WHAT MAY BE INSURED?

 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
 As a rule, only future events may be covered by an insurance contract because of the requirement that it be “contingent or unknown.” A past event that may be
insured against is peculiar to Marine Insurance in case the loss of the vessel in the past could not have been known by ordinary means of communication.
However, no insurance can be taken for or against the drawing of any lottery, or for or against any chance or ticket in a lottery drawing a prize

A. INSURABLE INTEREST
Life Property
GR: Every person has an insurable interest in his life and health and that of his spouse and  Both insured and beneficiary must insurable interest
children (unlimited)  Limited to actual value only
 Insurable interest must exist at the time insurance takes effect and
EXN: Need for pecuniary interest (limited) when loss occurs, but need not exist in between
1. Of any person on whom he depends wholly or in part for education or support ( no  Expectation of benefit must always be with legal basis
need for legal basis), or in whom he has a pecuniary interest 1. Existing interest
2. Of any person under a legal obligation to him for the payment of money or respecting 2. Inchoate interest founded on an existing interest
property or services of which death or illness might delay or prevent performance 3. Expectancy coupled with an existing interest in that of
3. Of any person upon whose life any estate or interest vested in him depends which expectancy arises
Rules: Mortgagor and Mortgage Contracts
GR: One may insure his life and designate any beneficiary who may not need to have an  Separate and distinct insurable interest
insurable interest in the life of the insured 1. Mortgagor – value of property, still the owner and loss of
EXN: One who insures the life of another and makes himself a beneficiary must have property will not extinguish lien
insurable interest in the life of the insured. 2. Mortgage – value of debt, interest continues until debt is
paid
 Unless the interest of a person insured is susceptible of exact pecuniary measurement,  May take policies separately at same or different time
the measure of indemnity under a policy of insurance upon life or health is the sum fixed  Mortgagee may be the beneficial payee
in the policy (INSURANCE CODE, Sec. 186). Hence, when the creditor insures the life of 1. Assignee - with consent of insurer and must have insurable
his debtor, the amount of insurance is limited by the value of the obligation due. interest but if paid prior loss, it can no longer recover
 Life insurance is not a contract of indemnity, no over-insurance if he insures himself; no 2. Pledgee - without consent of insurer
subrogation  Insurance contract procured by either of the two does not inure to
 Insurable interest must exist only at the time the policy takes effect either of them, unless there is stipulation in favor of third person.
 Friendship does not suffice for relationship as basis for persons other than par a of Absence of stipulation nonetheless will entitle mortgagee a lien on
section 10; separation of spouse will not affect insurable interest which already existed at the proceeds of the policy. Any act of his, prior to the loss, which
the time policy took effect would otherwise avoid the insurance, will have the same effect,
 Designation of beneficiary is revocable during lifetime of insured, unless expressly waived although the property is in the hands of the mortgagee, but any act
or insured dies without changing the beneficiary which, under the contract of insurance, is to be performed by the
 Beneficiary who is irrevocably designated can pay premium if insured failed to pay and mortgagor, may be performed by the mortgagee therein named,
his consent is needed if insured will add more beneficiaries with the same effect as if it had been performed by the mortgagor.
 Irrevocable beneficiary revoked if guilty spouse for grounds for legal separation and void  Standard Mortgage Clause – subsequent acts of mortgagor cannot
marriage affect the rights of mortgagee
 Assignee need not have insurable interest; notice prior assignment to insurer is a valid  Open/Loss payable mortgage clause (Secs 8 and 9)
provision 1. mortgagor does not cease to be a party to the contract
 Disqualified insured: Public enemy ( international, declaration of war needed, cessation of 2. mortgagee is only a beneficiary and recognized as such by
wars will not reinstate the policy) the insurer but not a party to the contract
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 Disqualified beneficiary (Art 739, CC) – both have liberality consideration 3. covers interest mortgagee has at the issuance of policy
1. between persons who were guilty of adultery or concubinage at the time of 4. if there is loss, obligation is extinguished and no
donation subrogation because proceeds are payable to mortgagee
2. between persons found guilty of same criminal offense in consideration thereof
3. made to public officer or his wife, descendants or ascendants by reason of office Effect of Change of interest
4. The interest of a beneficiary in a life insurance policy shall be forfeited when the GR: Change in interest in any part of a thing insured
beneficiary is the principal, accomplice or accessory in willfully bringing about the unaccompanied by a corresponding change of interest in the
death of the insured. insurance suspends the insurance to an equivalent extent, until the
 Invalid designation will not avoid policy; estate becomes recipient interest in the thing and the interest in the insurance are vested in
 Insurer is liable in case of suicide after the policy has been in force for a period of two the same person
years from the time policy is issued or reinstated, unless policy provides shorter period
 Suicide in a state of insanity shall make the insurer liable regardless of date of suicide EXN:
 Incontestability clause applies only in life insurance 1. In life and health and accident insurance
 No subrogation in life insurance 2. Change of interest in the thing insured after the occurrence
of an inquiry of which results in a loss
Ex. In motor vehicle insurance, car owner who was
involved in an accident and subsequently sells the car can
still recover. But if a second accident happens without any
transfer of policy to buyer, no one can claim

3. Change of interest in one or more of several distinct things,

separately insured by one policy
Ex. In divisible contracts where a house in a compound
may be insured under one policy and premium but
separately valued.

