IV.

Insurance Code
1. A group of Malaysians wanted to invest in the Philippines insurance business. After
negotiations, they agreed to
FIMA Insurance Corp. with a group of Filipino businessmen. FIMA would have a P50 M paid up
capital.
P40 M of which would come up from the Filipino group. All corporate officers would be Filipinos
and 8 out of
10-member Board of Directors would be Filipinos. Can FIMA operate an insurance business in the
Philippines?
a. No, since an insurance company must have at least P74 M paid up capital.
b. Yes, since there is substantial compliance with our nationalization laws respecting paid-up
capital and
Filipino dominated Board of Directors.
c. Yes, since FIMAs paid up capital more than meets the countrys nationalization laws.
d. No, since an insurance company should be 100% owned by Filipinos.
Answer:
a. No, since an insurance company must have at least P74 M paid up capital. (BAR 2011)
A. Concept of Insurance
1. May a member of the MILF or its breakaway group, the Abu Sayyaf, be insured with a company
licensed to do
business under the Insurance Code of the Philippines? Explain.
b) BD has a bank deposit of half a million pesos. Since the limit of the insurance coverage of the
PDIC is only
1/10 of BDs deposit, he would like some protection for the excess by taking out an insurance
against all risk
or contingencies of loss arising from any unsound or unsafe banking practices including
unforeseen adverse
effects of the continuing crisis involving the banking and financial sector in the Asian region.
Does BD have
an insurable interest within the meaning the Insurance Code of the Philippines?
Answer:
a) A member of the MILF or the Abu Sayyaf may be insured with a company licensed to do
business under the
Insurance Code of the Philippines. What is prohibited to be insured is a public enemy. A public
enemy is a citizen
or national of a country with which the Philippines is at war. Such member of the MILF or the Abu
Sayyaf is not a
citizen or national of another country, but of the Philippines.
b) Yes. BD has insurable interest in his bank deposit. In case of loss of said deposit, more
particularly to the extent of
the amount in excess of the limit covered by the PDIC Act, BD will be damnified. He will suffer
pecuniary loss of
Page | 77
P400,000, that is, his bank deposit of half a million pesos minus P100,000 which is the maximum
amount
recoverable from the PDIC. (BAR 2000)
2. What is a mutual insurance company or association?
Answer:
A mutual insurance company is a cooperative enterprise where the members are both the
insurer and the insured. In it,
the members all 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 of
their interest. (BAR
2006)

3. In return for the 20 years of faithful service of X as a house helper to Y, the latter promised to
pay P100,000 to
Xs heirs if he (X) dies in an accident by fire. X agreed. Is this an insurance contract?
a. Yes, since all the elements of an insurance contract are present.
b. Yes, since Xs services may be regarded as the consideration.
c. No, since Y actually made a conditional donation in Xs favor.
d. No, since it is in fact an innominate contract between X and Y.
Answer:
b) No, since Y actually made a conditional donation in Xs favor. (BAR 2011)
B. Elements of an Insurance Contract
C. Characteristics/Nature and General Principles of Insurance Contract
1. The Civil Code adopts the theory of cognition, while the Code of Commerce generally
recognizes the theory of
manifestation, in the perfection of contracts. How do these two theories differ?
Answer:
Under the theory of cognition, the acceptance is considered to effectively bind the offeror only
from the time it came to
his knowledge. Under the theory of manifestation, the contract is perfected at the moment when
the acceptance is
declared or made by the offeree. (BAR 1997)
2. An Insurance Contract is a contract of adhesion, which means that in resolving ambiguities in
the provision of
the insurance contract
a) The general rule is that, the insurance contract is to be interpreted strictly in accordance with
what is
written in the contract;
b) Are to be construed liberally in favor of the insured and strictly against the insurer who drafted
the
insurance policy;
c) Are to be construed strictly against the insured and liberally in favor of the insurer;
d) If there is an ambiguity in the insurance contract, this will invalidate the contract.
Answer:
b) Are to be construed liberally in favor of the insured and strictly against the insurer who drafted
the insurance policy.
(BAR 2012)
3. An insurance contract is an aleatory contract, which means that
Page | 78
a) An insurer will pay the insured equivalent to the amount of the premium;
b) The obligation of the insurer is to pay depending upon the happening of an uncertain event;
c) The insured pays a fixed premium for the duration of the policy period and the amount of the
premiums
paid to the insurer is not necessarily the same amount as what the insured will get upon the
happening of an
uncertain future event;
d) The obligation of the insurer is to pay depending upon the happening of an event that is
certain to happen.
Answer:
b) The obligation of the insurer is to pay depending upon the happening of an uncertain event.
(BAR 2012)
D. Parties to Insurance Contract
1. Insurer
1. X Company procured a group accident insurance policy for its construction employees
variously assigned to its
provincial infrastructure projects. Y Insurance Company underwrote the coverage, the premiums
of which

were paid for entirely by X Company without any employee contributions. While the policy was in
effect, five of
the covered employees perished at sea on their way to their provincial assignments. Their wives
sued Y
Insurance Company for payment of death benefits under the policy. While the suit was pending,
the wives
signed a power of attorney designating an X Company executive. PJ as their authorized
representative to enter
into a settlement with the insurance company. When a settlement was reached, PJ instructed the
insurance
company to issue a settlement check to the order of the X Company, which will undertake the
payment to the
individual claimants of their respective shares. PJ misappropriated the settlement amount and
the wives
pursued their case against Y Insurance Company. Will the suit prosper? Explain.
Answer:
Yes. The suit will prosper. Y insurance Company is liable. X Company, through its executive, PJ,
acted as agent of Y
Insurance Company. The latter is thus bound by the misconduct of its agent. It is the usual
practice in the group
insurance business that the employer-policy holder is the agent of the issuer. (BAR 2000)
2. Insured
3. Beneficiary
1. On July 1, 1979, Crispulo, married to Laura with whom he has two legitimate children, was
issued Policy No.
8008 of the Midland Life Insurance Co. on a whole-life plan for P10,000. He designated Angie, his
common-law
wife as the recoverable beneficiary. He referred to her, in his application and policy, as his wife.
Two years later, Crispulo died. Angie filed her claim for the proceeds of the policy as the
designated beneficiary
therein. The idow, Laura, also filed her claim as legal wife.
If you were the Legal Counsel for the Insurance Company, to whom would you adjudicate the
proceeds of the
insurance policy? Reason out your answer briefly.
Answer:
I would adjudicate the proceeds of the insurance policy to Laura, the legal wife. In the
appointment of beneficiary, the
New Civil Code imposed certain limitations; one of them being that the insured may not appoint,
as his beneficiary,
Page | 79
one with whom he is guilty of concubinage, at the time of designation. Since Crispulo was
married to Laura at the time
when he designate as his beneficiary his concubine Angie, with whom he was guilty of
concubinage at the time of
designation, Laura may have said designation of Angie nullified, by mere preponderance of
evidence in the same
action for nullification. There is even no need of the criminal conviction for concubinage. (Arts.
739 and 2012, N.C.C.;
Insular Life assn. Co., Ltd. v. Ebrado, Oct. 28, 1977; 80 SCRA 181) (BAR 1981)
2. On December 20, 1974, A took out a life insurance policy and named his wife B, as beneficiary.
The policy was
silent with regard to any change of beneficiary. Suspecting that B was committing adultery, A
immediately
notified the insurance company in writing that he is substituting his brother C as beneficiary in
place of B. A

died later on June 30, 1975. B claims the proceeds of the insurance policy, contending that as
designated
beneficiary, she cannot be changed without her consent, she having acquired a vested right to
the proceeds of
the policy. Decide. Give reasons for your answer.
Answer:
B cannot claim the proceeds of As life insurance policy. As action in substituting his brother C as
his beneficiary in
place of B, his wife, in his insurance policy, is valid. The insured, A, can change the beneficiary in
a policy of life
insurance, without the consent of the beneficiary. (BAR 1978)
3. Eduardo Fernandez applied for and was issued Policy No. 0777 by Atlas Life Insurance
Corporation on a
whole-life plan for P200,000. Although he was married to Clara, with whom he had 5 legitimate
children, he
designated his common-law wife, Diana Cruz, as his revocable beneficiary in the policy, and
referred to Diana
in his application and policy, as his wife. 5 years thereafter, he died. Diana immediately filed her
claim for the
proceeds of the policy as the designated beneficiary. Clara also filed her claim as legal wife. The
insurance
company filed a petition for Interpleader before the RTC of Rizal to determine who should be
entitled to the
proceeds of the policy.
If you were the judge, how would you decide the said interpleader action? Explain.
Answer:
If I were the judge, I would decide that the legal wife, Clara, be entitled to the proceeds of
insurance taken by Eduardo
Fernandez who named his common-law wife, Diana, as his revocable beneficiary, at the time
they were guilty of
concubinage. In that case, the designation of Diana is void, being prohibited by the New Civil
Code (Art. 739 and
2012). The guilt of Eduardo and Diana for concubinage may be proved by mere preponderance of
evidence in the
same action and there is no need for a criminal conviction for concubinage. (BAR 1985)
4. On October 18, 1980, P, took out a life insurance policy and named his only son Q as
beneficiary. The policy
was silent with regard to any change of beneficiary. P later learned that Q was hooked on drugs
and
immediately notified the insurance company in writing that he is substituting his sister, R, as his
beneficiary in
place of Q. P later died of advanced tuberculosis. In the application form filled up by the agent of
the insurance
company prior to the issuance of the life insurance policy by the insurance company, the agent,
without the
knowledge of P, filled in a false answer and made it appear that P was in good health. Upon Ps
death, Q
claimed the proceeds of the insurance policy contending that as designated beneficiary, he
cannot be changed
without his consent, he having acquired a vested right to the proceeds of the policy.
a) Is Qs contention correct? Reasons.
Answer:
a) No, the designation of the beneficiary is revocable unless the right to revoke is waived. (BAR
1988)
Page | 80

5. Juan de la Cruz was issued Policy No. 8888 of the midland Life Insurance Co. On a whole life
plan for P20,000
on August 19, 1989. Juan de la Cruz is married to Cynthia with whom he has three legitimate
children. He,
however, designated Purita, his common-law-wife, as the revocable beneficiary. Juan de la Cruz
referred to
Purita in his application and policy as the legal wife.
3 years later, Juan de la Cruz died. Purita filed her claim for the proceeds of the policy as the
designated
beneficiary therein. The widow, Cynthia, also filed a claim as the legal wife. To whom should the
proceeds of
the insurance policy be awarded?
Answer:
The proceeds of the insurance policy shall be awarded to the estate of Juan. Purita, the commonlaw wife, is
disqualified as the beneficiary of the deceased because of illicit relation between the deceased
and Purita, the
designated beneficiary. Due to such illicit relation, Purita cannot be a donee of the deceased.
Hence, she cannot also be
his beneficiary. (BAR 1998)
6. Jacob obtained a life insurance policy for P1 M designating irrevocably Diwata, a friend, as his
beneficiary,
Jacob, however, changed his mind and wants Yob and Jojo, his other friends, to be included as
beneficiaries
considering that the proceeds of the policy are sufficient for the three friends.
Can Jacob still add Yob and Jojo as his beneficiaries? Explain.
Answer:
The insured cannot add other beneficiaries as this would diminish the interest of Diwata who is
the irrevocably
designated beneficiary. The insured can only do so with the consent of Diwata. (BAR 2005)
7. What are the effects of an irrevocable designation of a beneficiary under the Insurance Code?
Explain.
Answer:
The irrevocable beneficiary has a vested interest in the policy, including its incident such as the
policy loan and cash
surrender value. (BAR 2005)
8. On January 1, 2000, Antonio Rivera secured a life insurance from SOS Insurance Corp. for P1 M
with Gemma
Rivera, his adopted daughter, as the beneficiary. Antonio Rivera died on March 4, 2005 and in the
police
investigation, it was ascertained that Gemma Rivera participated as an accessory in the killing of
Antonio
Rivera. Can SOS Insurance Corp. avoid liability by setting up as a defense the participation of
Gemma Rivera
in the killing of Antonio Rivera? Discuss with reasons.
Answer:
SOS cannot avoid liability under the policy. While Gemmas interest as beneficiary in the policy is
considered
forfeited since she is an accessory to the killing of Antonio, the proceeds of the policy should be
paid to the nearest
relative of Antonio (if not otherwise disqualified). The Insurance Code provides that 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 disqualified. (BAR 2008)

9. X is the common law wife of Y. Y loves X so much that he took out a life insurance on his own
life and made her
the sole beneficiary. Y did this to ensure that X will be financially comfortable when he is gone.
Upon the death
of Y
Page | 81
a) X as sole beneficiary under the life insurance policy on the life of Y will be entitled to the
proceeds of the life
insurance;
b) Despite the designation of X as the sole beneficiary, the proceeds of the life insurance will go
to the estate of
Y;
c) The proceeds of the life insurance will go to the compulsory heirs of Y;
d) The proceeds of the life insurance will be divided equally amongst X and the compulsory heirs
of Y.
Answer:
b) Despite the designation of X as the sole beneficiary, the proceeds of the life insurance will go
to the estate of Y;
(BAR 2012)
E. Classes
1. Marine
a. Coverage
b. Implied Warranties
1. What warranties are implied in marine insurance?
Answer:
The following warranties are implied in marine insurance:
1. That the ship is seaworthy to make the voyage and/or to take in certain cargoes;
2. That the ship shall not deviate from the voyage insured;
3. That the ship shall carry the necessary documents to show nationality or neutrality and that it
will not carry
document which will cast reasonable suspicion thereon;
4. That the ship shall not carry contraband, especially if it is making voyage through belligerent
waters. (BAR
2000)
2. Paolo, the owner of an ocean-going vessel, offered to transport the logs of Constantino from
Manila to Nagoya.
Constantino accepted the offer, not knowing that the vessel was manned by an irresponsible
crew with deepseated
resentments against Paolo, their employer.
Constantino insured the cargo of logs against both perils of the sea and barratry. The logs were
improperly
loaded on one side, thereby causing the vessel to tilt on one side. On the way to Nagoya, the
crew unbolted the
sea valve of the vessel causing water to flood the ship hold. The vessel sank.
Constantino tried to collect from the insurance company which denied liability, given the
unworthiness of both
the vessel and its crew.
Constantino countered that he was not the owner of the vessel and he could therefore not be
responsible for
conditions about which he was innocent.
Is the insurance company liable?
Answer:
Page | 82
No. the insurance company is not liable because there is an implied warranty in every marine
insurance that the ship is

seaworthy whoever is insuring the cargo, whether it be the shipowner or not. There was a breach
of warranty, because
the logs were improperly loaded and the crew was irresponsible. It is the obligation of the owner
of the cargo to look
for a reliable common carrier which keeps its vessel in seaworthy condition. (BAR 2010)
3. On October 30, 2007, M/V Pacific, a Philippine registered vessel owned by Cebu Shipping
Company (CSC), sank
on her voyage from Hong Kong to Manila. Empire Assurance Company (Empire) is the insurer of
the lost
cargoes loaded on board the vessel which were consigned to Debenhams Company. After it
indemnified
Denbenhams, Empire as subrogee filed an action for damages against CSC.
a) Assume the vessel was not seaworthy as in fact its hull had leaked, causing flooding in the
vessel. Will your
answer be the same? Explain.
b) Assume the facts in question b). Can the heirs of the 3 crew members who perished recover
from CSC?
Explain fully.
Answer:
a) No, my answer will be different. Allowing the vessel to depart on a voyage when it is not
seaworthy is a violation
of the implied warranty of seaworthiness, and thus constitutes negligence on the part of owner of
the ship and the
ship captain. The hypothecary principle in maritime commercelimiting the ship owners liability
to the amount
of insurance proceedsis not applicable when the unseaworthiness of the vessel is due to the
owners fault or
negligence.
b) Yes, the heirs of the 3 crew members perished can recover from CSC for negligence which
constitutes a quasidelict
in this case. (BAR 2008)
c. Insurable Interest
d. Perils of the Sea and Perils of the Ship
1. A marine insurance policy on a cargo states that the insurer shall be liable for losses incident
to perils of the
sea. During the voyage, seawater entered the compartment where the cargo was stored due to
the defective
drainpipe of the ship. The insured filed an action on the policy for recovery of the damages
caused to the cargo.
May the insured recover damages?
Answer:
No. the proximate cause of the damage to the cargo insured was the defective drainpipe of the
ship. This is peril of the
ship, and not peril of the sea. The defect in the drainpipe was the result of the ordinary use of the
ship. To recover
under a marine insurance policy, the proximate cause of the loss or damage must be peril of the
sea. (BAR 1998)
2. Perils of the ship, under marine insurance law, refer to loss which in the ordinary course of
events results from
a. Natural and inevitable actions of the sea.
b. Natural and ordinary actions of the sea.
c. Unnatural and inevitable actions of the sea.
d. Unnatural and ordinary actions of the sea.
Answer:
a. Natural and inevitable actions of the sea. (BAR 2011)
Page | 83

3. T Shipping, Co. insured all of its vessels with R insurance, Co. The insurance policies stated
that the insurer
shall answer for all damages due to perils of the sea. One of the insureds ship, the MV Don
Priscilla, ran
aground in the Panama Canal when its engine pipes leaked and the oil seeped into the cargo
compartment. The
leakage was caused by the extensive mileage that the ship had accumulated.
May the insurer be made to answer for the damage to the cargo and the ship?
a. Yes, because the insurance policy covered any or all damage arising from perils of the sea.
b. Yes, since there appears to have been no fault on the part of the shipowner and ship captain.
c. No, since the proximate cause of the damage was the breach of warranty of seaworthiness of
the ship.
d. No, since the proximate cause of the damage was due to ordinary usage of the ship, and thus
not due to
perils of the sea.
Answer:
d. No, since the proximate cause of the damage was due to ordinary usage of the ship, and thus
not due
to perils of the sea. (BAR 2011)
e. Concealment
f. Seaworthiness
1. A shipped 100 pieces of plywood from Davao City to Manila. He took a marine insurance policy
to insure the
shipment against loss or damage due to perils of the sea, barratry, fire, jettison, pirates and
other such perils.
When the ship left the port of Davao, the shipman in charge forgot to secure one of the
portholes, thru which
sea water seeped during the voyage, damaging the plywood. A filed a claim against the
insurance company
which refused to pay on the ground that the loss or damage was not due to a peril of the sea or
any of the risks
covered by the policy. It was admitted that the sea was reasonably calm during the voyage and
that no strong
winds or waves were encountered by the vessel.
How would you decide the case? Explain.
Answer:
I would decide in favor of the insured A because the insurer was guilty of breach of the implied
warranty of
seaworthiness. The Insurance Code provides that in every contract of marine insurance, there is
a warranty that the
ship is seaworthy at the commencement of the risk. Seaworthiness refers not only to the
structure of the ship but also
as to its being properly laden. In other words, a ship which is seaworthy for the insurance on the
ship, may, by reason
of being unfit to receive the cargo, be unseaworthy for the purpose of insurance upon the cargo.
In this case, the fact
that the porthole was not secured at the port of departure made the ship unseaworthy as far as
the cargo of plywood
was concerned. Thus, the insurer should be liable for the damage thereto although the loss was
not one due to perils
insured against. (BAR 1983)
2. Jacob, the owner of a barge, offered to transport the logs of Esau from Palawan to Manila. Esau
accepted the
offer not knowing that the barge was manned by an irresponsible crew with deep-seated
resentments against
Jacob, their employer.

