises.

Example.

An owner of a business can

insure against a contingency

which may cause loss of profits

resulting from the cessation or

interruption of his business.

73

Expectancy not

insurable unless coupledwith an interest in the

thing from which it shall

arise.

74

Insurable interest in

property, generally

(a) In general, a person has an

insurable interest in the property, if:

i) he derives pecuniary benefit or

advantage from its preservation;

ii) would suffer pecuniary loss, damage

or prejudice by its destruction;

iii) whether he has or has no title in it or

possession of the property.

75

(b) In property insurance,

pecuniary interest over

the property is always

necessary.

76

(c) The principle of estoppel

cannot be invoked against

the insurer because therequirement of the existence

of insurable interest in

property insurance is a

matter of public policy.

77

A person having mere right of

possession of a property can

insure its full value in his own

name, even if he is not

responsible for its safekeeping

nor paying rentals. This is

because the existence of the

thing benefits him which is

pecuniary in character.78


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An heir has no insurable

interest over properties he

will inherit because theexecution of a will do not

vest its heir, even

compulsory ones, an

insurable interest.

79

During the redemption period over

a property levied upon in an

execution sale:

- the original owner has an

insurable interest during suchperiod as he is still the owner

during that time

- the buyer has an interest over the

subject property if the property is

not redeemed since he acquires

insurable interest at time of

purchase 80

The carrier has

insurable interest over

the goods being

shipped.

81

A purchaser of goods in a

perfected contract of sale,

pending delivery already have

interest over such property

notwithstanding that the

ownership is not yet transferred

via delivery; this is because

insurable interest attaches before

actual receipt of the goods.

82

Mere hope or expectancy is

uninsurable as it must becoupled with existing

interest based on such

expectancy; and moreover,

founded on an actual right

to the thing or upon a valid

contract.

83

A depositary can insure the

things deposited to him since

he is responsible for the

property deposited to him andhe is liable in case of its

damage or destruction; thus,

this connotes insurable

interest as he will be

damnified by its loss.

84


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Gaisano Cagayan Inc. vs.

Insurance Company of

North America, GR No.

147839, June 8, 2006;Malayan Insurance Company

vs. PAP Co. (PHIL.

BRANCH). G.R. No. 200784,

August 07, 2013

85

Spouses Nilo Cha and Stella Uy

Cha vs. Court of Appeals, G.R.

No. 124520. August 18, 1997

- The lessor cannot be validly abeneficiary of a fire insurance

policy taken by a lessee over his

merchandise, and the provision

in the lease contract providing

for such automatic assignment

is void for being contrary to law

and public policy. 86

II in case of mortgaged

property

Both the mortgagor and the

mortgagee have an insurable

interest in the property

mortgaged and this interest is

separate and distinct from the

other. They may take out

separate policies at the same orseparate times.

87

Separate insurable interest

of mortgagor and mortgagee

Sec. 53 and 95, RA

10607

88

What is the extent

of the insurable

interest of the

mortgagor?

89

Mortgagor.

- Since the mortgagor is the

owner, he has insurable

interest to the extent of thevalue of the property, even

though the mortgage debt

equals (or maybe even higher)

such value; because loss of

the property will not

extinguish the debt.90


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The mortgagee may be made

the beneficial payee in the

following ways:

(a) As assignee with the

consent of owner;

(b) As pledgee without consent

of insurer;

(c) When the policy contains a

mortgage clause;

91

(d) A rider making the policy

payable to the mortgagee, as his

interest may appear, can beattached as a loss payable clause;

(e) A standard mortgage clause

containing a collateral

independent contract between

the mortgagor and the insurer,may be attached;

92

(f) When the contract,

though payable to the

mortgagor, is

PROCURED UNDER

CONTRACT to insure to

the mortgagee's

interest; hence, the

latter acquires anequitable lien.93

What is the extent of the

insurable interest of the

mortgagee?

94

Mortgagee (as insured)

- The mortgagee has an

insurable interest in themortgaged property to

the extent of the debt

secured which continues

until it is extinguished.