4. Change of interest by will or succession on death of

insured
5. Transfer of interest by one of several partners, joint
owners, or owners in common, who are jointly insured to
the others
6. When a policy is so framed that it will inure to the benefit of
whomsoever, during the continuance of the risk, may
become the owner of the interest of the insured

Note: When there is an express prohibition against alienation in the policy, in

case of alienation, the contract of insurance is not merely suspended but
avoided

B. ASSUMPTION OF RISK
GR: A future even is the only event that can be covered by an insurance contract

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EXN: Past event may be covered by a marine insurance if the loss of the vessel in the past could not have been known by ordinary means of communication
C. RISK OF LOSS (Insurer may undertake devices to ascertain and control risk and loss)
Concealment Representations Warranties Conditions Exceptions
Neglect to communicate that which a party knows or ought to Factual statements made by Statements or promises by the Conditions Insuree may
know to communicate the insured at the time prior insured set forth in the policy itself precedent or exclude certain
to the issuance of the policy or incorporated in it by proper subsequent which specified risks
Rules: to give information to the reference, the untruth or insurer may that would
 Matter concealed need not be the cause of loss insurer and otherwise induce nonfulfillment of which in any impose in the otherwise be
 Refers to facts only occurring at or before the policy him to enter into the respect and without reference to policy to protect included under
becomes effective insurance contract whether the insurer was in fact himself against the general
 Must be material such that its non-disclosure misled the prejudiced by such untruth or fraudulent claims language
insurer in forming his estimates of the risks of the Rules: nonfulfillment will render the policy of loss and describing the
proposed insurance policy or in making inquiries  Written or oral voidable. attempts i.e. risks assumed
 Good faith not a defense since it may be intentional or  Affirmative or requiring
unintentional promissory Rules: immediate notice
 Opinion or judgment in good faith is not concealment  Must be material  May express, implied (marine of loss or injury
i.e. medical history being asked from non-medical  Collateral inducement insurance), affirmative, and detailed proofs
family member  VALID: false at the time promissory of loss within a
 Waiver of medical examination in non-medical made but true at the  EFFECT: Rescission unless limited period
insurance makes matters on health even more material time of effectivity loss occurs before
 Insurer estopped when accepts premium despite facts performance, performance
or information has been supplied which could be hardly becomes unlawful or
overlooked, unless there is connivance between the impossible or provision is
insured, soliciting agent and medical examiner immaterial
 Duty to conceal is with insured. The fact that the agent  Liable even if breach is not the
is aware is of no moment. cause of loss
 Agent who connives with insured is personally liable  If stipulated, breach of
since he no longer acts for the interest of the insurer immaterial provisions is
and is bound by his own acts ground for rescission
 in a marine insurance, concealment does not vitiate the Representation Warranty
entire contract, but merely exonerates the insurer from  Collateral  Part of contract
a loss resulting from the risk concealed. inducement  Written on the policy, or in
 Matter that need not be disclosed, except in inquiries  Oral or written rider or attachment
thereof  Should be  Generally conclusively
 Those which, in the exercise of ordinary care, the established to be presumed to be material
other ought to know and of which, the former has material  Fact warranted must be
no reason to suppose him ignorant  Requires to be strictly construed with
 Those of which the other waives communication; substantially true EFFECT:
 Those which the other knows;  To the return of the
 Those which prove or tend to prove the existence EFFECT: premium paid at a pro rata
of a risk excluded by a warranty, and which are  It renders the from the time of breach or if
not otherwise material; insurance contract it occurs after the inception
 Those which relate to a risk excepted from the voidable at the option of the contract; or
policy and which are not otherwise material of the insurer,  To all premiums if it is
 The nature or amount of the interest of one although the policy is broken during the inception
insured, except if he is not the owner of the not thereby rendered of the contract.

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 property insured void ab initio.  Policy is avoided ab initio
 The injured party and never became binding
entitled to rescind if there was fraud and
from the time when insured is not entitled to the
the representation return of the premium
becomes false.
 When the insurer
accepted the payment
of premium with the
knowledge of the
ground for rescission,
there is waiver of right
of rescission.