Esau insured his cargo of logs against both perils of the sea and barratry.
Page | 84
The logs were improperly loaded on one side, thereby causing the barge to tilt and to navigate
on an uneven
keel. When the strong winds and high waves, normal for that season, started to pound the barge,
the crew took
advantage of the situation and unbolted the sea valves of the barge, causing sea water to come
in. the barge
sank.
When Esau tried to collect from the insurance firm, the latter stated that it could not be held
responsible
considering the unworthiness of both the barge and its crew. Esau countered that he was not the
owner of the
barge and he could not be held responsible for conditions about which he was innocent.
Is the insurance company liable? Decide with reasons.
Answer:
In marine insurance, the implied warranty of seaworthiness of the vessel applies also to the
insurance of the cargo. In
an insurance against perils of the sea, it is the responsibility of the insured rather than the
insurer to see to it that the
vessel is seaworthy. That responsibility, however, shifts to the insurer where the covered risks
include perils of the
ship. Accordingly, the insurance company in the problem can be held liable. (BAR 1986) g.
Deviation
1. On a clear weather, MV Sundo, carrying insured cargo, left the port of Manila bound for Cebu.
While at sea,
the vessel encountered a strong typhoon forcing the captain to steer the vessel to the nearest
island where it
stayed for 7 days. The vessel ran out of provisions for its passengers. Consequently, the vessel
proceeded to
Leyte to replenish its supplies.
a) Assuming that the cargo was damaged because of such deviation, who between the insurance
company and
the owner of the cargo bears the loss? Explain.
b) Under what circumstances can a vessel properly proceed to a port other than its port of
destination?
Explain.
Answer:
a) The insurance company should bear the loss. Since the deviation was caused by a strong
typhoon, it was caused by
circumstances beyond the control of the captain, and also to avoid a peril whether or not insured
against. Deviation
is therefore proper.
b) A vessel can properly proceed to a port other than its port of destination in the following
cases:
1. When caused by circumstances over which neither the master or the owner of the ship has
any control;
2. When necessary to comply with a warranty, or to avoid a peril, whether or not the peril is
insured against;
3. When made in good faith, and upon reasonable grounds of belief in the necessity to avoid
peril;
4. When made in good faith for the purpose of saving human life or relieving another vessel in
distress.
(BAR 2005)
2. On October 30, 2007, M/V Pacific, a Philippine registered vessel owned by Cebu Shipping
Company (CSC),

sank on her voyage from Hong Kong to Manila. Empire Assurance Company (Empire) is the
insurer of the lost
cargoes loaded on board the vessel which were consigned to Debenhams Company. After it
indemnified
Denbenhams, Empire as subrogee filed an action for damages against CSC.
Assume that the vessel was seaworthy. Before departing, the vesse was advised by the Japanese
Meteorological
Center that it was safe to travel to its destination. But while at sea, the vessel received a report
of a typhoon
moving within its general path. To avoid the typhoon, the vessel changed its course. However, it
was still at the
Page | 85
fringe of the typhoon when it was repeated hit by huge waves, foundered and eventually sank.
The captain and
the crew were saved except 3 who perished. Is CSC liable to Empire? Explain.
Answer:
No, CSC is not liable to Empire. The doctrine of proper deviation is applicable in this case. The
change of course made
by the vessel is proper as it was to avoid the typhoon and the huge waves which are considered
perils of the sea. (BAR
2008)
3. T, the captain of MV Don Alan, while asleep in his cabin, dreamt of an Intensity 8 earthquake
along the path of
his ship. On waking up, he immediately ordered the ship to return to port. True enough, the
earthquake and
tsunami struck 3 days later and the ship was saved. Was the deviation proper?
a) Yes, because the deviation was made in good faith and on reasonable ground for believing
that it was
necessary to avoid a peril.
b) No, because no reasonable ground for avoiding a peril existed at the time of the deviation.
c) No, because T relied merely on his supposed gift of prophecy.
d) Yes, because the deviation took place based on a reasonable belief of the captain.
Answer:
b. No, because no reasonable ground for avoiding a peril existed at the time of the deviation.
(BAR 2011)
h. Loss and Abandonment
1. An inter-island vessel, insured for P2 M against total and constructive total loss, sank in 150
ft of water one
mile off Paranaque during a typhoon. After the typhoon, the ship owner gave written notice of
abandonment of
his interest in the entire sunken ship to the insurance company. Refusing to accept the offer of
abandonment,
the insurer hired salvors to refloat the vessel at a total cost of P40,000. Because the refloated
vessel needed
repairs, the insurer issued invitations to bid for repairs. Several firms submitted separate sealed
bids ranging
from P1.2 M to P1.3 M for the complete refurbishing and/or restoration of the vessel to its original
condition.
On the basis of the following facts, the insurance company rejected the claim of the ship owner
for payment of
total loss on the ground that the ground that there was no constructive total loss.
a) Was the notice of abandonment given by the owner properly made? Reason.
b) Is the position of the insurance company as to the absence of constructive total loss well
taken? Reason.
c) Assuming that the ship owner failed to give the proper notice of abandonment, may he still
recover from the

insurer? Why?
Answer:
a) First Suggested Answer: The notice of abandonment made in writing by the insured to the
insurer was sufficient,
had the loss been a constructive total loss of the vessel, meaning more than of the value of
the vessel. (Sec. 139,
Corporation Code)
Second Suggested Answer: The notice of abandonment made in writing was not proper, since the
existence of the
constructive total loss of the vessel had not yet been determined. (Sec. 141, Insurance Code)
b) Yes, the position of the insurance company as to the absence of constructive total loss is well
taken. The sum total
of the damage to the vessel was only P1,340,000.00 (P40,000 for the salvors, and P1,300 for the
restoration of the
Page | 86
vessel to its original condition) which amount is not more than of the value of the vessel (P2
M). (Sec. 139,
Corporation Code)
c) Yes, the shipowner may still recover from the insurer, his actual loss, the amount of
P1,340,000.00 which is now
only partial loss, being not total loss. But since the said amount was already spent by the insurer
on the vessel, the
insurer is no longer liable to the shipowner, except to deliver the vessel. (BAR 1982)
2. An insurance company issued a marine insurance policy covering a shipment by sea from
Mindoro to Batangas
of 1,000 pieces of Mindoro garden stones against total loss only. The stones were loaded in two
lighters, the
first with 600 pieces and the second with 400 pieces. Because of rough seas, damage was
caused the second
lighter resulting in the loss of 325 out of the 400 pieces. The owner of the shipment filed claims
against the
insurance company on the ground of constructive total loss inasmuch as more than of the
value of the stones
had been lost in one of the lighter.
Is the insurance company liable under its policy? Why?
Answer:
The insurance company is not liable under its policy covering against total loss only the
shipment of 1,000 pieces of
Mindoro garden stones. There is no constructive total loss that can be claimed since the rule is
to be computed on
the total 1,000 pieces of Mindoro garden stones covered by the single policy coverage. (BAR
1992)
3. RC Corporation purchased from Thailand, which it intended to sell locally. Due to stormy
weather, the ship
carrying the rice became submerged in sea water and with it the rice cargo. When the cargo
arrived in Manila,
RC filed a claim for total loss with the insurer, because the rice was no longer fit for human
consumption.
Admittedly, the rice could still be used as animal feed.
Is RCs claim for total loss justified? Explain.
Answer:
Yes, RCs claim for total loss is justified. The rice, which was imported from Thailand for sale
locally, is obviously
intended for consumption by the public. The complete physical destruction of the rice is not
essential to constitute an

actual loss. Such a loss exists in this case since the rice, having been soaked in sea water and
thereby rendered unfit for
human consumption, has become totally useless for the purpose for which it was imported. (BAR
1996)
4. MV Pearly Shells, a passenger and cargo vessel, was insured for P40 M against constructive
total loss. Due to
typhoon, it sank near Palawan. Luckily, there were no casualties, only injured passengers. The
shipowner sent a
notice of abandonment of his interest over the vessel to the insurance company which then hired
professionals
to afloat the vessel for P900,000. When re-floated, the vessel needed repairs estimated at P2 M.
the insurance
company refused to pay the claim of the shipowner, stating that there was no constructive total
loss.
a) Was there constructive total loss to entitle the shipowner to recover from the insurance
company?
Explain.
b) Was it proper for the shippowner to send a notice of abandonment to the insurance company?
Explain.
Answer:
a) There was constructive total loss. When the vessel sank, it was likely that it would be totally
lost because of the
improbability of recovery.
b) It was proper for the shipowner to send a notice of abandonment to the insurance company,
because there was
reliable information of the loss of the vessel. (BAR 2005)
Page | 87
5. X Shipping Co., insured its vessel MV Don Teodoro for P100 M with ABC Insurance Co. through
T, an agent of
X Shipping. During a voyage, the vessel accidentally caught fire and suffered damages estimated
at P80 M. T
personally informed ABC Insurance that X Shipping was abandoning the ship. Later, ABC
Insurance denied X
Shippings claim for loss on the ground that a notice of abandonment through its agent was
improper. Is ABC
Insurance right?
a) Yes, since X Shipping should have ratified its agents action.
b) No, since T, as agent of X Shipping who procured the insurance, can also give notice of
abandonment for his
principal.
c) Yes, since only the agent of X Shipping relayed the fact of abandonment.
d) No, since in the first place, the damage was more than of the ships value.
Answer:
b. No, since T, as agent of X Shipping who procured the insurance, can also give notice of
abandonment for his
principal. (BAR 2011)
6. A cargo ship of X Shipping Co. ran aground off the coast of Cebu during a storm and lost all its
cargo
amounting to P50 M. the ship itself suffered damages estimated at P80 M. the cargo owners filed
a suit against
X Shipping but it invoked the doctrine of limited liability since it vessel suffered an P80 M
damage, more than
the collective value of all lost cargo. Is X Shipping correct?
a) Yes, since under the doctrine, the value of the lost cargo and the damage to the ship can be
set-off.
b) No, since each cargo owner has a separate and individual claim for damages.

c) Yes, since the extent of the ships damage was greater than that of the value of the lost cargo.
d) No, since X Shipping neither incurred a total loss nor abandoned its ship.
Answer:
d. No, since X Shipping neither incurred a total loss nor abandoned its ship. (BAR 2011)
7. For a constructive total loss to exist in marine insurance, it is required that the person insured
relinquish his
interest in the thing insured. This relinquishment must be
a) Actual.
b) Constructive first and if it fails, then actual.
c) Either actual or constructive.
d) Constructive.
Answer:
a. Actual. (BAR 2011)
i. Barratry
1. What is barratry in marine insurance?
Answer:
Barratry is any willful misconduct on the part of the master or the crew in pursuance of some
unlawful or fraudulent
purpose without the consent of the owner and to the prejudice of the interest of the owner. (BAR
2010)
Page | 88
2. Fire
a. Extent of Liability under Open Policy
1. A) Suppose that Fortune owns a house valued at P600,000 and insured the same against fire
with 3
insurance companies as follows:
X ------------------- P400,000.00
Y ------------------- P200,000.00
Z ------------------- P600,000.00
In the absence of any stipulation in the policies from which insurance company or companies
may Fortune
recover in case of fire should destroy his house completely?
b) If each of the fire insurance policies obtained by Fortune in problem (a) is a valued policy and
the value of
his house was fixed in each of the policies at P1 M, how much would Fortune recover from X if he
has
already obtained full payment on the insurance policies issued by Y and Z?
c) If each of the policies obtained by Fortune in problem (a) above is an open policy and it was
immediately
determined after the fire that the value of Fortunes house was P2.4 M, how much may he collect
from X, Y
and Z?
d) In problem (a), what is the extent of the liability of the insurance companies among
themselves?
e) Supposing in problem (a) above, Fortune was able to collect from both Y and Z, may he keep
the entire
amount he was able to collect from the said 2 insurance companies?
Explain your answer.
Answer:
a) Fortune may recover from the insurers in such order as he may select up to their concurrent
liability.
b) One Answer (assuming that the real value is P1 M):
Fortune may still recover only the balance of P200,000 from X Insurance Company since the
insured may only
recover up to the extent of his loss.
Another Answer (assuming that the real value is P600,000):

Having obtained full payment on the insurance policies issued by Y and Z, Fortune may no longer
recover from X
Insurance Company.
c) In an open policy, the insured may recover his total loss up to the amount of the insurance
coverage. Thus, the
extent of recovery would be P400,000 from X; P200,000 from Y; and P600,000 from Z.
d) In the problem (a), the insurance companies among themselves would be liable, viz:
X 4/12 of P600,000 = P200,000
Page | 89
Y 2/12 of P600,000 = P100,000
Z 6/12 of P600,000 = P300,000
e) No, he can only be indemnified for his loss, not profit thereby; hence, he must return P200,000
of the P800,000 he
was able to collect. (BAR 1990)
b. Alteration
1. On May 13, 1996, PAM, Inc. obtained a P15 M fire insurance policy from Ilocano Insurance
covering its
machineries and equipment effective for 1 year or until May 14, 1997. The policy expressly
stated that the
insured properties were located at Sanyo Precision Phils. Building, Phase III, Lots 4 and 6, Block
15, PEZA,
Rosario Cavite. Before its expiration, the policy was renewed on as is basis for another year
until May, 13,
1998. The subject properties were later transferred to Pace Factory also in PEZA. On October 12,
1997, during
the effectivity of the renewed policy, a fire broke out at the Pace Factory which totally burned the
insured
properties.
The policy forbade the removal of the insured properties unless sanctioned by Ilocano. Condition
9(c) of the
policy provides that the insurance ceases to attach as regards the property affected unless the
insured, before
the occurrence of any loss or damage, obtains the sanction of the company signified by
endorsement upon the
policy x x x (c) if the property insured is removed to any building or place other than in that
which is herein
stated to be insured. PAM claims that it has substantially complied with notifying Ilocano for the
insurance
coverage. Is Ilocano liable under the policy?
Answer:
Ilocano is not liable under the policy. With the transfer of the location of the subject properties,
without notice and
without insurers consent, after the renewal of the policy, the insured clearly committed
concealment,
misrepresentation and a breach of material warranty. The Insurance Code provides that a neglect
to communicate that
which a party knows and ought to communicate, is called concealment. A concealment entitles
the injured party to
rescind a contract of insurance in case of an alteration in the use or condition of the thing
insured. An alteration in the
use or condition of a thing insured from that to which it is limited by the policy made without the
consent of the
insurer, by means within the control of the insured, and increasing the risks, entitles the insurer
to rescind the contract
of fire insurance. (BAR 2014)
c. Friendly fire vs. Hostile fire

1. Queens Insurance Company insured X, a resident of Baguio City, against all direct loss and
damage by fire. X
lived in a house heated by a furnace. His servant built a fire in the furnace using material that
was highly
flammable. The furnace fire caused intense heat and great volumes of smoke and soot that
damaged the
furnishings in the rooms of X. when X tried to collect on the policy, Queens Insurance refused to
pay
contending that the damage is not covered by the policy, where the fire is confined within the
furnace. Decide.
Answer:
The refusal of Queens to pay is justified. The damage is not covered by the policy which only
insures against all
direct loss and damage by fire. The damage being claimed by X was caused by intense heat and
great volumes of
smoke and soot and not directly by fire. The stipulation in the policy is paramount, not being
contrary to law. (BAR
1989)
Page | 90
3. Casualty
a. Accident vs Intentional
1. In a course of a voluntary boxing content, B who had an accident insurance policy, slid and
slipped, enabling
his opponent boxer to hit him with a blow that threw him to the ropes, hitting his head against
the canvass,
causing Bs eventual death. There is nothing in the insurance contract appertaining to boxing. Is
the Insurance
Company liable? Reasons.
Answer:
The insurer is liable because the death in this case was an accident within the meaning of the
policy. It was an accident
because the insured did not expect to die by entering such contest. His slipping was accidental
and this caused him to
hit his head against the canvass, leading to his death. (BAR 1975)
2. Luis was the holder of an accident insurance policy effective November 1, 1988 to October 31,
1989. At a boxing
contest held on January 1, 1989 and sponsored by his employer, he slipped and was hit on the
face by his
opponent so he fell and his head hit one of the posts of the boxing ring. He was rendered
unconscious and was
dead on arrival at the hospital due to intracranial hemorrhage.
Can his father who is a beneficiary under said insurance policy successfully claim indemnity from
the insurance
company? Explain your answer.
Answer:
Yes, the father who is a beneficiary under the accident insurance can successfully claim
indemnity for the death of the
insured. Clearly, the proximate cause of the death was the boxing contest. Death is sustained in
a boxing contest is an
accident. (BAR 1990)
3. S Insurance Company issued a Personal Accident Policy to Bob Tan with a face value of
P500,000.
In theevening of September 5, 1992, after his birthday party, Tan was in a happy mood but not
drunk. He was
playing with his handgun, from which he previously removed the magazine. As his secretary was
watching