95

(2) A mortgagee may procure a

policy but the mortgagor pays the

premium. In this case, though the

mortgagee is the insured as heapplied for the policy, informs the

agent of his interest, pays

premiums and obtains the policy

on the assurance that it insures

him, it is a form used to insure a

mortgagor with "loss payable

clause.

96


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Sec. 8-9, RA 10607

Is it alright if both the

mortgagor and the

mortgage insure the same

property?

97

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 alonedoes 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. 98

PROBLEMA is the owner of a house worth

10K which he mortgaged to B to

secure a loan of 5K. What is the

insurable interests of each?

Insurable interest of A,

mortgagor is P10K, while the

insurable interest of B,

mortgagee is P5K.

99

PROBLEM 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 P750K. It was

totally destroyed by accidental

fire. Who may recover on the

policy?

100

B, the mortgagee mayreceive 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.

101

Supposing before the fire occurred

B had already been paid, who, if

at all, will receive the proceeds?

A will receive the proceeds. Thereason 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.

102


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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

P750K, the amount of her

credit.

103

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 theproperty.

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.104

Standard or union

mortgage clause

COMPARED TO

loss payable mortgage

clause

105

1. Acts or mortgagor

(a)Standard or union mortgage clause

- The subsequent acts of the

mortgagor do not affect the

mortgagee

(b) Loss payable mortgage clause.

- The mortgagor does not cease to be

a party to the contract.

106

(2) Nature of loss payable

clause

(a) In the policy obtained by the

mortgagor with loss payable clause in

favor of the mortgagee as his interest

may appear,

i) the mortgagee is only a beneficiary

under the contract, and recognized

as such by the insurer,

but not made a party to the contract

itself.107

(2) Nature of loss payable

clause

ii) This kind of policycovers only such

interest as the

mortgagee has at the

issuance of the policy.

108


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Both mortgagor and

mortgagee have insurable

interest over a mortgaged

property. The mortgagor, tothe extent of the value of the

house since loss will not

extinguish the loan. The

mortgagee, to the extent

that he can be damnified.

109

When the mortgagor and the

mortgagee procures

insurance contracts

independent of each other,

for their respectiveindividual benefits, the

independent contracts do

not inure to the benefit of

the other. This is because

insurance is a personal

contract. 110

The mortgagee loses

insurable interest when the

obligation of the mortgagee

have been fulfilled; he

cannot recover from the

insurance anymore since he

is not a party to the

insurance contract.

111

When a property is insured

for the purpose of securing a

mortgage and the mortgage

is extinguished, the insured

cannot recover anymore as

he has no insurable interest

anymore.

112

When interest retained by

mortgagora) Codal provision, Section 8

(1) UNLESS THE POLICY OTHERWISEPROVIDES,

(a)where a mortgagor of property

effects insurance in his own name

providing that:

i) the loss shall be payable to the

mortgagee, or

ii) assigns a policy of insurance to a

mortgagee, 113


mortgagor

(b) the insurance is deemed to be upon

the interest of the mortgagor,

i) who does not cease to be a party to

the original contract, and

ii) any act of his, prior to the loss,

which would otherwise avoid the

insurance, will have the same effect,

(1) although the property is in the

hands of the mortgagee,114


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mortgagor

(c) 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.

115

Indorsed insurance to mortgagee,

cannot be garnished or levied to the

extent of debt.

-If the mortgagor takes an insurance

over the mortgaged property

endorsing the same to the mortgagee,apply Section 53 of ICP. In this case,

the insurance proceeds apply

exclusively to the person whose

benefit it was made, tersely, to the

beneficiary-mortgagee. To that end,

the insurance cannot be levied or

garnished to the extent of the debt to

the mort a ee.116

Geagonia vs. CA, February 6, 1995

RCBC vs. CA, 289 SCRA 292

117

When must insurable

interest in property exist

Sec. 19, RA 10607

An interest IN PROPERTY insured

must exist when the insurance takes

effect, AND when the loss occurs, but

need not exist in the meantime

118

In property insurance, the

insured must have

insurable interest in the

property at two points intime, both must concur or

one cannot recover:

(a)upon the perfection, and

(b)time of loss.