INCONTESTABILITY CLAUSE : Concealment and Misrepresentation

GR: If concealment or misrepresentation is discovered before loss or death, insurer may cancel. If discovered after, insurer may refuse to pay
EXN: Incontestability clause
1. Insurance is a life insurance policy payable on death of insured
2. In force during the lifetime of the insured for at least 2 years from date of issue or last reinstatement. The period may be shortened but cannot be extended
EXN to the EXN:
1. Person taking the insurance lacked insurable interest
2. Cause of death is an excepted risk
3. Non-payment of premiums
4. Conditions of the policy relating to military or naval service have been violated
5. Fraud is of a particularly vicious type
6. Beneficiary failed to furnish proof of death or to comply with any condition imposed by policy after the loss has happened
7. Action was not brought within the time specified
D. PREMIUM
GR: No insurance policy issued or renewed is valid and binding until the actual payment of the premium. Any agreement to the contrary is void
EXN:
1. In case of life and industrial life wherever the grace period provision applies
2. Where there is an acknowledgement in the contract or policy of insurance that the premium had already been paid
3. Agreement to pay in installments and partial payment has been made at the time of loss
4. When a credit term was agreed upon like the agreement such as 60-90 day credit term
5. Parties are barred by estoppel
Note: Authorized acknowledgement of receipt of payment of premium binds the insurer
GR: Premium by a post-dated check at a stated maturity subsequent to the loss is insufficient to put the insurance into effect if there is no credit agreement
EXN: If there is no credit agreement, payment by means of check or note, accepted by the insurer, bearing a date prior to the loss, assuming an availability of the funds
thereof, would be sufficient even if it remains unencashed at the time of the loss. Subsequent effects of encashment would retroact to the date of instrument and its
acceptance by the creditor

GR: Policy holders in life insurance shall have the policy reinstated at any time within three years from the date of default of premium payment
EXN: Cash surrender value has been duly paid to the insured or the extension period has expired, provided, there is proof of insurability and payment of overdue premiums
Note: Incontestability clause starts anew from date of reinstatement

Return of premiums

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 1. If the thing insured was never exposed to the risk insured against
2. When insurance is for a definite period and the insured surrenders his policy before the termination thereof
3. Contract is voidable and subsequently annulled under the provision of the Civil Code
4. Insurance contract is voidable due to the fraud or misrepresentation of insurer or of his agent
5. When the contract is annulled on account of the fraud or misrepresentation of the insurer or of his agent or on account of facts, or the existence of which he insured
was ignorant of without the fault
6. When by any default of the insured other than actual fraud
7. Over-insurance
8. Recission is granted due to the insurer’s breach of contract
Reinstatement – ONLY IN LIFE INSURANCE
Loss and Claims Settlement
When insurer is liable When insurer not Claim Settlement (best evidence; substantial compliance)
liable
1. Loss, the immediate 1. Insured’s Life Insurance  Proceeds must be paid immediately upon maturity of policy if maturity date is provided
cause of which is the willful act or  If policy matures by death of insured, within 60 days after presentation of claim and filing of
peril insured against gross proof of death
except where the negligence  Life insurance may be made payable (1) on the death of the person; (2) on his surviving a
proximate cause is an 2. Loss due to specified period; or otherwise (3) contingently on the continuance or cessation of life. [Sec.
excepted peril connivance of 182, Insurance Code]
2. Loss, the proximate the insured  Refusal or failure to pay the claim within the time prescribed by the Insurance Code will
cause of which is the 3. Loss where entitle the beneficiary to collect interest on the proceeds of the policy for the duration of the
peril insured against the excepted delay at the rate of twice the ceiling prescribed by the Monetary Board, unless such failure
3. Loss through peril is the or refusal to pay is based on the ground that the claim is fraudulent
negligence of insured proximate  The proceeds of the policy maturing by the death of the insured payable to the beneficiary
except where there is cause shall include the discounted value of all premiums paid in advance of their due dates but are
gross negligence not due and payable at maturity (INSURANCE CODE, Sec. 248).
amounting to willful act  Double Insurance is not prohibited by law, but may be prohibited by “other insurance clause:
4. Loss caused by efforts Requisites:
to rescue the thing from 1. Person insured is the same
peril insured against if 2. 2/more insurers insuring separately
during the rescue, the 3. Subject matter is the same
thing is exposed to a 4. Interest insured is also the same
peril not insured 5. Risk or peril insured against is the same
against, which Property Insurance  Within 30 days after proof of loss is received by insurer and ascertainment of loss or
permanently deprives damage is made by agreement or by arbitration
the insured of its  If no ascertainment is made within 60 days after receipt of proof of loss, the loss shall be
possession, in whole or paid within 90 days after such receipt
in part Prescription
GR: Stipulation for period as long as not less than 1 year from time of cause of action (denial of claim regardless of any
subsequent motion for reconsideration filed)
EXN: 10 Years if no stipulation or if period stipulated is void
Jurisdiction:
1. RTC/ IC – 5M or below for a single claim
2. RTC – above 5M