television, he stood in front of her and pointed the gun at her. She pushed it aside and said that it
may be
loaded. He assured her that it was not and then pointed it at his temple. The next moment, there
was an
explosion and Tan slumped to the floor lifeless.
The wife of the deceased sought payment on the policy but her claim was rejected. The
insurance company
agreed that there was no suicide. However, it was the submission of the insurance company that
there was no
accident. In support thereof, it contended (a) that there was no accident when a deliberated act
was performed
unless some additional, unexpected, independent and unforeseen happening occur which
produces or brings
about the injury or death; and (b) that the insured willfully exposed himself to needless peril and
thus removed
himself from the coverage of the insurance policy. Are the two contentions of the insurance
company tenable?
Explain.
Answer:
No. these 2 contentions of the insurance company are not tenable. The insurer is liable for injury
or death even due to
the insureds gross negligence. The fact that the insured removed the magazine from the
handgun means that the
insured did not willfully expose himself to needless peril. At most, the insured is only guilty of
negligence. (BAR
1993)
Page | 91
4. Sun-Moon Insurance issued a Personal Accident Policy to Henry Dy with a face value of
P500,000. A provision in
the policy states that the company shall not be liable in respect of bodily injury consequent
upon the insured
person attempting to commit suicide or willfully exposing himself to needless peril except in an
attempt to save
human life. 6 months later, Henry died of a bullet wound in his head. Investigation showed that
one evening
Henry was in a happy mood although he was not drunk. He was playing with his handgun from
which he had
previously removed its magazine. He pointed the gun at his sister who got scared. He assured
her it was not
loaded. He then pointed the gun at his temple and pulled the trigger. The gun fires and Henry
slumped dead on
the floor.
Henrys wife, Beverly, as the designated beneficiary, sought to collect under the policy. SunMoon rejected her
claim on the ground that the death of Henry was not accidental. Beverly sued the insurer.
Decide. Discuss fully.
Answer:
Beverly can recover the proceeds of the policy from the insurer. The death of the insured was not
due to suicide or
willful exposure to needless peril which are the excepted risks. The insureds act was purely on
act of negligence
which is covered by the policy and for which the insured got the insurance for his protection. In
fact, he removed the
magazine from the gun and when he pointed the gun to his temple he did so because he thought
that it was safe for him

to do so. He did so to assure his sister that the gun was harmless. There is none in the policy that
would relieve the
insurer of liability for the death of the insured since the death was an accident. (BAR 1995)
5. CNI insured SAM under a homeownerspolicy against claims for accidental injuries by
neighbors. SAMs minor
son, BOY, injured 3 children of POS, a neighbor, who sued SAM for damages.
SAMs lawyer was at ATT, who was paid for his services by the insurer for reporting periodically
on the case to
CNI. In one report, ATT disclosed to CNI that after his investigations, he found the injuries to the 3
children
not accidental but intentional.
SAM lost the case in court, and POS was awarded P1 M in damages which he sought to collect
from the insurer.
But CNI used ATTs report to deny the claim on the ground that the injuries to POS 3 children
were
intentional, hence excluded from the policys coverage. POS countered that CNI was stopped
from using ATTs
report because it was unethical for ATT to provide prejudicial information against his client to the
insurer,
CNI.
Who should prevail: the claimant, POS; or the insurer, CNI? Decide with reasons briefly.
Answer:
CNI is not stopped from using ATTs report because CNI, in the first place, commissioned it and
paid ATT for it. On
the other hand, ATT has no conflict of interest because SAM and CNI are on the same sidetheir
interests being
congruent with each other, namely, to oppose POS claim. It cannot be said that ATT has used
the information to the
disadvantage or prejudice of SAM.
However, in Finman General Assurance Corp. v. Court of Appeals, 213 SCRA 493 (1992), it was
explained that there
is no accident in the context of an accident policy, if it is the natural result of the insureds
voluntary act,
unaccompanied by anything unforeseen except the injury. There is no accident when a deliberate
act is performed,
unless some additional and unforeseen happening occurs that brings about the injury. This
element of deliberateness is
not clearly shown from the facts of the case, especially considering the fact that BOY is a minor,
and the injured
parties are also children. Accordingly, it is possible that CNI may not prosper. ATTs report is not
conclusive on POS
or the court. (BAR 2004)
Page | 92
4. Suretyship
5. Life
a. Incontestability Clause
1. On May 5, 1982, Juan applied for a life insurance policy with Acme Life Insurance Co. The
policy was issued to
Juan on June 30, 1982 but the date of issue, as appearing on the policy was May 15, 1982, the
date of his
application. Juan subsequently realized that some of his answers in the insurance application
were erroneous.
Accordingly, he supplied the insurance company with the correct replies. However, his letter to
the insurance
company was lost in the mails. Juan died June 1, 1984.

The insurance company now refuses to pay Juans beneficiary contending that Juan
misrepresented the state of
his health at the time of his application. Is the insurance company liable? State your reason.
Answer:
Yes. The incontestability clause that must be contained in every individual life insurance policy
refers to the date of its
issue as shown in the policy. Since the policy of life insurance had been in force during the
lifetime of the insured,
Juan, for a period of 2 years from May 15, 1982, the date of issue as shown in the policy, the
policy has become
incontestable. The insurance company can no longer prove that the policy is void ab initio or
rescindable by reason
fraudulent concealment or misrepresentation of the insured. (BAR 1984)
2. Manpower Company obtained a group life insurance policy for its employees from Phoenix
Insurance
Company. The master policy issued by Phoenix on June 1, 1986 contained a provision that
eligible employees
for insurance coverage were all full time employees of Manpower regularly working at least
30 hours per week. The policy had also an incontestable clause. Beforehand, Phoenix sent
enrollment cards to
Manpower for distribution to its eligible employees. X filled out the card which contained a
printed clause: I
request the insurance for which I may become eligible under said Group Policy. The cards were
then sent to
Phoenix and X was among the employees of Manpower who was issued a certificate of coverage
by Phoenix
On July 3, 1988, X was killed on the occasion of a robbery in their house. While processing the
claim of Xs
beneficiary, Phoenix found out that X was not an eligible employee as defined in the group policy
since he has
not been employed 30 hours a week by Manpower. Phoenix refused to pay. May Xs beneficiary
invoke the
incontestability clause against Phoenix? Reasons.
Answer:
The beneficiary of X may validly invoke the incontestability clause. If the incontestability clause
can apply even to
cases of intentional concealment and misrepresentation, there would be no cogent reason for
denying such application
where the insured had not been guilty thereof. When X filled out the card containing the printed
clause I request the
insurance for which I may become eligible under said Group Policy, it behooved the insurer to
look into the
qualifications of X whether he can thus be covered or not by the group life insurance policy. In
issuing the certificate
of coverage to X, Phoenix may, in fact, be said to have waived the 30-hour per week
requirement. (BAR 1989)
3. Atty. Roberto took out a life insurance policy from Dana Insurance Corp. (DIC) on September 1,
1989. On
August 31, 1990, Roberto died. DIC refused to pay his beneficiaries because it discovered that
Roberto had
misrepresented certain material facts in his application. The beneficiaries sued on the basis that
DIC can
contest the validity of the insurance policy only within 2 years from the date of issue and during
the lifetime of
the insured. Decide the case.
Answer:

Page | 93
I would rule in favor of the insurance company. The incontestability clause, applies only if the
policy had been in
effect for at least 2 years. The 2-year period is counted from the time the insurance becomes
effective until the death of
the insured and not thereafter. (BAR 1991)
4. On September 23, 1990, Tan took a life insurance policy from Philam. The policy was issued on
November 6,
1990. He died on April 26, 1992 of hepatoma. The insurance company denied the beneficiaries
claim and
rescinded the policy by reason of alleged misrepresentation and concealment of material facts
made by Tan in
his application. It returned the premiums paid.
The beneficiaries contend that the company had no right to rescind the contract as rescission
must be done
during the lifetime of the insured within 2 years and prior to the commencement of the action.
Is the contention of the beneficiaries tenable?
Answer:
No. The incontestability clause does not apply. The insured died within less than 2 years from the
issuance of the
policy on September 23, 1990. The insured died on April 26, 1992, or less than 2 years from
September 23, 1990.
The right of the insurer to rescind is only lost if the beneficiary has commenced an action on the
policy. There is no
such action in this case. (BAR 1994)
5. Renato was issued a life insurance policy on January 2, 1990. He concealed the fact that 3
years prior to the
issuance of his life insurance policy, he had been seeing a doctor about his heart ailment.
On March 1, 1992, Renato died of heart failure. May the heirs file a claim on the proceeds of the
life insurance
policy of Renato?
Answer:
Yes. The life insurance policy in question was issued on January 2, 1990. More than 2 years had
elapsed when Renato,
the insured, died on March 1, 1992. The incontestability clause applies. (BAR 1998)
6. The incontestability clause in a Life Insurance Policy means
a) That life insurance proceeds cannot be claimed 2 years after the death of the insured;
b) That 2 years after date of issuance or reinstatement of the life insurance policy, the insurer
cannot anymore
prove that the policy is void ab initio or rescindable by reason of fraudulent concealment or
misrepresentation of the insured;
c) That the insured can still claim from the insurance policy after 2 years even though premium is
not paid;
d) That the insured can only claim proceeds in a life insurance policy 2 years after death.
Answer:
a) That 2 years after date of issuance or reinstatement of the life insurance policy, the insurer
cannot anymore prove
that the policy is void ab initio or rescindable by reason of fraudulent concealment or
misrepresentation of the
insured. (BAR 2012)
7. X, in January 30, 2009, or 2 years before reaching the age of 65, insured his life for P20 M. for
reason unknown
to his family, he took his own life 2 days after his 65th birthday. The policy contains no excepted
risk. Which
statement is most accurate?
Page | 94

a) The insurer will be liable;

b) The insurer will not be liable;
c) The state of sanity of the insured is relevant in cases of suicide in order to hold the insurer
liable;
d) The state of sanity of the insured is irrelevant in cases of suicide in order to hold the insurer
liable.
Answer:
b) The insurer will be liable. (BAR 2012)
8. On July 3, 1993, Delia Sotero (Delia) took out a life insurance policy from Ilocos Bankers Life
Insurance
Corporation (Ilocos Life) designating Creencia Aban (Aban), her niece, as her beneficiary. Ilocos
Life issued
Policy No. 747, with a face value of P100,000, in Soteros favor on August 30, 1993, after the
requisite medical
examination and payment of the premium.
On April 10, 1996, Sotero died. Aban filed a claim for the insurance proceeds on July 9, 1996.
Ilocos Life
conducted an investigation into the claim and came out with the following findings:
1. Sotero did not personally apply for insurance coverage, as she was illiterate.
2. Sotero was sickly since 1990.
3. Sotero did not have the financial capability to pay the premium on the policy.
4. Sotero did not sign the application for insurance.
5. Aban was the one who filed the insurance application and designated herself as the
beneficiary.
For the above reasons and claiming fraud, Ilocos Life denied Abans claim on April 16, 1997, but
refunded the
premium paid on the policy.
a. May the incontestability period set in even in cases of fraud as alleged in this case?
b. Is Aban entitled to claim the proceeds under the policy?
Answer:
a) Yes. The incontestability clause is a provision in law that after a policy of life insurance made
payable on the
death of the insured shall have been in force during the lifetime of the insured for a period of 2
years from the date
of its issue or of its last reinstatement, the insurer cannot prove that the policy is void ab initio or
is rescindable by
reason of fraudulent concealment or misrepresentation of the insured or his agent.
In this case, the policy was issued on August 30, 1993, and the insured died on April 10, 1996.
The insurance
policy was thus in force for a period of 3 years, 7 months and 24 days. Considering that the
insured died after the
2-year period, Ilocos is, therefore, barred from proving that the policy is void ab initio by reason
of the insureds
fraudulent concealment or misrepresentation or want of insurable interest on the part of the
beneficiary.
b) Yes, Aban is entitled to claim the proceeds. After the 2-year period lapse, or when the insured
dies within the
period, the insurer must make good on the policy, even though the policy was obtainedby fraud,
concealment, or
misrepresentation, as in this case, when the insured did not personally apply for the policy as she
was illiterate and
that it was the beneficiary who filled up the insurance application designating herself as
beneficiary. (BAR 2014)
Page | 95
6. Compulsory Motor Vehicle Liability Insurance

1. X was riding a suburban utility vehicle (SUV) covered by a comprehensive motor vehicle
liability insurance
(CMVLI) underwritten by FastPay Insurance Company when it collided with a speeding bus owned
by RM
Travel, Inc. the collision resulted in serious injuries to X; Y, a passenger of the bus; and Z, a
pedestrian waiting
for a ride at the scene of the collision. The police report established that the bus was the
offending vehicle. The
bus had a CMVLI policy issued by Dragon Insurance Corporation, X, Y and Z jointly sued RM
Travel and
Dragon Insurance for indemnity under the Insurance Code of the Philippines. The lower court
applied the nofault
indemnity policy of the statute, dismissed the suit against RM Travel, and ordered Dragon
insurance to
pay indemnity to all three plaintiffs. Do you agree with the courts judgment? Explain.
Answer:
No. The cause of action of Y is based on the contract of carriage, while that of X and Z is based
on torts. The court
should not have dismissed the suit against RM Travel. The court should have ordered Dragon
Insurance to pay each of
X, Y, and Z to the extent of the insurance coverage, but whatever amount is agreed upon in the
policy should be
answered first by RM Travel and the succeeding amount should be paid by Dragon Insurance up
to the amount of the
insurance coverage. The excess of the claims of X, Y and Z, over and above such insurance
coverage, if any, should be
answered or paid by RM Travel. (BAR 2000)
2. As a rule, an insurance contract is consensual and voluntary. The exception in the case of:
a. Inland Marine Insurance
b. Industrial Life Insurance
c. Motor Vehicle Liability Life Insurance
d. Life Insurance
Answer:
c. Motor Vehicle Liability Life Insurance (BAR 2014)
a. No fault indemnity clause
1. Jose, driving his own car together with his wife Maria, were on their way home from their
respective offices
when a car driven by Pedro hit them from behind which was in turn hit by a gasoline tanker
driven by Mario,
causing the car of Jose to turn-turtle, thus, resulting in the death of Maria. All motor vehicles
being insured,
Jose filed his claim for the death of Maria against the NO FAULT Insurance, Section 378 of the
Insurance
Code.
Will Joses claim for the death of Maria against insurers of said three motor vehicles prosper and
up to what
amount? Reasons.
Answer:
Joses claim for the death of Maria against the insurer of said three motor vehicles will not
prosper. According to
Section 378 of the Insurance Code, Any claim for death or injury to any passenger or third-party
pursuant to the
provisions of this chapter shall be paid without necessity of proving fault or negligence of any
kind; Provided, that for
purposes of this section.
xxxx

(iii) Claim may be made against one motor vehicle only. In the case of an occupant of a vehicle,
claim shall lie against
the insurer of the vehicle in which the occupant is riding, mounting or dismounting from. Clearly,
in the instant case,
Page | 96
the NO-FAULT claim against the vehicle in which the deceased was riding is the one authorized,
but the claim against
the other vehicle will not prosper.
Jose may claim only up to an amount not exceeding P5,000.00 pursuant to par. (i), Section 378
of the Insurance Code
which provides that the total indemnity in respect to any one person shall not exceed
P5,000.00. (NOTE:
amount has been adjusted to P15,000)
If Jose includes in the claim damage for his car, will the claim prosper? Why?
Answer:
Joses claim for damages for his car will not prosper. As may be clearly gleaned from Section 378
of the Insurance
Code on NO-FAULT Insurance applies only to any claim for death or injury to any passenger or
third party. (BAR
1977)
2. X owns and operates several passenger jeepneys in Metro Manila. He entered into a contract
with Gold Mine
Insurance & Surety Co., insuring the operation of his jeepneys against accidents with thirdpartyliability.
During the effectivity of the insurance, one of his jeepneys bumped B, who had just alighted
from another
passenger jeepney whose driver unloaded passengers in the middle of the street. B suffered
bodily injury as a
consequence and filed a claim against the insurance company. The latter refused to pay on the
ground that the
driver of the jeepney from which passenger B alighted was guilty of negligence in unloading in
the middle of
the street, and that the driver of the insured operator was not at fault.
Can passenger B recover from the insurance company? Explain.
Answer:
Yes, passenger B may recover from the insurance company. The insurance covers the operation
of Xs jeepneys
against accidents with third parties; therefore, the insurance covers the liability for death or body
injuries of third
persons, like what happened to B, and the claim shall be against the insurer of the directly
offending vehicle (Xs
vehicle). Furthermore, any claim of this nature shall be paid without necessity of proving fault or
negligence of any
kind, provided that the total indemnity in respect of any person shall be in accordance as
provided under the law.
(BAR 1981)
3. Driving his car one night, A crossed an intersection as the signal light turned green. Suddenly
he saw an old
woman crossing the street just a few feet from his car. He applied his brakes immediately, but
just the same, he
hit the woman who turned out to be senile already. He brought her to the nearest hospital where
she was
confined for 3 days due to her injuries. Upon her discharge, A had to pay the hospital bill which
amounted to
P2,000 including X-rays, doctors fees and medicines.