119

A buyer of goods have insurable

interest after perfection of sale

but before delivery because upon

perfection, equitable title isvested to the vendee which is a

sufficient basis of insurable

interest. This is regardless of the

mode of delivery as this issue is

immaterial.

120


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the original owner, in cases

where his property is

levied, he only has

insurable interest during

the redemption period over

such property and he loses

such, after that period.

121

Insurable Interest in Life

and Health

Sec. 19, RA 10607

General Rule :Must exist when the

insurance takes effect,

but need not exist

thereafter or when the

loss occurs. 122

Insurable Interest in Life

and Health

Exceptions:

1. When the insurance is taken by the

creditor on the life of the debtor, the

creditor is required to have insurable

interest not only at the contract but

also at the time of the debtorsdeath.

2. When the insurance is taken by the

employer on the life of the employee.

123

BC insured her house for

1M. At that time, she was

the owner of the house.

During the effectivity of the

policy, she sold the house

to Bill for 2M, but did not

transfer the policy. Because

of the effects of Sec. 20,the insurance was

suspended. 124

A week later, BC realized how

much she missed the house

and bought it from Bill for 3M.

The next day, the houseburned down. Is the Insurer

liable notwithstanding the

transfer of interest from BC to

Bill during the effectivity of

the policy?

125

Yes. BC 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.126


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The law says BC need not have

insurable interest in the

meantime, or during the

intervening period between the

time of effectivity of theinsurance, and the time of the

loss. Therefore, notwithstanding

the ownership of Bill during the

intervening period, as BC had

insurable interest at the two

points in time required by law,

then the insurer is liable.127

Insurable interest of

beneficiary in property, life

insurance

(1)In propertyinsurance, thebeneficiary must haveinsurable interest inthe property.

128

Insurable

interest in property

COMPARED TO

insurable

interest in life insurance

129

(1) Extent

(a)Insurable interest in lifeis unlimited, unless takenby the creditor on the lifeof the debtor.

(b) In property, it is limited

to its actual value.

130

(2) Time when insurable interest

must exist

(a) In LIFE INSURANCE, it is sufficient

that insurable interest exist at the

time the policy takes effect and need

not exist at the time of loss.

(b) In PROPERTY, it must exist at the

time the insurance takes effect AND

when loss occurs, but need not exist

in the meantime.

131

(3) Expectation of the benefit to be

derived

(a)In life, expectation of thebenefit to be derived need

not have any legal basis.

(b) In property, there must

be a legal basis.

132


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(4) As to beneficiary's interest

(a) IN LIFE INSURANCE,

i) if the insured himself secured the

policy, the beneficiary need nothave insurable interest over the

life of the insured;

ii) if the life insurance was

obtained by the beneficiary, the

latter must have insurable

interest over the life of the

insured. 133

(4) As to beneficiary's interest

(b) In property, the

beneficiary isabsolutely required to

have insurable interest

over the property.

134

Effect of change of interest

in the thing insured

READ

Sec. 20-24, 57&58, RA 10607;

Art. 1306, NCC

135

Change of Interest Sections 2024, Insurance Code

Rules when insurable interest

changes during the course of an

insurance policy

What may be transferred or

assigned:

1. Thing insured (section 20)

2. The Policy itself (section 58)3. The claim itself (section 83)

136

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,

S U S P E N D S the insurance to an

equivalent extent, until the interest in

the thing and the interest in the

insurance are vested in the same

person. 137

SECTION 21

A change in interest in athing insured, after the

occurrence of an injury

which results in a loss,

does not affect the right

of the insured to

indemnity for the loss138


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SECTION 22

A change of interest in one

or more several distinctthings, separately insured

by one policy, does not

avoid the insurance as to

the others.

139

SECTION 23

A change of interest, by will or

succession, on the death of the

insured, does not avoid an

insurance; and his interest in

the insurance passes to the

person taking his interest in the

thing insured.