Being covered by the compulsory liability policy required of all vehicle owners under the
Insurance Code, A
preferred the matter to his insurance company, which refused to reimburse him, claiming that
since A was not
at fault (it was admitted that he was not speeding or in any way negligent), there was no third
party liability for
which the insurance company could be liable under As policy. Is the insurance company liable to
reimburse A
for the hospital expenses? Explain.
Answer:
Yes, the insurance company is liable provided A can present the police report of the accident and
the medical report as
well as the hospital receipts. The Insurance Code has the no-fault provision imposing liability
for any claim for
death or injury to any third party under the compulsory motor vehicle liability insurance. Under
the provision, the
Page | 97
insurance company may be held liable for the maximum amount of P5,000 without necessity of
proving fault or
negligence of any kind, provided the aforementioned proofs are submitted under oath.
Note: Sec. 391 of RA No. 10607 now provides that the total indemnity in respect of any person
shall not be less than
P15,000.00. (BAR 1983)
4. (1) What do you understand by the no fault indemnity provision in the Insurance Code? What
are the rules
on claims under said provision?
Answer:
The no fault indemnity in the Insurance Code provides that any claim for death or injury to a
passenger or to a third
party should be paid without the necessity of proving fault or negligence of any kind, subject to
the following rule:
a. The total indemnity in respect of any person shall not be less than P15,000;
b. The following proofs of loss, when submitted under oath, shall be sufficient evidence to
substantiate the
claim:
b.1. Police report of accident; and
b.2.Death certificate and evidence sufficient to establish the proper payee; or
b.3. Medical report and evidence of medical or hospital disbursement in respect of which refund
is
claimed.
c. Claim may be made against one motor vehicle only. In the case of an occupant of a vehicle,
claim, shall lie
against the insurer of the vehicle in which the occupant is riding, mounting or dismounting from.
In any
other case, claim shall lie against the insurer of the directly offending vehicle. In all cases, the
right of the
party paying the claim to recover against the owner of the vehicle responsible for the accident
shall be
maintained. (BAR 1989)
5. What is your understanding of a no fault indemnity clause found in an insurance policy?
Answer:
Under the no fault indemnity clause any claim for the death or injury of any passenger or third
party shall be paid
without the necessity of proving fault or negligence of any kind. The indemnity in respect of any
one person shall not
exceed P15,000, provided they are under oath, the following proofs shall be sufficient:

a) Police report of the accident; and

b) Death certificate and evidence sufficient to establish the proper payee; or
c) Medical report and evidence of medical or hospital disbursement in respect of which refund is
claimed.
Claim may be made against one motor vehicle only. (BAR 1994)
6. While driving his car along EDSA, Cesar sideswiped Roberto, causing injuries to the latter.
Roberto sued Cesar
and the third party liability insurer for damages and/or insurance proceeds. The insurance
company moved to
dismiss the complaint, contending that the liability of Cesar has not yet been determined with
finality.
1. Is the contention of the insurer correct? Explain.
2. May the insurer be held liable with Cesar?
Answer:
1. No, the contention of the insurer is not correct. There is no need to wait for the decision of the
court determining
Cesars liability with finality before the third party liability insurer could be sued. The occurrence
of the injury to
Roberto immediately gave rise to the liability of the insurer under its policy. In other words,
where an insurance
policy insures directly against liability, the insurers liability accrues immediately upon the
occurrence of the
injury or event upon which the liability depends.
Page | 98
2. The insurer cannot be held solidarily liable with Cesar. The liability of the insurer is based on
contract while that
of Cesar is based on tort. If the insurer were solidarily liable with Cesar, it could be made to pay
more than the
amount stated in the policy. This would, however, be contrary to the principles underlying
insurance contracts. On
the other hand, if the insurer were solidarily liable with Cesar and it is made to pay only up to the
amount stated in
the insurance policy, the principles underlying solidary obligations would be violated. (BAR 1996)
7. X is a passenger of a jeepney for hire being driven by Y. the jeepney collided with another
passenger jeepney
being driven by Z who was driving recklessly. As a result of the collision, X suffered injuries. Both
passenger
jeepneys are covered by Comprehensive Motor Vehicular Insurance Coverage. If X wants to claim
under the
no fault indemnity clause, his claim will lie
a) Against the insurer of the jeepney being driven by Z who was the one at fault;
b) The claim shall lie against the insurer of the passenger jeepeney driven by Y because X was
his
passenger;
c) X has a choice against whom he wants to make his claim;
d) None of the above.
Answer:
a) The claim shall lie against the insurer of the passenger jeepeney driven by Y because X was
his passenger. (BAR
2012)
b. Other Rules Concerning Motor Vehicles
1. Authorized Driver Clause
1. Mayariobtained a comprehensive insurance policy on his car. The policy carried the standard
authorized
driver clause which states that the insurance company is not liable for any loss, accident or
damage sustained

while the car is being driven by someone other than a duly authorized driver. One day, Mayari
allowed his
friend, Kainigan, to drive the car. Kaibigan figured in a mishap and the car was a total loss.
Kaibigan had been driving for the past 5 years but it appears that his drivers license was
irregularly issued
because he cannot read or write; neither did he take any of the prescribed drivers tests. After
the initial case
was issued, he merely asked his wife to go to the LTC office to get a renewal of his license. Mayari
did not know
about the irregularity in the drivers license of Kaibigan.
Can Mayari recover on the insurance policy? Explain.
Answer:
Mayari cannot recover under the policy. The standard authorized driver clause requires that the
driver at the time of
the accident must be duly authorized and licensed to drive. An irregular license is not a license at
all. (BAR 1986)
2. Sheryl insured her newly acquired car, a NISSAN Maxima against any loss or damage for
P50,000 and against
third party liability for P20,000 with the XYZ Insurance Corp. (XYZ). Under the policy, the car
must be
driven only by an authorized driver who is either: (1) the insured, or (2) any person driving on the
insureds
order or with his permission: provided that the person driving is permitted in accordance with the
licensing or
other laws or regulations to drive the motor vehicle and is not disqualified from driving such
motor vehicle by
order of a court.
Page | 99
During the effectivity of the policy, the car, then driven by Sheryl herself, who had no drivers
license, met an
accident and was extensively damaged. The estimated cost of the repair was P40,000. Sheryl
immediately
notified XYZ, but the latter refused to pay on the policy alleging that Sheryl violated the terms
thereof when
she drove it without a drivers license.
Is the insurer correct?
Answer:
No. the insurer is not correct in denying the claim since the proviso that the person driving is
permitted in accordance
with the licensing, etc. qualifies only a person driving the vehicle, other than the insured, at the
time of the accident.
(BAR 1991)
2. Theft Clause
1. A was the owner of a car insured with Fortune Insurance Company for Own Damage,
Theft, and
Third-Party-Liability effective May 16, 1977 to May 16, 1978. On May 9, 1978, the car was
brought to a
machine shop for repairs. On May 11, 1978, while in the custody of the machine shop, the car
was taken by one
of the employees to be driven out to a certain place. While travelling along the highway, the car
smashed into
parked truck and suffered extensive damage.
A filed a claim for recovery under the policy but was refused payment. The insurance company
averred that
the car was not stolen and, therefore, was not covered by the Theft Clause.
Decide the merits of the insurers contention, with reasons.

Answer:
The insurer is liable to A under the Theft Clause. The taking of a car even though temporary
and only for a joy
ride, without the car owners consent is theft; and, therefore, insurer is liable for total loss due to
car accident of
insureds car wrongfully taken, without the insureds consent, from the repair shop entrusted for
repairs. (Villacorta v.
Insurance Commissioner, Oct. 28, 1980, 100 SCRA 467) (BAR 1981)
2. Rey Bautista insured his 1984 Galant with Alpha Insurance Co., Inc. for own damage, theft and
thirdparty
liability effective August 21, 1984 to August 20, 1985. On August 3, 1985 the car was brought to
Car
Specialist, a well-known auto repair shop for general check-up. On August 11, 1985, while in the
custody of the
said shop, the car was taken by one of the employees of the shop and driven to a hide-out in
Montalban, Rizal.
While travelling along a narrow street, the car smashed into a parked gravel and sand truck and
it suffered an
extensive damage. Rey filed a claim for total loss with Alpha, but the claim was denied. Rey then
sued Alpha to
collect on the policy.
Rule on the said case stating the legal basis in support of your decision.
Answer:
The insurer is liable. The contract of insurance shall be interpreted, in case of doubt, in favor of
the insured Rey
Bautista, who is entrusting his car and key to the shop owner; its employees are presumed to
have insureds (Bautista)
permission. The theft clause applies, since the aforesaid act of the employees of the shop owner
is within the article on
theft of the Revised Penal Code. (BAR 1985)
Page | 100
3. Mr. Gonzales was the owner of a car insured with Masagana Insurance Company for Own
Damage, Theft,
and Third Party Liability effective May 14, 1986 to May 14, 1987. On May 2, 1987, the car was
brought to a
machine ship for repairs. On May 11, 1987, while in the custody of the machine shop, the car
was taken by one
of the employees (of the machine shop) to show off to his girlfriend. While on the way to his
girlfriends house,
the car smashed into a parked truck and was extensively damaged. Mr. Gonzales filed a claim for
recovery
under the policy but was refused payment. The insurance company averred that the car was not
stolen, and
therefore was not covered by the Theft Clause.
Decide the merits of the insurers contention, with reasons.
Answer:
I would decide in favor of the insured. The coverage of the policy was rather comprehensive in
scope. The Theft
Clause particularly, at least by intendment, should cover situations of the loss of the property
occasioned by the taking
or use by another without the authority of the insured. Furthermore, doubts on the insurance,
being a contract by
adherence must be construed against the insurer. (BAR 1988)
4. HL insured his brand new car with P Insurance Company for comprehensive coverage wherein
the insurance

company undertook to indemnify him against loss or damage to the car (a) by accidental
collision xxx (b) by
fire, external explosion, burglary, or theft, and (c) malicious act.
After a month, the car was carnapped while parked in the parking space in front of the
Intercontinental Hotel
in Makati. HLs wife who was driving the said car when it was carnapped was in possession of an
expired
drivers license, a violation of the authorized driver clause of the insurance company.
1. May the insurance company be held liable to indemnify HL for the loss of the insured vehicle?
Explain.
2. Supposing that the car was brought by HL on installment basis and there were installments
due and
payable before the loss of the car, the vendor demanded from HL the unpaid balance of the
promissory
note. HL resisted the demand and claimed that he was only liable for the installments due and
payable
before the loss of the car but no longer liable for the other installments not yet due at the time of
the loss of
the car.
Decide.
Answer:
1. Yes. The car was lost due to theft. What applies in this case is the theft clause, and not the
authorized driver
clause. It is immaterial that HLs wife was driving the car with an expired drivers license at the
time it was
carnapped.
2. The promissory note is not affected by whatever befalls the subject matter of the accessory
contract. The unpaid
balance on the promissory note should be paid and not only the installments due and payable
before the loss of the
car. (BAR 1993)
5. On May 26, 201, Jess insured with Jack Insurance (Jack) his 2014 Toyota Corolla sedan under a
comprehensive
motor vehicle insurance policy for one year. On July 1, 2014, Jess car was unlawfully taken.
Hence, he
immediately reported the theft to the Traffic management Command (TMC) of the Philippine
National Police
(PNP), which made Jess accomplish a complaint sheet as part of its procedure. In the complaint
sheet, Jess
alleged that a certain Ric Silat (Silat) took possession of the subject vehicle to add accessories
and
improvements thereon. However, Silat failed to return the subject vehicle within the agreed 3day period. As a
result, Jess notified Jack of his claim for reimbursement of the value of the vehicle under the
insurance policy.
Page | 101
Jack refused to pay claiming that there is no theft as Jess gave Silat lawful possession of the car.
Is Jack
correct?
Answer:
No. Jack is not correct. The theft clause of a comprehensive motor vehicle insurance policy has
been interpreted by
the Court in several cases to cover situations like (1) when one takes the motor vehicle of
another without the latters
consent even if the motor vehicle is later returned, there is theftthere being intent to gain as
the use of the thing

unlawfully taken constitutes gain, or (2) when there is taking of a vehicle by another person
without the permission or
authority from the owner thereof. (BAR 2014)
6. On February 21, 2013, Barrack entered into a contract of insurance with Matino Insurance
Company (Matino)
involving a motor vehicle. The policy obligates Matino to pay Barrack the amount of P600,000 in
case of loss or
damage to said vehicle during the period covered, which is from February 26, 2013 to February
26, 2014.
On April 16, 2013, at about 9:00am, Barrack instructed his driver, JJ, to bring the motor vehicle to
a nearby
auto shop for tune-up. However, JJ no longer returned and despite diligent efforts to locate the
said vehicle, the
efforts proved futile. Resultantly, Barrack promptly notified Matino of the said loss and demanded
payment of
the insurance proceeds of P600,000.
In a letter dated July 5, 2013. Matino denied the claim, reasoning as stated in the contract that
the company
shall not be liable for any malicious damage caused by the insured, any member of his family or
by a person in
the insureds service. Is Matino correct in denying the claim?
Answer:
No. Matino is not correct in denying the claim. An insurance company cannot deny a claim by the
owner of a motor
vehicle who insured it against loss or damage because the driver he employed stole it. Matino
cannot invoke the
provision excluding malicious damages caused by a person in the service of the insured. In
common ordinary usage,
loss means failure to keep possession, while malicious damage is damage resulting from the
willful act of the driver.
Words which have different meanings shall be understood in the sense which is most in keeping
with the nature and
object of the insurance contract. If a stipulation admits several meanings, is should be
understood as bearing the
meaning which is most adequate to render it effectual. It may be shown that the words have a
local, technical or
peculiar meaning and were so used and understood by the parties. (BAR 2014)
F. Insurable Interest
1. A owns a house valued at P50,000 which he had insured against fire for P100,000. He
obtained a loan from B
in the amount of P100,000, and to secure payment thereof, he executed a deed of mortgage on
the house, but
without assigning the insurance policy to the latter. For As failure to pay the loan upon
maturity, B
initiated foreclosure proceedings and in the ensuing public sale, the house was sold by the sheriff
to B as
highest bidder. Immediately upon issuance of the sheriffs certificate of sale in his favor, B
insured the house
against fire for P120,000 with another insurance company. In order to redeem the house, A
borrowed
P100,000 from C and, as security device, he assigned the insurance policy of P100,000 to C.
However,
before A could pay B his obligation of P100,000, the house was accidentally and totally
burned.
Does A, B or C have any insurance interest in the house? May A, B and C recover
under the

policies? If so, how much? (BAR 1982)

Answer:
Page | 102
As to A: He has insurable interest in his house, an existing interest, but only for P50,000, the
value of the said house.
But, when he assigned it to C, said A had no more interest in his insurance policy, and A cannot
anymore recover on
said insurance policy.
As to B: He has insurable interest on As house, having an interest founded upon an existing
interest, but only for
P50,000, the value of As house, and therefore, he can recover only the amount of P50,000.
As to C: He has no insurable interest on As house, being mere contingent or expectant interest
not founded on an
actual right or valid contract to As house; besides, the assignment to him of As insurance policy
was not approved by
the insurer; hence, C cannot recover.
1. In Life/Health
1. On January 4, 1983, Mr. P joined Alpha Corporation (ALPHA) as President of the company.
ALPHA took out
a life insurance policy on the life of Mr. P with Mutual Insurance Company, designating ALPHA as
the
beneficiary. ALPHA also carried fire insurance with Beta Insurance Co. on a house owned by it,
but
temporarily occupied by Mr. P again with ALPHA as beneficiary.
On September 1, 1983, Mr. P resigned from ALPHA and purchased the company house he had
been occupying.
A few days later, a fire occurred resulting in the death of Mr. P and the destruction of the house.
What are the rights of ALPHA (a) against Mutual Life Insurance Company on the life insurance
policy?
Answer:
a) ALPHA can recover against Mutual Life Insurance Co. in the life insurance policy as its
insurable interest in the
life of the person insured, Mr. P, existed when the insurance took effect. In life insurance,
insurable interest need
not exist thereafter or when the loss occurred. (BAR 1984)
2. Blanco took out a P1 M life insurance policy naming his friend and creditor, Montenegro, as his
beneficiary.
When Blanco died, his outstanding loan obligation to Montenegro was only P50,000. Blancos
executor
contended that only P50,000 out of the insurance proceeds should be paid to Montenegro and
the balance of
P950,000 should be paid to Blancos estate.
Is the executors contention correct? Reason out your answer.
Answer:
The contention of the executor is incorrect. The beneficiary of a life insurance need not have any
insurable interest in
the life of the insured.
Altenative Answer:
The contention of the executor is incorrect because it was Blanco himself who took out the life
insurance policy on his
own life, naming only Montenegro as the beneficiary. It would have been different if it was
Montenegro, as creditor,
who took out a life insurance policy on the life of Blanco, as a debtor. In that case, Montenegros
insurable interest in
the life of Blanco would be only to the extent of P50,000, which is the amount of his credit. (BA
1987)

3. On July 14, 1985, X, a homosexual, took an insurance policy on the life of his boyfriend, Y. In
the insurance
application, X misrepresented that Y was in perfect health although he knew all the time that Y
was afflicted
with AIDS. On October 18, 1987, Y died in a motor accident. Shortly thereafter, X filed his
insurance claim.
Page | 103
Should the insurer pay? Reasons.
Answer:
The insurer is not obliged to pay. Friendship alone is not the insurable interest contemplated in
life insurance.
Insurable interest in the life of others (other than ones own life, spouses or children) is merely to
the extent of the
pecuniary interest in that life.
Assuming that such pecuniary interest exists, an insurer would be liable despite concealment or
misrepresentation if
the insurance had been in effect for more than 2 years (incontestability clause). (BAR 1987)
4. A obtains insurance over his life and names his neighbor B the beneficiary because of As
secret love for B. if A
dies, can B successfully claim against the policy?
Answer:
Yes. In life insurance, it is required that the beneficiary must have insurable interest in the life of
the insured. It was the
insured himself who took the policy on his own life. (BAR 1997)
5. IS, is an elderly bachelor with no known relatives, obtained life insurance coverage for
P250,000 from Starbrite
Insurance Corporation, an entity licensed to engage in the insurable business under the
Insurance Code of the
Philippines. He also insured his residential house for twice that amount with the same
corporation. He
immediately assigned all his rights to the insurance proceeds to BX, a friendcompanion living
with him. 3 years
later, IS died in a fire that gutted his insured house 2 days after he had sold it. There is no
evidence of suicide or
arson or involvement of BX in these events. BX demanded payment of the insurance proceeds
from the 2
policies, the premiums for which IS had been faithfully paying during all the time he was alive.
Starbrite,
refused payment, contending that BX had no insurable interest and therefore was not entitled to
receive the
proceeds from IS insurance coverage on his life and also on his property. Is Starbrites
contention valid?
Explain.
Answer:
Starbrite is correct with respect to the insurance coverage on the property of IS. The beneficiary
in the property
insurance policy or the assignee thereof must have insurable interest in the property insured. BX,
a mere friendcompanion
of IS, has no insurable interest in the residential house of IS. BX is not entitled to receive the
proceeds
from IS insurance on his property.
As to the insurance coverage on the life of IS, BX is entitled to receive the proceeds. There is no
requirement that BX
should have insurable interest in the life of IS. It was IS himself who took the insurance on his
own life. (BAR 2000)
6. Distinguish insurable interest in property insurance from insurable interest in life insurance.

Answer:
1) In property insurance, the expectation of benefit must have a legal basis. In life insurance, the
expectation of
benefit to be derived from the continued existence of a life need not have any legal basis.
Page | 104
2) In property insurance, the actual value of the interest therein is the limit of the insurance that
can validly be placed
thereon. In life insurance, there is no limit to the amount of insurance that may be taken upon
life.
3) In property insurance, an interest insured must exist when the insurance takes effect and
when the loss occurs but
need not exist in the meantime. In life insurance, it is enough that insurable interest exists at the
time when the
contract is made but it need not exist at the time of loss. (BAR 2002)
7. X, Co. a partnership, is composed of A (capitalist partner), B (capitalist partner) and C
(industrial partner). If
you were partner A, who between B and C would you have an insurable interest on, such that
you may then
insure him?
a) No one, as there is merely a partnership contract among A, B and C.
b) Both B and C, as they are your partners.
c) Only C, as he is an industrial partner.
d) Only B, as he is a capitalist partner.
Answer:
b. Both B and C, as they are your partners. (BAR 2011)
8. X has been a long-time household helper of Z. Xs husband, Y, has also been Zs long-time
driver. May Z
insure the lives of both X and Y with Z as beneficiary?
a) Yes, since X and Y render services to Z.
b) No, since X and Y have no pecuniary interest on the life of Z arising from their employment
with him.
c) No, since Z has no pecuniary interest in the lives of X and Y arising from their employment
with him. d.
Yes, since X and Y are Zs employees.
Answer:
c. No, since Z has no pecuniary interest in the lives of X and Y arising from their employment
with him. (BAR 2011)
9. For both the Life Insurance and Property Insurance, the insurable interest is required to be
a) Existing at the time of perfection of the contract and at the time of loss;
b) Existing at the time of perfection and at the time of loss for property;
c) Existing at the time of perfection for property insurance but for life insurance both at the time
of
perfection and at the time of loss;
d) Existing at the time of perfection only.
Answer:
b) Existing at the time of perfection and at the time of loss for property. (BAR 2012)
10. X, a minor, contracted an insurance on his own life. Which statement is most accurate?
a) The life insurance policy is void ab initio;
b) The life insurance is valid provided it is with the consent of the beneficiary;
c) The life insurance policy is valid provided the beneficiary is his estate or his parents, or spouse
or child;
d) The life insurance is valid provided the disposition of the proceeds will be subject to the
approval of the
legal guardian of the minor.
Page | 105
Answer:

c) The life insurance policy is valid provided the beneficiary is his estate or his parents, or spouse
or child. (BAR
2012)
11. In 2010, the PNP declared Kaddafy Benjelani Public Enemy No. 1 because of his terrorist
activities in the
country that have resulted in the death of thousands of Filipinos. A ransom of P15 M was placed
on Kaddafy
Benjelanis head.
Worried about the future of their family, Kaddafy Benjelanis estranged wife, Aurelia, secured in
December
2010 a life insurance policy on his life and designated herself as beneficiary.
Is the policy valid and binding?
a) Yes, the policy is valid and binding because Aurelia has an insurable interest on the life of
Kaddafy
Benjelani.
b) No, the policy is not valid and binding because Kaddafy Benjelani has been officially declared a
public
enemy;
c) Yes, the policy is valid and binding because it has been in force for more than 2 years;
d) No, the policy is not valid and binding since the spouses estrangement removed Aurelias
insurable interest
in Benjalanis life;
e) None of the above.
Answer:
a) Yes, the policy is valid and binding because Aurelia has an insurable interest on the life of
Kaddafy Benjelani.
(BAR 2013)
12. Carlo and Bianca met in the La Boracay festivities. Immediately, they fell in love with each
other and got
married soon after. They have been cohabiting blissfully as husband and wife, but they did not
have any
offspring. As the years passed by, Carlo decided to take out an insurance on Biancas life for P1
M with him
(Carlo) as sole beneficiary, given that he did not have a steady source of income and he always
depended on
Bianca both emotionally and financially. During the term of the insurance, Bianca died of what
appeared to be
a mysterious cause so that Carlo immediately requested for an autopsy to be conducted. It was
established that
Bianca died of a natural cause. More than that, it was also established that Bianca was a
transgender all
alonga fact unknown to Carlo. Can Carlo claim the insurance benefit?
Answer:
Yes. Carlo can claim the insurance benefit. If a person insures the life or health of another person
with himself as
beneficiary, all his rights, title and interests in the policy shall automatically vest in the person
insured. Carlo, as the
husband of Bianca, has an insurable interest in the life of the latter. Also, every person has an
insurable interest in the
life and health of any person on whom he depends wholly or in part for support. The insurable
interest in the life of
the person insured must exist when the insurance takes effect but need not exist when the loss
occurs. Thus, the
subsequent knowledge of Carlo, upon the death of Bianca, that the latter is a transgender does
not destroy his
insurable interest on the life of the insured. (BAR 2014)

13. A person is said to have an insurable interest in the subject matter insured where he has a
relation or
connection with, or concern in it that he will derive pecuniary benefit or advantage from its
preservation.
Which among the following subject matters is not considered insurable?
a) A partner in a firm on its future profits.
b) A general creditor on the debtors property
Page | 106
c) A judgment creditor on debtors property
d) A mortgage creditor on debtors mortgaged property.
Answer:
a. A partner in a firm on its future profits. (BAR 2014)
14. On July 3, 1993, Delia Sotero (Delia) took out a life insurance policy from Ilocos Bankers Life
Insurance
Corporation (Ilocos Life) designating Creencia Aban (Aban), her niece, as her beneficiary. Ilocos
Life issued
Policy No. 747, with a face value of P100,000, in Soteros favor on August 30, 1993, after the
requisite medical
examination and payment of the premium.
On April 10, 1996, Sotero died. Aban filed a claim for the insurance proceeds on July 9, 1996.
Ilocos Life
conducted an investigation into the claim and came out with the following findings:
6. Sotero did not personally apply for insurance coverage, as she was illiterate.
7. Sotero was sickly since 1990.
8. Sotero did not have the financial capability to pay the premium on the policy.
9. Sotero did not sign the application for insurance.
10. Aban was the one who filed the insurance application and designated herself as the
beneficiary.
For the above reasons and claiming fraud, Ilocos Life denied Abans claim on April 16, 1997, but
refunded the
premium paid on the policy.
c. May Sotero validly designate her niece as beneficiary?
Answer:
c. Yes. Sotero may validly designate her niece, Aban, as beneficiary. Sotero had insurable interest
in her own life,
and could validly designate anyone as her beneficiary. (BAR 2014)
2. In Property
1. A owns a house worth P500, 000.00. He insured It against fire for P250, 000.00 for the period
from January 1,
1977 to January 1, 1978. At the instance of B, who is a judgment creditor of A, the said house
was levied upon
by the Sheriff and sold at public auction on March 15, 1977. It was adjudicated to B for P150,
000.00 at the
auction sale. B insured the house against fire for P150, 000.00 for the period from March 16,
1977 to March 16,
1978. The house was accidentally burned on April 1, 1977. May A recover under his policy? Give
reasons.
Answer:
A can recover under his policy. A judgment debtor whose property has been seized on execution
has an insurable
interest therein until the right to redeem or have the same set aside has been lost. Inasmuch as
the right of A to redeem
has not expired, the 12 months time after the sale having not elapsed before the loss occurred;
A has an insurable
interest in the house at the time of loss.
May B recover under his policy? Give reasons.

Answer:
B can recover upon his policy because as purchaser at a judicial sale he has an insurable interest
in the property to
the extent of the amount for which he insured it not exceeding his interest in the property. (BAR
1977)
Page | 107
2. N owns a condominium unit presently insured with Holy Insurance Co. for P1 Million. N
later sells the
condominium unit to O. Somehow O fails to obtain the transfer of the insurance policy to his
name from
N. Subsequently, fire of unknown origin destroys completely the condominium unit.
Who may collect the insurance proceeds?
Answer:
Neither N nor O may collect. As to N; First Alternative ReasonAn interest in property insured
must exist when the
insurance takes effect and when the loss occurs. Although N had insurable interest when the
insurance takes effect, yet
he had no more interest when the loss happened. Second Alternative ReasonA 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 interest in the thing insured and the interest in the insurance are
vested in the same person.
As to O: He cannot recover, because he had no insurance contract on the said condominium unit
which he bought from
N. (BAR 1980)
3. The agent in Davao of the insured A was employed to ship As copra to Manila and to
communicate the
shipment to the buyer A in Manila. The said agent wrote the owner of the copra announcing the
sailing of
the ship, but failed to state that the ship had run a ground, which fact he already knew before
announcing the
sailing. A, the buyer of the copra, in all good faith, took out a marine insurance on the copra.
The copra was
badly damaged and was a total loss. Can the insured recover on the policy? Reason.
Answer:
The insured may not recover on the policy, since the subject matter of the marine insurance at
the time of contracting
the insurance was already lost. An interest in property insured must exist when the insurance
takes effect and when the
loss occurs. (BAR 1979)
4. On January 4, 1983, Mr. P joined Alpha Corporation (ALPHA) as President of the company.
ALPHA took out
a life insurance policy on the life of Mr. P with Mutual Insurance Company, designating ALPHA as
the
beneficiary. ALPHA also carried fire insurance with Beta Insurance Co. on a house owned by it,
but
temporarily occupied by Mr. P again with ALPHA as beneficiary.
On September 1, 1983, Mr. P resigned from ALPHA and purchased the company house he had
been
occupying. A few days later, a fire occurred resulting in the death of Mr. P and the destruction of
the house.
What are the rights of ALPHA against Beta Insurance Company on the fire insurance?
Answer:
ALPHA cannot recover from Beta Insurance Co. since an interest in the property insured must
exist not only when the

insurance took effect but also when the loss occurs. Since the fire that destroyed the insureds
house took effect after
ALPHA had sold the house to Mr. P, the insurable interest of ALPHA in the property insured no
longer exists when
the loss occurred. (BAR 1984)
5. On February 3, 1987, while Jose Palacio was in the hospital preparatory to a heart surgery, he
called his only
son, Boy Palacio, and showed the latter a will naming the son as sole heir to all the fathers
estate including the
family mansion in Forbes Park. The following day, Boy Palacio took out a fire insurance policy on
the Forbes
Park mansion. One week later, the father died. After his fathers death, Boy Palacio moved his
wife and
children to the family mansion which he inherited. On March 30, 1987, a fire occurred razing the
mansion to
the ground. Boy Palacio then proceeded to collect on the fire insurance he took earlier on the
house.
Page | 108
Should the insurance company pay? Reasons.
Answer:
In property insurance, insurable interest must exist both at the time of the taking of the
insurance and at the time the
risk insured against occurs. The insurable interest must be an existing interest. The fact alone
that Boy Palacio was the
expected sole heir of his fathers estate does not give the prospective heir any existing interest
prior to the death of the
decedent. (BAR 1987)
6. A piece of machinery was shipped to Mr. Pablo on the basis of C&F, Manila. Mr. Pablo insured
said
machinery with the Talaga Merchants Insurance Corp. (TAMIC) for loss or damage during the
voyage. The
vessel sank en route to Manila. Mr. Pablo then filed a claim with TAMIC which was denied for the
reason that
prior to delivery, Mr. Pablo had no insurable interest. Decide the case.
Answer:
Mr. Pablo had an existing insurable interest on the piece of machinery he bought. The purchase
of goods under a
perfected contract of sale already vested equitable interest on the property in favor of the buyer
even while it is
pending delivery. (BAR 1991)
7. In a civil suit, the Court ordered Benjie to pay Nat P500,000. To execute the judgment, the
sheriff levied upon
Benjies registered property (a parcel of land and the building thereon), and sold the same at
public auction to
Nat, the highest bidder. The latter, on March 18, 1992, registered with the Register of Deeds the
certificate of
sale issued to him by the sheriff. Meanwhile, on January 27, 1993, Benjie insured with Garapal
Insurance for
P1 M the same building that was sold at public auction to Nat. Benjie failed to redeem the
property by March
18, 1993.
On March 19, 1993, a fire razed the building to the ground. Garapal Insurance refused to make
good its
obligation to Benjie under the insurance contract.
1. Is Garapal Insurance legally justified in refusing payment to Benjie?
2. Is Nat entitled to collect on the insurance policy?

Answer:
1. Yes. At the time of the loss, Benjie was no longer the owner of the property insured as he failed
to redeem the
property. The law requires in property insurance that a person can recover the proceeds of the
policy if he has
insurable interest at the time of the issuance of the policy and also at the time when the loss
occurs. At the time of
fire, Benjie no longer had insurable interest in the property insured.
2. No. While at the time of the loss he has insurable interest in the building, as he was the owner
thereof, Nat did not
have any interest in the policy. There was no automatic transfer clause in the policy that would
give him such
interest in the policy. (BAR 1994)
8. A obtains a fire insurance on his house and as a generous gesture names his neighbor as the
beneficiary. If As
house is destroyed by fire, can B successfully claim against the policy?
Answer:
No. in property insurance, the beneficiary must have insurable interest in the property insured. B
does not have
insurable interest in the house insured. (BAR 1997)
Page | 109
9. A businessman in the grocery business obtained from First Insurance an insurance policy for
P5 M to fully
cover his stocks-in-trade from the risk of fire.
3 months later, a fire of accidental origin broke out and completely destroyed the grocery
including his stocksintrade. This prompted the businessman to file with First Insurance a claim for P5 M representing
the full
value of his goods.
First Insurance denied the claim because it discovered that at the time of the loss, the stock-intrade were
mortgaged to a creditor who likewise obtained from Second Insurance Company fore insurance
coverage for
the stocks at their full value of P5 M.
a) May the businessman and the creditor obtain separate insurance coverage over the same
stocks-intrade?
Explain.
b) Suppose you are the Judge, how much would you allow the businessman and the creditor to
recover
from their respective insurers. Explain.
Answer:
a) Yes. The businessman, as owner, and the creditor, as mortgagee, have separate insurable
interests in the same
stocks-in-trade. Each may insure such interest to protect his own separate interest.
b) As judge, I would allow the businessman to recover his total loss of P5 M pesos representing
the full value of his
goods which were lost through fire. As to the creditor, I would allow him to recover the amount to
the extent of or
equivalent to the value of the credit he extended to the businessman for the stocks-in-trade
which were mortgaged
by the businessman. (BAR 1999)
10. IS, is an elderly bachelor with no known relatives, obtained life insurance coverage for
P250,000 from Starbrite
Insurance Corporation, an entity licensed to engage in the insurable business under the
Insurance Code of the

Philippines. He also insured his residential house for twice that amount with the same
corporation. He
immediately assigned all his rights to the insurance proceeds to BX, a friendcompanion living
with him. 3 years
later, IS died in a fire that gutted his insured house 2 days after he had sold it. There is no
evidence of suicide
or arson or involvement of BX in these events. BX demanded payment of the insurance proceeds
from the 2
policies, the premiums for which IS had been faithfully paying during all the time he was alive.
Starbrite,
refused payment, contending that BX had no insurable interest and therefore was not entitled to
receive the
proceeds from IS insurance coverage on his life and also on his property. Is Starbrites
contention valid?
Explain.
Answer:
Starbrite is correct with respect to the insurance coverage on the property of IS. The beneficiary
in the property
insurance policy or the assignee thereof must have insurable interest in the property insured. BX,
a mere friendcompanion
of IS, has no insurable interest in the residential house of IS. BX is not entitled to receive the
proceeds
from IS insurance on his property.
As to the insurance coverage on the life of IS, BX is entitled to receive the proceeds. There is no
requirement that BX
should have insurable interest in the life of IS. It was IS himself who took the insurance on his
own life. (BAR 2000)
11. JQ, owner of a condominium unit, insured the same against fire with XYZ Insurance Co., and
made the loss
payable to his brother, MLQ. In case of loss by fire of the said condominium unit, who may
recover on the fire
insurance policy? State the reason/s for your answer.
Answer:
Page | 110
JQ can recover on the fire insurance policy for the loss of the said condominium unit. He has the
insurable interest as
owner-insured. As beneficiary in the fire insurance policy, MLQ cannot recover on the fire
insurance policy. For the
beneficiary to recover on the fire or property insurance policy, it is required that he must have
insurable interest in the
property insured. In this case, MLQ does not have insurable interest in the condominium unit.
(BAR 2001)
12. Distinguish insurable interest in property insurance from insurable interest in life insurance.
Answer:
1) In property insurance, the expectation of benefit must have a legal basis. In life insurance, the
expectation of
benefit to be derived from the continued existence of a life need not have any legal basis.
2) In property insurance, the actual value of the interest therein is the limit of the insurance that
can validly be placed
thereon. In life insurance, there is no limit to the amount of insurance that may be taken upon
life.
3) In property insurance, an interest insured must exist when the insurance takes effect and
when the loss occurs but
need not exist in the meantime. In life insurance, it is enough that insurable interest exists at the
time when the
contract is made but it need not exist at the time of loss. (BAR 2002)