140

SECTION 24

A transfer of interest by one ofseveral partners, joint owners,or owners in common, who arejointly insured, to the others,does not avoid an insuranceeven though it has been agreedthat the insurance shall cease

upon an alienation of the thinginsured.

141

SECTION 25 Every stipulation in a policy of

insurance for 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 orwagering, is void.

142

TRANSFER OF POLICY

1 Life Insurance

It can be transferred EVENWITHOUT the consent of

the insurer EXCEPT when

there is a stipulation

requiring the consent of

the insurer before transfer.

143

TRANSFER OF POLICY

2 Property insurance

It cannot be transferred

without the consent of

the insurer.

144


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TRANSFER OF POLICY

3 Casualty insurance

It cannot betransferred without

the consent of the

insurer.

145

The mere (absolute) transfer

of the thing insured DOES

NOT TRANSFER the policy,

BUT SUSPENDS IT until thesame person becomes the

owner of both the policy

and the thing insured.

146

General rule

A change in 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

interest in the thing and the

interest in the insurance arevested in the same person.

147

Exceptions(1)Life, health, accident insurance

(2) Change of interest:

(a) after occurrence of injury

resulting in loss,

(b) one or more several distinct

things which is separately

insured,(c) via will or succession upon

death of the insured148

Exceptions(3) Transfer of interest by one or

several partners, or co-owners,jointly insured, to the others;

(4) The policy is framed in a

manner that it benefits whoever is

exposed in the continuance of a

defined risk

- In this case, those who are

exposed are the owners of the

insured interest. 149

Assignee in life, property

insurance Sec. 184, RA 10607 life or health

insurance policy may pass by transfer,will or succession to ANY person,whether he has an insurable interestor not, and such person may recoverupon it whatever the insured mighthave recovered

Sec. 18, RA 10607 propertyinsurance - except for the benefit ofsome person having an insurableinterest in the property insured

150


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beneficiary and assignee of

policya) PROPERTY INSURANCE -

(1) The beneficiary andassignee must have

insurable interest.

(2) The consent of the

insurer must be secured

before the assignment.151


beneficiary and assignee of

policyb) LIFE INSURANCE

(1) If the INSURED takes the insurance

on his own life, he can designateanybody who does not have insurableinterest.

(2) If a THIRD PERSON takes the policy,the beneficiary must have insurableinterest.

(3) In case of assignment, the assigneeneed not have insurable interest.

152

An provision in a contract of

lease, making the lessee the

automatic owner of an

insurance contract procured

by the lessee is void because

it is contrary to law and public

policy. Hence, the lessee -

auto assignee (if such a term

exists), cannot recover

153

An insured, taking an insurance in

his own lifecan designate any

person as his beneficiary.

In this case, the beneficiary can

recover the entire amount,

regardless of their relationship.

Hence, when a debtor makes a

life insurance, making the

creditor the beneficiary, the

creditor can take the entireamount.

154

However, if a creditor takes

an insurance policy over

the life of his debtor, heonly has insurable interest

to the extent of his credit

and can only recover to

such extent.

155

Spouses Cha vs. CA, (August 18,1997);

Geagonia vs. CA, February 6,1995);

RCBC vs. CA (289 SCRA 292);

Gaisano Cagayan, Inc. vs.Insurance Company of NorthAmerica, G.R. No. 147839 (June 8,2006).

156


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Malayan Insurance Co., Inc.,

vs. Philippine First Insurance

Co., Inc. and Reputable

Forwarder Services, Inc., G.R.

No. 184300, July 11, 2012;

Great Pacific Life vs. Court of

Appeals, 316 SCRA 677, 1999

157

Stipulation against alienation,

effect

Freedom to stipulate applied in

insurance contracts

- When there is an EXPRESSPROHIBITION AGAINST

ALIENATION in the policy, in

case of alienation, the

contract of insurance is not

merely suspended but

AVOIDED. -Art. 1306 NCC 158

Insurable Interest Handout

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