13. Ciriaco leased a commercial apartment from Supreme Building Corporation (SBC). One of the
provisions of
the 1-year lease contract states:
18. x x x 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 of
the LESSOR.
If the LESSEE obtains five insurance coverage without the consent of the LESSOR, the insurance
policy is
deemed assigned and transferred to the LESSRO for the latters benefit.
Notwithstanding the stipulation in the contract, without the consent of SBC, Ciriaco insured the
merchandise
inside the premises against loss by fire in the amount of P500,000 with First United Insurance
Corporation
(FUIC).
A day before the lease contract expired, fire broke out inside the leased premises, damaging
Ciriacos
merchandise. Having learned of the insurance earlier procured by Ciriaco, SBC demanded from
FUIC that the
proceeds of the insurance policy be paid directly to it, as provided in the lease contract.
Who is legally entitled to receive the insurance proceeds? Explain.
Answer:
Ciriaco is entitled to receive the proceeds of the insurance policy. The stipulation that the policy
is deemed assigned
and transferred to SBC is void, because SBC has no insurable interest in the merchandise of
Ciriaco. (BAR 2009)
14. X owned a house and lot. X insured the house. The house got burned. Then he sold the
partially burnt house
and the lot to Y. Which statement is most accurate?
a) X is not anymore entitled to the proceeds of the insurance policy because he already sold the
partially
burnt house and lot;
b) X is still entitled to the proceeds of the insurance policy because what is material is that at the
time of
the loss, X is the owner of the house and lot;
c) No one is entitled to the proceeds because ownership over the house and lot was already
transferred;
d) Y will be the one entitled to the proceeds because he now owns the partially burnt house and
lot.
Page | 111
Answer:
b) X is still entitled to the proceeds of the insurance policy because what is material is that at the
time of the loss, X is
the owner of the house and lot. (BAR 2012)
15. For both the Life Insurance and Property Insurance, the insurable interest is required to be
a) Existing at the time of perfection of the contract and at the time of loss;
b) Existing at the time of perfection and at the time of loss for property;
c) Existing at the time of perfection for property insurance but for life insurance both at the time
of
perfection and at the time of loss;
d) Existing at the time of perfection only.
Answer:
b) Existing at the time of perfection and at the time of loss for property. (BAR 2012)
3. Double Insurance, Over Insurance, Co-Insurance and Re-Insurance
1. Julie and Alma formed a business partnership. Under the business name Pino Shop, the
partnership engaged

in a sale of construction materials. Julie insured the stocks in trade of Pino Shop with WGC
Insurance
Company for P350,000. Subsequently, she again got an insurance contract with RSI for P1 M and
then from
EIC for P200,000. A fire of unknown origin gutted the store of the partnership. Julie filed her
claims with the 3
insurance companies. However, her claims were denied separately for breach of policy condition
which
required the insured to give notice of any insurance effected covering the stocks in trade. Julie
went to court
and contended that she should not be blamed for the omission, alleging that the insurance
agents for WGC,
RSI and EIC knew of the existence of the additional insurance coverage and that she was not
informed about
the requirement that such other or additional insurance should be stated in the policy.
Is the contention of Julie tenable? Explain.
Answer:
No. An insured is required to disclose the other insurances covering the subject matter of the
insurance being applied
for. (BAR 1993)
2. Distinguish co-insurance from re-insurance.
Answer:
Co-insurance is the percentage in the value of the insured property which the insured himself
assumes or undertakes to
act as insurer to the extent of the deficiency in the insurance of the insured property. In case of
loss or damage, the
insurer will be liable only for such proportion of the loss or damage as the amount of insurance
bears to the designated
percentage of the full value of the property insured.
Reinsurance is where the insurer procures a third party, called the reinsurer, to insure him
against liability by reason of
such original insurance. Basically, reinsurance is an insurance against liability which the original
insurer may incur in
favor of the original insured. (BAR 1994)
3. A businessman in the grocery business obtained from First Insurance an insurance policy for
P5 M to fully
cover his stocks-in-trade from the risk of fire.
Page | 112
3 months later, a fire of accidental origin broke out and completely destroyed the grocery
including his stocksintrade. This prompted the businessman to file with First Insurance a claim for P5 M representing
the full
value of his goods.
First Insurance denied the claim because it discovered that at the time of the loss, the stock-intrade were
mortgaged to a creditor who likewise obtained from Second Insurance Company for insurance
coverage for the
stocks at their full value of P5 M.
First Insurance refused to pay claiming that double insurance is contrary to law. Is this contention
tenable?
Answer:
The contention of First Insurance that double insurance is contrary to law is untenable. There is
no law providing that
double insurance is illegal per se. moreover, in the problem at hand, there is no double insurance
because the insured

with the First Insurance is different from the insured with the Second Insurance Company. The
same is true with
respect to the interests insured in the two policies. (BAR 1999)
4. a) When does double insurance exist?
b) What is the nature of the liability of the several insurers in double insurance? Explain.
Answer:
a) Double insurance exists where the same person is insured by two or more insurers separately
with respect to the
same subject matter and interest.
b) In double insurance, the insurers are considered as co-insurers. Each one is bound to
contribute ratably to the loss
in proportion to the amount for which he is liable under his contract. (BAR 2005)
5. Terrazas de Pation Verde, a condominium building, has a value of P50 M. The owner insured
the building
against fire with 3 insurance companies for the following amounts:
Northern Insurance Corp.P20 M
Southern Insurance Corp.P30 M
Eastern Insurance Corp.P50 M
a) Is the owners taking of insurance for the building with 3 insurers valid? Discuss.
b) The building was totally razed by fire. If the owner decides to claim from Eastern Insurance
Corp. only
P50 M, will the claim prosper? Explain.
Answer:
a) The taking of insurance from the 3 insurers is valid. It is a case of double insurance. The
Insurance Code
provides that a double insurance exist where the same person is insured by several insurers
separately in respect to
the same subject and interest.
Double insurance is valid. What is prohibited is for the insured to recover more than his interest
or value of the
property pursuant to the principle of indemnity.
b) Yes, the owner may legally claim the entire P50 M from Eastern Insurance, Corp. The Insurance
Code provides
that where the insured is overinsured by double insurance, the insured, unless the policy
otherwise provides, may
Page | 113
claim payment from the insurers in such order as he may select, up to the amount for which the
insurers are
severally liable under their respective contracts. Each insurer is bound, as between himself and
the other insurers,
to contribute ratably to the loss in proportion to the amount for which he is liable under his
contract. (BAR 2008)
6. If an insurance policy prohibits additional insurance on the property insured without the
insurers consent,
such provision being valid and reasonable, a violation by the insured
a. Reduces the value of the policy.
b. Avoids the policy.
c. Offsets the value of the policy with the additional insurances value.
d. Forfeits premiums already paid.
Answer:
a) Avoids the policy. (BAR 2011)
7. X borrowed from CCC Bank. She mortgaged her house and lot in favor of the bank. X insured
her house. The
bank also got the house insured.
a) Is this double insurance? Explain your answer.
b) Is this legally valid? Explain your answer.

c) In case of damage, can X and CCC bank separately claim for the insurance proceeds?
Answer:
a) No, there is no double insurance. Double insurance exists where the same person is insured by
several insurers
separately with respect to the same subject and interest.
b) Yes, X and CCC Bank can both insure the house as they have different insurable interests
therein. X, the
borrower-mortgagor, has an insurable interest in the house being the owner thereof while CCC
Bank, the lender,
also has an insurable interest in the house as mortgagee thereof.
c) Yes. If X obtained an open policy then she could claim an amount corresponding to the extent
of the damage
based on the value of the house determined as of the date the damaged occurred, but not to
exceed the face value
of the insurance policy; however, if she obtained a valued policy then she could claim an amount
corresponding to
the extent of the damage based on the agreed upon valuation of the house.
As for CCC Bank, it could claim an amount corresponding to the extent of the damage but not to
exceed the
amount of the loan it extended to X or so much thereof as may remain unpaid. (BAR 2012)
8. X insured the building she owns with 2 insurance companies for the same amount. In case of
damage
a) X cannot claim from any of the 2 insurers because with the double insurance, the insurance
coverage
becomes automatically void;
b) The 2 insurers will be solidarily liable to the extent of the loss;
c) The 2 insurers will be proportionately liable;
d) X can choose who he wants to claim against.
Answer:
d) X can choose who he wants to claim against. (BAR 2012)
Page | 114
4. Multiple or Several Interests on Same Property
1. To secure a loan of P10 M, O mortgaged his building to C. in accordance with the loan
arrangements, O had
the property insured with Acme Insurance Company for P10 M with C as the beneficiary. C also
took an
insurance on the building upon his own interest with Beta Insurance Co. for P5 M.
The building was totally destroyed by fire, a peril insured against in both insurance policies. It
was
subsequently determined that the fire had been intentionally started by O and that, in violation
of the loan
agreement, O had been storing inflammable materials in the building.
How much can C recover from either or both insurance companies? What happens to the P10 M
debt of O to
C?
Answer:
a) C cannot recover from Acme Insurance Co. unless the policy otherwise provides, where a
mortgagor of property
effects insurance in his own name providing that the loss shall be payable to the mortgagee, the
insurance is
deemed to be upon the interest of the mortgagor. Any act of the mortgagor prior to the loss
which would otherwise
avoid the insurance will have the same effect. Apart from the storing of the inflammable
materials, the act of the
owner-mortgagor, O, caused the peril insured against.

With respect to the Beta Insurance Co., C can recover the full amount of P5 M since the act of O
in intentionally
starting the fire that caused the loss cannot be attributable to the mortgagee, C. The act of O in
storing
inflammable in the building contrary to the loan agreement does not affect the insurance policy,
unless the
insurance policy itself prohibited any storing of inflammable materials.
b) The P10 M debt of O to C will be affected by the amount which C is able to collect from the
insurance companies.
If C is unable to recover any amount, the full amount of the debt remains. If C is able to recover
P5 M from Beta
insurance Co., the great weight of authority is that the mortgagee is not allowed to retain his
claim against O, the
mortgagor, but it passes by subrogation to the insurer to the extent of the money paid. (Palilieo
v. Cosio, 97 Phil.
919). In this case, Beta Ins. Co. will become entitled to collect P5 M from O, and O will continue to
remain liable
to C for the balance of P5 M. (BAR 1984)
2. A businessman in the grocery business obtained from First Insurance an insurance policy for
P5 M to fully
cover his stocks-in-trade from the risk of fire.
3 months later, a fire of accidental origin broke out and completely destroyed the grocery
including his stocksintrade. This prompted the businessman to file with First Insurance a claim for P5 M representing
the full
value of his goods.
First Insurance denied the claim because it discovered that at the time of the loss, the stock-intrade were
mortgaged to a creditor who likewise obtained from Second Insurance Company fore insurance
coverage for
the stocks at their full value of P5 M.
c) May the businessman and the creditor obtain separate insurance coverage over the same
stocks-intrade?
Explain.
d) Suppose you are the Judge, how much would you allow the businessman and the creditor to
recover from
their respective insurers. Explain.
Answer:
Page | 115
c) Yes. The businessman, as owner, and the creditor, as mortgagee, have separate insurable
interests in the same
stocks-in-trade. Each may insure such interest to protect his own separate interest.
d) As judge, I would allow the businessman to recover his total loss of P5 M pesos representing
the full value of his
goods which were lost through fire. As to the creditor, I would allow him to recover the amount to
the extent of or
equivalent to the value of the credit he extended to the businessman for the stocks-in-trade
which were mortgaged
by the businessman. (BAR 1999)
3. To secure a loan of P10 M, Mario mortgaged his building to Armando. In accordance with the
loan
arrangements, Mario had the building insured with First Insurance Company for P10 M,
designating
Armando as the beneficiary.
Armando also took an insurance on the building upon his own interest with Second Insurance
Company for P5

M.
The building was totally destroyed by fire, a peril insured against under both insurance policies. It
was
subsequently determined that the fire had been intentionally started by Mario and that in
violation of the loan
agreement, he had been storing inflammable materials in the building.
1. How much, if any, can Armando recover from either or both insurance companies?
Answer:
Armando can receive P5 M from Second Insurance Company. As mortgagee, he had an insurable
interest in the
building. Armando cannot collect anything from First Insurance Company. First Insurance
Company is not liable for
the loss of the building. First, it was due to a willful act of Mario, who committed arson. Second,
fire insurance
policies contain a warranty that the insured will not store hazardous materials within the
insureds premises. Mario
breached this warranty when he stored inflammable materials in the building. These two factors
exonerate First
Insurance Company from liability to Armando as mortgagee even though it was Mario who
committed them.
2. What happens to the P10 M debt of Mario to Armando? Explain.
Answer:
Since Armando would have collected P5 M from Second Insurance Company, this amount should
be considered as
partial payment of the loan. Armando can only collect the balance of P5 M. Second Insurance
Company can recover
from Mario the amount of P5 M it paid, because it became subrogated to the rights of Armando.
(BAR 2010)
4. X borrowed from CCC Bank. She mortgaged her house and lot in favor of the bank. X insured
her house. The
bank also got the house insured.
d) Is this double insurance? Explain your answer.
e) Is this legally valid? Explain your answer.
f) In case of damage, can X and CCC bank separately claim for the insurance proceeds?
Answer:
d) No, there is no double insurance. Double insurance exists where the same person is insured by
several insurers
separately with respect to the same subject and interest.
Page | 116
e) Yes, X and CCC Bank can both insure the house as they have different insurable interests
therein. X, the
borrower-mortgagor, has an insurable interest in the house being the owner thereof while CCC
Bank, the lender,
also has an insurable interest in the house as mortgagee thereof.
f) Yes. If X obtained an open policy then she could claim an amount corresponding to the extent
of the damage
based on the value of the house determined as of the date the damaged occurred, but not to
exceed the face value
of the insurance policy; however, if she obtained a valued policy then she could claim an amount
corresponding to
the extent of the damage based on the agreed upon valuation of the house.
As for CCC Bank, it could claim an amount corresponding to the extent of the damage but not to
exceed the
amount of the loan it extended to X or so much thereof as may remain unpaid. (BAR 2012)
5. A house and lot is covered by a real estate mortgage (REM) in favor of ZZZ Bank. The Bank
required that the

house be insured. The owner of the policy failed to endorse nor assign the policy to the bank.
However, the
Deed of REM has an express provision which says that the insurance policy is also endorsed with
the signing of
the REM. Will this be sufficient?
a) No, insurance policy must be expressly endorsed to the bank so that the bank will have a right
in the
proceeds of such insurance in the event of loss;
b) The express provision contained in the Deed of REM to the effect that the policy is also
endorsed is
sufficient;
c) Endorsement of the Insurance Policy in any form is not legally allowed;
d) Endorsement of the Insurance Policy must be in a formal document to be valid.
Answer:
b) No, insurance policy must be expressly endorsed to the bank so that the bank will have a right
in the proceeds of
such insurance in the event of loss (BAR 2012)
G. Perfection of the Contract of Insurance
1. Antarctica Life Assurance Corporation (ALAC) publicly offered a specially designed insurance
policy covering
persons between the ages of 50 to 75 who may be afflicted with serious and debilitating
illnesses. Quirco applied
for insurance coverage, stating that he was already 80 years old. Nonetheless, ALAC approved
his application.
Quirco then requested ALAC for the issuance of a cover note while he was trying to raise funds to
pay the
insurance premium. ALAC granted the request. 10 days after he received the cover note, Quirco
had a heart
seizure and had to be hospitalized. He then filed a claim on the policy.
a) Can ALAC validly deny the claim on the ground that the insurance coverage, as publicly
offered was
available only to persons 50 to 75 years of age? Why or why not?
Answer:
No. by approving the application of Quirino who disclosed that he was already 80 years old, ALAC
waived the age
requirement. ALAC is now stopped from raising such defense of age of the insured.
b) Did ALACs issuance of a cover note result in the perfection of an insurance contract between
Quirco and
ALAC? Explain.
Page | 117
Answer:
Yes. The issuance of a cover note resulted in the perfection of the contract of insurance. In that
case, it is only because
there is delay in the issuance of the policy that the cover note was issued.
The cover note is a receipt whereby the company agrees to insure the insured for 60 days
pending the issuance of a
regular policy. No separate premium is to be paid on a cover note. It is not a separate policy but
is integrated in the
regular policy to be subsequently issued. (BAR 2009) Armando, a resident of Manila, borrowed P3
M from Bernardo,
offering as security his 500 shares of stock worth P1.5 M in Xerxes Corporation, and his 2007
BMW sedan, valued at
P2 M. the mortgage on the shares of stock was registered in the Office of the Register of Deeds
of Makati City where
Xerxes Corporation has its principal office. The mortgage on the car was registered in the Office
of the Register of

Deeds of Manila. Armando executed a single Affidavit of Good Faith, covering both mortgages.
Armando defaulted on the payment of his obligation; thus, Bernardo foreclosed on the two
chattel mortgages.
Armando filed suit to nullify the foreclosure and the mortgages, raising the following issues:
a) The execution of only one Affidavit of Good Faith for both mortgages invalidated the two
mortgages; and
Answer:
The execution of only one Affidavit of Good Faith for both mortgages is not a ground to nullify the
said mortgages
and the foreclosure thereof. Said mortgages are valid as between immediate parties, although
they cannot bind third
parties.
b) The mortgage on the shares of stocks should have been registered in the Office of the Register
Deeds of
Manila where he resides, as well as in the stock and transfer book of Xerxes Corporation.
Rule on the foregoing issues with reasons.
Answer:
The mortgage on the shares of stock should be registered in the chattel mortgage registry in the
register of Deeds of
Makati City where the corporation has its principal office and also in the Register of Deeds of
Manila where the
mortgagor resides. Registration of chattel mortgage in the stock and transfer book is not
required to make the chattel
mortgage valid. Registration of dealings in the stock and transfer book under Section 63 of the
Corporation Code
applies only to sale or disposition of shares, and has no application to mortgages and other forms
of encumbrances.
c) Assume that Bernardo extrajudicially foreclosed on the mortgages, and both the car and the
shared of
stock were sold at public auction. If the proceeds from such public sale should be 1-million short
of
Armandos total obligation, can Bernardo recover the deficiency? Why or why not?
Answer:
Yes. Bernardo can recover the deficiency. Chattels are given as mere security, and not as
payment or pledge.
1. Offer and Acceptance/Consensual
1. P filed an application with an insurance company for a 20-year endowment policy in the
amount of
P50,000.00 on the life of his one-year-old daughter, supplying all the essential data in the
application form,
but without disclosing that his daughter was a mongoloid child. Upon Ps payment of the
annual premium,
a binding deposit receipt was issued to P by the insurance agent, subject to processing by the
company.
The insurance company disapproved the insurance application stating that the plan applied for
was not
available for minors below seven years old, and offered another plan. The insurance agent did
not inform
Page | 118
P of the disapproval nor of the alternative plan offered, and instead, strongly recommended
that the
company reconsider and approve the insurance application.
As fate would have it, Ps daughter died. P sought payment of the proceeds of the insurance
but the
company refused on the grounds that there was concealment of a material fact in the insurance
application

form and that it had rejected the application. P contended, on the other hand, that the binding
deposit
receipt constituted a temporary contract of life insurance.
How would you resolve the issue?
Answer:
The insurance company is not liable. The binding deposit receipt is 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
(insurance company) approves the risk. The binding deposit receipt is subordinated to the act of
the insurance
company in approving or rejecting the application; thus, in life insurance, a binding slip or
binding receipt does
not insure by itself; and, when as in this case the application was disapproved, before the death
of the insured, there
was no perfected contract of insurance in order to make the company liable. (Great Pacific Life
Ass. Co. v. C.A.,
April 30, 1979; 89 SCRA 549.) (BAR 1980)
2. On June 1, 2011, X mailed to Y Insurance, Co. his application for life insurance, with payment
for 5 years of
premium enclosed in it. On July 21, 2011, the insurance company accepted the application and
mailed, on the
same day, its acceptance plus the cover note. It reached Xs residence on August 11, 2011. But,
as it
happened, on August 4, 2011, X figured in a car accident. He died a day later. May Xs heir
recover on the
insurance policy?
a. Yes, since under the Cognition Theory, the insurance contract was perfected upon acceptance
by the
insurer of Xs application.
b. No, since there is no privity of contract between the insurer and Xs heirs.
c. No, since X had no knowledge of the insurers acceptance of his application before he died.
d. Yes, since under the Manifestation Theory, the insurance contract was perfected upon
acceptance of the
insurer of Xs application.
Answer:
c. No, since X had no knowledge of the insurers acceptance of his application before he died.
(BAR 2011)
a. Delay in Acceptance
b. Delivery of Policy
1. On September 25, 2013, Danny Marcial (Danny) procured an insurance on his life with a face
value of P5 M
from RN Insurance Company (RN), with his wife Tina Marcial (Tina) as sole beneficiary. On the
same day,
Danny issued an undated check to RN for the full amount of the premium. On October 1, 2013,
RN issued the
policy covering Dannys life insurance. On October 5, 2013, Danny met a tragic accident and
died. Tina
claimed the insurance benefit, but RN was quick to deny the claim because at the time of
Dannys death, the
check was not yet encashed and therefore the premium remained unpaid.
Is RN correct? Will your answer be the same if the check is dated October 15, 2013?
Answer:
Page | 119
No. RN is not correct. After the issuance of the check by Danny for the full amount of the
premium, the

unconditional delivery of an insurance policy of RN to Danny corresponding to the terms of the

application
ordinarily consummates the contract, and the policy as delivered becomes the final contract
between the parties.
Where the parties, so intend, the insurance becomes effective at the time of the delivery of the
policy
notwithstanding the fact that the check was not yet encashed. My answer will still be the same
even if the check is
dated October 15, 2013 since an acknowledgment in a policy of the receipt of premium is
conclusive evidence of its
payment for the purpose of making the policy binding. (BAR 2014)
c. Transfer of Policy
1. The policy of insurance upon his life, with a face value of P100,000, was assigned by Jose, a
married man with 2
legitimate children, to his nephew, Y as security for a loan of P50,000. He did not give the insurer
any written
notice of such assignment despite the explicit provision to that effect in the policy. Jose died.
Upon the claim on
the policy by the assignee, the insurer refused to pay on the ground that it was not notified of
the assignment.
Upon the other hand, the heirs of Jose contended that Y is not entitled to any amount under the
policy because
the assignment without due notice to the insurer was void. Resolve the issues.
Answer:
A life insurance is assignable. A provision, however, in the policy stating that written notice of
such an assignment
should be given to the insurer is valid. The failure of the notice of assignment would thus
preclude the assignee from
claiming rights under the policy. The failure of notice did not, however, avoid the policy; hence,
upon the death of
Jose, the proceeds would, in the absence of a designated beneficiary, go to the estate of the
insured. The estate, in turn,
would be liable for the loan of P50,000 owing in favor of Y. (BAR 1991)
d. Kinds of Policy
1. In 1964, Jose constructed a house worth P50,000.00, which he insured against fire for the
same amount. The
insurance for the same amount was renewed every year. In 1974, when the house was already
worth P100,00.00
on account of inflationary prices (in case of a rebuilding), one-fifth (1/5) of the house was
destroyed by fire. As
nothing illegal about the contract, how much, if any, can Jose successfully recover from the
Insurance
Company? Reason.
Answer:
If the fire policy is a valued one, then Jose can recover 1/5 of P50,000.00. i.e., P10,000.00. Under
the Insurance Code,
the valuation in a valued policy is conclusive between the parties in the absence of fraud. So Jose
cannot claim that
since his house was worth P100,00.00 at the time of the loss, he should be able to recover
P20,000.00 (actual value of
loss1/5 of P100,00.00)
If the policy is an open policy then under the Iaw, appraisal of loss is made after the fire. Since
the house was worth
P100,00.00 at such time, then the loss of Jose is P20,000.00 and he can recover this amount
under such an open
policy. (BAR 1975)

Page | 120
2. Premium Payment
1. A insured his house against loss by fire for P100,000.00. The policy provides that the insurer
shall be liable if
the property insured shall be damaged or destroyed by fire after payment of premium, at
anytime from, from
June 15, 1976 to June 15, 1977. The policy was delivered to A on June 14, 1976. Instead of
paying the
premium in cash, A issued a promissory note dated June 15, 1976, for the amount of premium,
payable within
30 days. The note was accepted. On June 29, 1976, the property insured was burned. The insurer
refused to
pay on the ground that the premium had not been paid, and the note did not have the effect of
payment as its
value had not been realized at the time the house was burned. Decide with reasons.
Answer:
Since the case given took place after the effectivity of the Insurance Code, it must be governed
by its provisions.
Section 77 thereof provides: Notwithstanding any agreement to the contrary, no policy or
contract of insurance
issued by an insurance company is valid and binding unless and until the premium thereof has
been paid
Considering that this cited provision replaces Section 72 of old Insurance Act expressly
permitting the granting of
credit extension, the only conclusion is that the law-making power intended by the amendment
to disallow any
agreement postponing payment of premium, including a grant of credit extension. The issuance
of a promissory note
postpones payment by granting credit extension. Therefore, the insurer is not liable under this
express provision of the
new Insurance Code. The case of Capital Insurance & Surety Co. v. Plastic Era Co which held that
acceptance of a
promissory note constitutes waiver of the stipulation that the insurer will be liable only after the
payment of premium
and that in the absence of stipulation as to mode of payment, a promissory note constitutes
payment, took place before
the Insurance Code came into effect and was based on Section 72 of the old Insurance Act. It can
therefore not be
made applicable to the given case. (BAR 1976)
2. On December 17, 1975, a fire policy, insuring a building and its contents, was delivered to the
insured
company. By agreement, it was allowed to pay the premium within 30 days. On January 8, 1976,
it paid the
premium by means of a check postdated January 16, 1976. The check was deposited by the
insurance company
only on February 20, but the check bounced, although January 19, the insured has a sufficient
bank balance.
On January 18, two days after the premium became due, the insured property was burned and
became a total
loss.
Can the insurance company cancel the policy for non-payment of premium? Give reasons for
your answers.
Answer:
Yes, the insurance company can cancel the policy for nonpayment of the premium. The new
Insurance Code provides

that notwithstanding any agreement to contrary, no policy or contract of insurance is valid and
binding unless and
until the premium thereof has been paid. (BAR 1978)
3. The Peninsula Insurance Company offered to insure Francis brand new car against all risks in
the sum of P1
M per year. The policy was issued with the premium fixed at P60,000 payable in 6 months.
Francis only paid
the first two months installments. Despite demands, he failed to pay the subsequent
installments. 5 months
after the issuance of the policy, the vehicle was carnapped. Francis filed with the insurance
company a claim
for its value. However, the company denied his claim on the ground that he failed to pay the
premium resulting
in the cancellation of the policy.
Can Francis recover from the Peninsula Insurance Company?
Answer:
Yes, Francis can recover from Peninsula considering that his car was carnapped before the 6
month period to pay the
premium installments expired. An insurance premium can be paid in installments, and the
insurance contract became
Page | 121
valid and binding upon payment of the first premium. When the insurer granted a credit term for
the payment of the
premium, it is liable when the loss occurred before the expiration of such term. It could not deny
liability on the
ground that payment was not made in full, for the reason that it agreed to accept installment
payments. For the same
reason, it could not validly cancel the policy, more so, without giving notice to the insured of its
cancellation. (BAR
2006)
4. Alfredo took out a policy to insure his commercial building against fire. The broker for the
insurance company
agreed to give a 15-day credit within which to pay the insurance premium. Upon delivery of the
policy on May
15, 2006, Alfredo issued a postdated check payable on May 30, 2006. On May 28, 2006, a fire
broke out and
destroyed the building owned by Alfredo.
a) May Alfredo recover on the insurance policy?
b) Would your answer in a) be the same if it as found that the proximate cause of the fire was an
explosion
and that fire was but the immediate cause of the loss and there is no excepted peril under the
policy?
c) If the fire was found to have been caused by Alfredos own negligence, can he still recover on
the
policy?
Reason briefly in a, b and c.
Answer:
a) Yes, Alfredo may recover on the policy. It is valid to stipulate that the insured will be granted
credit term for the
payment of premium. Payment by means of a check which was accepted by the insurer, bearing
a date prior to the
loss, would be sufficient. The subsequent effects of encashment retroact to the date of the
check.
b) Yes, recovery under the insurance contract is allowed if the cause of the loss was either the
proximate or the
immediate cause as long as an excepted peril, if any, was not the proximate cause of the loss.

c) Yes, mere negligence on the part of the insured will not prevent recovery under the insurance
policy. The law
merely prevents recovery when the cause of loss is the willful act of the insured, alone or in
connivance with
others. (BAR 2007)
5. Enrique obtained from Seguro Insurance Company a comprehensive motor vehicle insurance
to cover his top
of the line Aston Martin. The policy was issued on March 31, 2010 and, on even date, Enrique
paid the
premium with a personal check postdated April 6, 2010.
On April 5, 2010, the car was involved in an accident that resulted in its total loss.
On April 10, 2010, the drawee bank returned Enriques check with the notation Insufficient
Funds. Upon
notification, Enrique immediately deposited additional funds with the bank and asked the insurer
to redeposit
the check.
Enrique thereupon claimed indemnity from the insurer. Is the insurer liable under the insurance
coverage?
Why or why not?
Answer:
The insurer is not liable under the insurance policy. Under Art 1249 of the Civil Code, the delivery
of a check
produces the effect of payment only when it is encashed. The loss occurred on April 5, 2010.
When the check was
deposited, it was returned on April 10, 2010, for insufficiency of funds. The check was honored
only after Enrique
deposited additional funds with the bank. Hence, it did not produce the effect of payment. (BAR
2010)
Page | 122
6. Stable Insurance Co. (SIC) and St. Peter Manufacturing Co. (SPMC) have had a long-standing
insurance
relationship with each other; SPMC secured the comprehensive fire insurance on its plant and
facilities from
SIC. The standing business practice between them has been to allow SPMC a credit period of 90
days from the
renewal of the policy within which to pay the premium.
Soon after the new policy was issued and before premium payments could be made, a fire gutted
the covered
plant and facilities to the ground. The day after the fire, SPMC issued a managers check to SIC
for the fire
insurance premium, for which it was issued a receipt; a week later SPMC issued its notice of loss.
SIC responded by issuing its own managers check for the amount of the premiums SPMC had
paid, and
denied SPMCs claim on the ground that under the cash and carry principle governing fire
insurance, no
coverage existed at the time the fire occurred because the insurance premium had not been
paid.
Is SPMC entitled to recover for the loss from SIC?
Answer:
SPMC is entitled to recover for the loss from SIC. SIC granted a credit term to pay the premiums.
This is not against
the law, because the standing business practice of allowing SPMC to pay the premiums after 60
or 90 days, was relied
upon in good faith by SPMC. SIC is in estoppel. (BAR 2013)
a. Non-Default Options in Life Insurance
b. Reinstatement of a Lapsed Policy of Life Insurance

c. Refund of Premiums
1. Name at least 3 instances when an insured is entitled to a return of the premium paid.
Answer:
Three instances when an insured is entitled to a return of premium paid are:
1. To the whole premium, if no part of his interest in the thing insured be exposed to any of the
perils insured
against.
2. Where the insurance is made for a definite period of time and the insured surrenders his
policy, to such
portion of the premium as corresponds with the unexpired time at a pro rata rate, unless a short
period rate has
been agreed upon and appears on the face of the policy, after deducting from the whole
premium any claim
for loss or damage under the policy which has previously accrued.
3. When the contract is voidable on account of the fraud or misrepresentation of the insurer or of
his agent or on
account of facts the existence of which the insured was ignorant without his fault; or when, by
any default of
the insured other than actual fraud, the insurer never incurred any liability under the policy. (BAR
2000)
H. Rescission of Insurance Contracts
1. Shipowner X, in applying for a marine insurance policy from ABC, Co., stated that his vessel
usually sails
middle of August and with normally 100 tons of cargo. It turned out later that the vessel
departed on the first
week of September and with only 10 tons of cargo. Will this avoid the policy that was issued?
a. Yes, because there was breach of implied warranty.
b. No, because there was no intent to breach an implied warranty.
c. Yes, because it relates to a material representation.
Page | 123
d. No, because there was only representation of intention.
Answer:
d. No, because there was only representation of intention. (BAR 2011)
2. When X insured his building, X indicated in the application that it is a residential building, but
actually the
building was being used as a warehouse for some hazardous materials. What is the effect on the
insurance
policy, if any?
a. The insurance policy can be cancelled because of the change in the use;
b. The insurance policy will automatically be changed;
c. The insurance policy need not be changed;
d. The insurance policy is fixed regardless of the changes in the use.
Answer:
Any of the above should be given full credit. (BAR 2012)
1. Concealment
1. In a non-medical insurance contract (one where the company waives medical examination) the
insured failed to
disclose that she had once been operated on, although the information on this matter was
supposed to have
been supplied the company. Within the proper period, may the Insurance Company have the
contract
rescinded? Reasons.
Answer:
Yes, the Insurance Company can rescind the contract on the ground of misrepresentation or
concealment of material

fact. The fact of the insureds operation is material to the insurer, who may have refused to issue
the life policy had it
known of such fact. This is even more true in a non-medical insurance where no medical exam is
made and the
information given by the insured concerning his past health and diseases is a very important
factor which the insurer
takes into consideration in deciding to issue the policy. (BAR 1975)
2. Pedro Reyes applied for fire insurance on his house. In his application, it was asked the
following question: Is
the house insured with another Insurance Company? If so, for how much? His answer was No.
The fact,
however, is that the house had been insured with the FGU for P100,000.00. the application was
approved and
made a part of the policy. Subsequently, a fire occurred in a neighboring house, and spread to
the house of
Pedro Reyes which was completely burned. Demand for payment having been refused by the
insurer, Pedro
Reyes filed a complaint. May he recover? Reason.
Answer:
No, Pedro Reyes may not recover. He was guilty of concealment or misrepresentation of a
material fact. The fact of
the existence of the other insurance is material because had he answered truthfully, the insurer
would probably have
charged him higher premium, or would have made further inquiries, or would have imposed
some other conditions in
the policy to protect its interest. The existence of a large amount of insurance increases the
moral hazard or the
temptation to commit arson. Concealment of a material fact is a ground for rescission and is a
valid defense of an
insurer in an action based on the policy. (BAR 1976)
3. A fire insurance policy in favor of the insured contained a stipulation that the insured shall give
notice to the
company of any insurances already effected or which may subsequently be effected, covering
the property
insured and that unless such notice be given before the occurrence of any loss, all benefits shall
be forfeited.
The face of the policy bore the annotation Co-insurance declared. The things insured were
burned. It turned
Page | 124
out that several insurances were obtained on the same goods for the same term. The insurer
refused to pay on
the ground of concealment. May the insured recover? Reason.
Answer:
Yes, the insured may recover since there is no concealment. The face of the policy bore already
the annotation, Coinsurance
declared which is a notice to the insurer as to the existence of other insurance contracts on the
property
insured. (Gen. Insurance & Surety Corporation v. Ng Hua, L-14373, Jan. 30, 1960) (BAR 1979)
4. Marine insurance was secured upon goods on board a ship which departed from Madagascar
to Manila,
without any disclosure to the insurer of the fact that the ship had been reported at Lloyd of
London as seen at
sea, deep in water and leaky. This report turned out later to be wrong because the ship was at no
time during
the voyage leaky or in trouble, but was lost through another insured risk. The insurer refuses to
pay the

insured, claiming concealment. The insured counters that the fact not disclosed was erroneous
and did not
increase the risk and therefore immaterial. Decide the dispute with reasons.
Answer:
The insured may not recover from the insurer. The information that the ship in question was seen
at sea, deep in water
and leaky, although erroneous, was material, and its concealment entitled the insurer to rescind
the contract of
insurance. (BAR 1979)
5. In June 1981, Juan applied for a life insurance policy with a double indemnity provision in case
of death by
accident. Despite an express inquiry in the application form for insurance, he did not mention the
fact that he
had suffered from viral hepatitis the previous year. As Juan had fully recovered from the disease,
the medical
examination performed by the insurance companys physician did not reveal such previous
illness, and showed
that Juan was healthy and was an insurable risk. The policy was issued forthwith.
In March 1983, Juan died in an automobile accident. Subsequent investigation revealed that Juan
was
negligent in not having his brakes checked.
The insurance company refused to pay Juans wife, the designated beneficiary, on two grounds:
that Juan was
guilty of fraudulent concealment of his liver ailment, and that Juans death was caused by his
own negligence.
The policy is silent as to the effect of the insureds negligence on the right to recover thereunder.
Juans wife
insists that she has a right to recover because Juans death was caused by an accident which had
nothing to do
whatsoever with his liver ailment. She therefore insists on double indemnity.
a) Is she entitled to any indemnity? Explain.
b) If Juans accident occurred in July 1983, would your answer be the same?
Answer:
a) No, she is not entitled to any indemnity. Although Juan did not die of a liver ailment, the fact of
his concealment
vitiated the insurers consent to the contract of insurance. Under the Insurance Code,
concealment of a material
fact is a ground for rescission. And materiality is determined not by the event which caused the
death but by the
probable and reasonable influence of the fact concealed upon the other party in forming his
estimate of the
disadvantages of the proposed contract, or in making inquiries. If the insurer had known of Juans
previous liver
ailment, it would in all probabilities have at least made more detailed inquiries about it or make a
special
examination of his liver function, or perhaps even charge a higher premium because of the
greater risk involved.
The concealment was therefore of a material fact, relieving the insurer from any liability on the
policy, regardless
of the cause of death. Since the insurer is relieved from liability, the question as to whether the
event was an
Page | 125
accident or not becomes moot. In any case, under the Insurance Code, negligence of the insured
or of others does
not exonerate the insurer.

b) My conclusion would be different. The insurer would be liable despite the fraudulent
concealment because the
policy has become uncontestable since more than 2 years had elapsed from the date thereof.
(BAR 1983)
6. X applied for life insurance with Metropolitan Life Insurance Company. The application
contained this
question: Have you ever had any ailment or disease of x x x (b) the stomach or intestines, liver,
kidney, or
genitourinary organ? X, a laundrywoman who has no medical knowledge answered No. the
application was
approved, premium was paid and 6 months later, X died from cancer of the stomach. The post
medical
examination of X shows that she had the cancer at the time she applied for a policy. Can the
beneficiary of X
collect on the policy? Reasons.
Answer:
The beneficiary of X cannot collect on the policy. Concealment, as a defense against liability by
the insurer, may
either be intentional or unintentional. Lack of knowledge on the part of the insured about her
ailment will not preclude
the insurer from raising the defense. The insurer may be held in estoppel only if, having known of
the concealed or
misrepresented fact, still accepts the payment of premium which is not the situation in this case.
(BAR 1989)
7. Juan procured a non-medical life insurance from Good Life Insurance. He designed his wife,
Petra, as the
beneficiary. Earlier, in his application in response to the question as to whether or not he had
ever been
hospitalized, he answered in the negative. He forgot to mention his confinement at the Kidney
Hospital.
After Juan died in a plane crash, Petra filed a claim with Good Life. Discovering Juans previous
hospitalization, Good Life rejected Petras claim on the ground of concealment and
misrepresentation. Petra
sued Good Life, invoking good faith on the part of Juan.
Will Petras suit prosper? Explain.
Answer:
No. Petras suit will not prosper (assuming that the policy of life insurance has been in force for a
period of less than 2
years from the date of its issue). The matters which Juan failed to disclose was material and
relevant to the approval
and issuance of the insurance policy. They would have affected Good Lifes action on his
application, either by
approving it with the corresponding adjustment for a higher premium or rejecting the same.
Moreover, a disclosure
may have warranted a medical examination of Juan by Good Life in order for it to reasonably
assess the risk involved
in accepting the application. In any case, good faith is no defense in concealment. The waiver of
a medical
examination in the non-medical life insurance from Good Life makes it even more necessary
that Juan supply
complete information about his previous hospitalization for such information constitutes an
important factor which
Good Life takes into consideration in deciding whether to issue the policy or not.
If the policy of life insurance has been in force for a period of 2 years or more from the date of its
issue (on which

point the given facts are vague) then Good Life can no longer prove that the policy is void ab
initio or is rescindable
by reason of the fraudulent concealment or misrepresentation of Juan. (BAR 1996)
8. The assured answers No to the question in the application for a life policy. Are you suffering
from any form
of heart illness? In fact, the assured has been a heart patient for many years. On September 7,
1991, the
assured is killed in a plane crash. The insurance company denies the claim for insurance
proceeds and returns
the premium paid.
Is the decision of the insurance company justified?
Page | 126
Answer:
Assuming that the incontestability clause does not apply because the policy has not been in
force for 2 years from date
of issue, during the lifetime of the insured, the decision of the insurance company not to pay is
justified. There was
fraudulent concealment. It is not material that the insured died of a different cause than the fact
concealed. The fact
concealed, that is the heart ailment, is material to the determination by the insurance company
whether or not to
accept the application for insurance and to require the medical examination of the insured.
However, of the incontestability clause applies t the insurance policy covering the life of the
insured had been in force
for 2 years from the issuance thereof, the insurance company would not be justified in denying
the claim for the
proceeds of the insurance and in returning the premium paid. In that case, the insurer cannot
prove the policy void ab
initio or rescindable by reason of fraudulent concealment or misrepresentation of the insured.
(BAR 1997)
9. Renato was issued a life insurance policy on January 2, 1990. He concealed the fact that 3
years prior to the
issuance of his life insurance policy, he had been seeing a doctor about his heart ailment.
On March 1, 1992, Renato died of heart failure. May the heirs file a claim on the proceeds of the
life insurance
policy of Renato?
Answer:
Yes. The life insurance policy in question was issued on January 2, 1990. More than 2 years had
elapsed when Renato,
the insured, died on March 1, 1992. The incontestability clause applies. (BAR 1998)
10. A applied for a non-medical life insurance. The insured did not inform the insurer that one
week prior to his
application for insurance, he was examined and confined at St. Lukes Hospital where he was
diagnosed for
lung cancer. The insured soon thereafter died in a plane crash. Is the insurer liable considering
that the fact
concealed had no bearing with the cause of death of the insured? Why?
Answer:
No. The concealed fact is material to the approval and issuance of the insurance policy. It is well
settled that the
insured need not die of the disease he failed to disclose to the insurer. It is sufficient that his nondisclosure misled the
insurer in forming his estimate of the risks of the proposed insurance policy or in making
inquiries.
(BAR 2001)

11. X, in the hospital for kidney dysfunction, was about to be discharged when he met his friend
Y. X told Y the
reason for his hospitalization. A month later, X applied for an insurance covering serious illness
from ABC
Insurance, Co., where Y was working as Corporate Secretary. Since X had already told Y about his
hospitalization, he no longer answered a question regarding it in the application form. Would this
constitute
concealment?
a. Yes, since the previous hospitalization would influence the insurer in deciding whether to grant
Xs
application.
b. No, since Y may be regarded as ABCs agent and he already knew of Xs previous
hospitalization.
c. Yes, it would constitute concealment that amounts to misrepresentation on Xs part.
d. No, since the previous illness is not a material fact to the insurance coverage.
Answer:
a. Yes, since the previous hospitalization would influence the insurer in deciding whether to grant
Xs application.
(BAR 2011)
Page | 127
12. An insured, who gains knowledge of a material fact already after the effectivity of the
insurance policy, is not
obliged to divulge it. The reason for this is that the test of concealment of material fact is
determined.
a. At the time of the issuance of the policy.
b. At any time before the payment of premium.
c. At the time of the payment of the premium.
d. At any time before the policy becomes effective.
Answer:
d. any time before the policy becomes effective. (BAR 2011)
13. Benny applied for life insurance for P1.5 M. the insurance company approved his application
and issued an
insurance policy effective Nov. 6, 2008. Benny named his children as his beneficiaries. On April 6,
2010, Benny
died of hapatoma, a liver ailment.
The insurance company denied the childrens claim for the proceeds of the insurance policy on
the ground that
Benny failed to disclose in his application 2 previous consultations with his doctors for diabetes
and
hypertension, and that he had been diagnosed to be suffering from hepatoma. The insurance
company also
rescinded the policy and refunded the premiums paid.
Was the insurance company correct?
Answer:
The insurance company correctly rescinded the policy because of concealment. Benny did not
disclose that he was
suffering from diabetes, hypertension, and hepatoma. The concealment is material because
these are serious ailments.
Benny died less than 2 years from the date of the issuance of the policy. (BAR 2013)
14. On May 13, 1996, PAM, Inc. obtained a P15 M fire insurance policy from Ilocano Insurance
covering its
machineries and equipment effective for 1 year or until May 14, 1997. The policy expressly
stated that the
insured properties were located at Sanyo Precision Phils. Building, Phase III, Lots 4 and 6, Block
15, PEZA,

Rosario Cavite. Before its expiration, the policy was renewed on as is basis for another year
until May, 13,
1998. The subject properties were later transferred to Pace Factory also in PEZA. On October 12,
1997, during
the effectivity of the renewed policy, a fire broke out at the Pace Factory which totally burned the
insured
properties.
The policy forbade the removal of the insured properties unless sanctioned by Ilocano. Condition
9(c) of the
policy provides that the insurance ceases to attach as regards the property affected unless the
insured, before
the occurrence of any loss or damage, obtains the sanction of the company signified by
endorsement upon the
policy x x x (c) if the property insured is removed to any building or place other than in that
which is herein
stated to be insured. PAM claims that it has substantially complied with notifying Ilocano for the
insurance
coverage. Is Ilocano liable under the policy?
Answer:
Ilocano is not liable under the policy. With the transfer of the location of the subject properties,
without notice and
without insurers consent, after the renewal of the policy, the insured clearly committed
concealment,
misrepresentation and a breach of material warranty. The Insurance Code provides that a neglect
to communicate that
which a party knows and ought to communicate, is called concealment. A concealment entitles
the injured party to
rescind a contract of insurance in case of an alteration in the use or condition of the thing
insured. An alteration in the
use or condition of a thing insured from that to which it is limited by the policy made without the
consent of the
Page | 128
insurer, by means within the control of the insured, and increasing the risks, entitles the insurer
to rescind the contract
of fire insurance. (BAR 2014)
2. Misrepresentation/Omissions
1. A, an agent of life insurance company X, induced B who has been suffering from advance
tuberculosis to apply for
P10,000.00 life insurance which B did and he (B) requested A to fill the application form. Thru the
connivance
of the physician, it was made to appear in the application that B is in good health and the
P10,000.00 life
insurance policy was issued by X to B. If B dies of tuberculosis, may his beneficiaries recover?
Answer:
It depends. The insurer is bound when its agent writes a false answer into the application without
the knowledge of the
insured, in which case his (insured) beneficiaries may recover, but a collusion between the agent
and the insured in
misrepresenting the facts will vitiate the policy; thus, in the instant case, if A obtained from B a
correct and truthful
answer to interrogatories contained in the application but without the knowledge of B filed in
false answer and thru
the connivance with the company physician, it was made to appear that B is in good health, the
insurer cannot assert
the falsity of such answers as a defense to liability on the policy. (BAR 1976)

2. On October 18, 1980, P, took out a life insurance policy and named his only son Q as
beneficiary. The policy
was silent with regard to any change of beneficiary. P later learned that Q was hooked on drugs
and
immediately notified the insurance company in writing that he is substituting his sister, R, as his
beneficiary in
place of Q. P later died of advanced tuberculosis. In the application form filled up by the agent of
the insurance
company prior to the issuance of the life insurance policy by the insurance company, the agent,
without the
knowledge of P, filled in a false answer and made it appear that P was in good health. Upon Ps
death, Q
claimed the proceeds of the insurance policy contending that as designated beneficiary, he
cannot be changed
without his consent, he having acquired a vested right to the proceeds of the policy.
Can the insurance company refuse liability on the policy? Reasons.
Answer:
No, the insurer cannot escape liability. The insurance agent is an agent not of the insured but of
the insurer and the
latter must thus suffer for the misconduct of the agent. The result would have been different had
the false answer been
made by the agent in connivance with the insured. (BAR 1988)
3. Breach of Warranties
1. Pabaya paid for a fire insurance policy on his multi storey building. At the time he applied for
the insurance,
he told the representative of the insurance company that he planned to assign a security guard
on every floor of
the building right away. Except for the ground floor, no security guards were assigned. 11 months
after the
policy was issued, the building was gutted by fire which started on the third floor. Unknown to
Pabaya, the
insurance company had incorporated his planned undertaking in the policy.
Can Pabaya recover on the fire insurance policy?
Answer:
Pabaya can recover under the insurance policy. The statement of Pabaya that he planned to
assign a security guard on
every floor of the insured building, whether incorporated in the policy or not, did not amount to
firm commitment so
as to constitute an express warranty or representation. The facts indicate that it was simply
planned, not obligatory or
promissory, undertaking. (BAR 1986)
Page | 129
2. Julie and Alma formed a business partnership. Under the business name Pino Shop, the
partnership engaged
in a sale of construction materials. Julie insured the stocks in trade of Pino Shop with WGC
Insurance
Company for P350,000. Subsequently, she again got an insurance contract with RSI for P1 M and
then from
EIC for P200,000. A fire of unknown origin gutted the store of the partnership. Julie filed her
claims with the 3
insurance companies. However, her claims were denied separately for breach of policy condition
which
required the insured to give notice of any insurance effected covering the stocks in trade. Julie
went to court
and contended that she should not be blamed for the omission, alleging that the insurance
agents for WGC,

RSI and EIC knew of the existence of the additional insurance coverage and that she was not
informed about
the requirement that such other or additional insurance should be stated in the policy.
May she recover on her fire insurance policies? Explain.
Answer:
No, because she is guilty of violation of a warranty/ condition. (BAR 1992)
3. To secure a loan of P10 M, Mario mortgaged his building to Armando. In accordance with the
loan
arrangements, Mario had the building insured with First Insurance Company for P10 M,
designating
Armando as the beneficiary.
Armando also took an insurance on the building upon his own interest with Second Insurance
Company for P5
M.
The building was totally destroyed by fire, a peril insured against under both insurance policies. It
was
subsequently determined that the fire had been intentionally started by Mario and that in
violation of the loan
agreement, he had been storing inflammable materials in the building.
How much, if any, can Armando recover from either or both insurance companies?
Answer:
Armando can receive P5 M from Second Insurance Company. As mortgagee, he had an insurable
interest in the
building. Armando cannot collect anything from First Insurance Company. First Insurance
Company is not liable for
the loss of the building. First, it was due to a willful act of Mario, who committed arson. Second,
fire insurance
policies contain a warranty that the insured will not store hazardous materials within the
insureds premises. Mario
breached this warranty when he stored inflammable materials in the building. These two factors
exonerate First
Insurance Company from liability to Armando as mortgagee even though it was Mario who
committed them. (BAR
2010)
I. Claims Settlement and Subrogation
1. Notice and Proof of Loss
2. Guidelines on Claims Settlement
a. Unfair Claims Settlement; Sanctions
b. Prescription of Action
1. Robin insured his building against fire with EFG Assurance. The insurance policy contained the
usual
stipulation that any action or suit must be filed within 1 year after the rejection of the claim.
Page | 130
After his building burned down, Robin filed his claim for fire loss with EFG. On February 28, 1994,
EFG
denied Robins claim. On April 3, 1994, Robin sought reconsideration of the denial, but EFG
reiterated its
position. On March 20,1995, Robin commenced judicial action against EFG.
Should Robins action be given due course? Explain.
Answer:
No, Robins action should not be given due course. His filing of the request for reconsideration
did not suspend the
running of the prescriptive period of 1 year stipulated in the insurance policy. Thus, when Robin
commenced judicial
action against EFG on March 20, 1995, his ability to do so had already prescribed. The 1 year
period is counted from

February 28, 1994 when EFG denied Robins claim, not from the date (presumably after April 3,
1994) when EFG
reiterated its position denying Robins claim. The reason for this rule is to insure that claims
against insurance
companies are promptly settled and that insurance suits are brought by the insured while the
evidence as to the origin
and cause of the destruction has not yet disappeared. (BAR 1996)
c. Subrogation
1. A helicopter of ABC Co. collided with XYZs tramway steel cables in its logging area in Surigao
resulting in
the destruction of the helicopter and death of two pilots. ABC Co. insured at its expense the
helicopter and
death of two pilots. ABC Co. insured at its expense the helicopter for P80,000.00 and the two
pilots (life
insurance) for P50,000.00 each, and as a result of the crash, the insurer paid ABC Co. a total
indemnity of
P180,000.00. Nevertheless, ABC Co sustained additional damages of about P100,000.00 which
were not covered
by insurance.
1) ABC Co. sued XYZ to recover not only the additional damages, but also the P180,000 which
was
already compensated by the insurer. Decide. Give reasons.
2) What right/recourse, if any, has the insurer in order to be reimbursed for the amount it paid to
ABC
Co? Give reasons.
Answer:
1) ABC Co may bring the action against XYZ for its claim for the additional damages not covered
by insurance, but
not for the P180,000 covered by the insurance. If a property is insured and the owner received
indemnity from the
insurer, the latter is deemed subrogated to the rights of the insured against the wrongdoer, and
if the amount paid
by the insurer does not fully cover the loss, then the aggrieved party is the one entitled to
recover the deficiency.
2) The insurer is deemed subrogated to the rights of ABC Co against XYZ to the extent of
P80,000 insurance paid
for the helicopter only, but not for the life insurance of the two dead pilots, since subrogation in
the New Civil
Code refers only to property, and not to the life insurance. (Philippine Air Lines, Inc. v. Herald
Lumber Co., G.R.
L-11497, August 16, 1957; for both 1 and 2 answers.) (BAR 1978)
2. L borrows P50,000 from M payable 360 days after date, at 12% interest per annum. To
secure the loan,
L mortgages his house and lot in favor of M. To protect himself from certain contingencies,
M insures
the house for the full amount of the loan with Rock Insurance Company. A fire breaks out and
burns the house
and M collects from the insurance company the full value of the insurance.
Upon maturity of the loan, the insurance company demands payment from L. The latter refuses
to pay on
the ground that the loan had been extinguished by the insurance payment which M received
from the
insurance company. He argues that he has not entered into any loan or contract of whatever
nature with the
insurance company. He further contends that it is bad enough to lose a house but it is worse if
one has to pay

off a paid obligation to somebody who has not extended any loan to him. Besides, he states, that
the insurance
payment should inure to his benefit because he owns the house.
Page | 131
Pass upon the merits of Ls contentions.
Answer:
Neither the loan of L was extinguished by the insurance payment which M received from the
insurance company; nor
the insurance payment inures to Ls benefit; what was then insured was the interest of M, the
secured creditor, and not
the interest of L, so the proceeds shall be applied exclusively to the proper interest of M.
Ls argument that he has not entered into any loan or contract of whatever nature with the
insurance company is also
untenable. When the secured creditors interest in the mortgaged property of the mortgagor, L,
was insured and said
property would be burned, the insurance company had to pay the insured, M, and payment by
the insurer to the
insured creates legal subrogation and makes the insurer an assignee on equity to run after the
mortgagor, L. Said right
of the insurer is not dependent upon nor does it grow out of, any privity of contract, or upon
written assignment of
claim, and payment to insured makes the insurer an assignee in equity; thus, Ls consent to said
subrogation is not
necessary. (Art. 2207, N.C.C.; Firemans Fund Insurance Co. v. Jamila & Co., April 7, 1976; 70
SCRA 323) (BAR
1980)
3. Rauls truck bumped the car owned by Luz. The car was insured by Cala Insurance. For the
damage caused,
Cala paid Luz P5,000 in amicable settlement. Luz executed a release claim, subrogating Cala to
all her rights
against Raul. When Cala demanded reimbursement from Raul, the latter refused saying that he
had already
paid Luz P4,500 for the damage to the car as evidenced by a release of claim executed by Luz
discharging Raul.
So Cala demanded reimbursement from Luz, who refused to pay, saying that the total damage to
the car was
P9,500. Since Cala paid P5,000 only, Luz contends that she was entitled to go after Raul to claim
the additional
P4,500.
1. Is Cala, as subrogee of Luz, entitled to reimbursement from Raul?
2. May Cala recover what it has paid Luz?
Answer:
1. No. Luz executed a release in favor of Raul.
2. Yes. Cala lost its right against Raul because of the release executed by Luz. Since the release
was made without
the consent of Cala, Cala may recover the amount of P5,000. (BAR 1994)
4. Where the insurer was made to pay the insured for a loss covered by the insurance contract,
such insurer can
run after the third person who caused the loss through subrogation. What is the basis for
conferring the right
of subrogation to the insurer?
a. Their express stipulation in the contract of insurance.
b. The equitable assignment that results from the insurers payment of the insured.
c. The insureds formal assignment of his right to indemnification to the insurer.
d. The insureds endorsement of its claim to the insurer.
Answer:

b. The equitable assignment that results from the insurers payment of the insured. (BAR 2011)
5. ELP Insurance, Inc. issued a Marine Policy No. 888 in favor of FCL Corp. to insure the shipment
of 132
bundles of electric copper cathodes against all risks. Subsequently, the cargoes were shipped on
board the
vessel M/V Menchu from Leyte to Pier 10, North Harbor, Manila.
Page | 132
Upon arrival, FCL Corp. engaged the services of CGM, Inc. for the release and withdrawal of the
cargoes from
the pier and the subsequent delivery to its warehouses/plants in Valenzuela City. The goods were
loaded on
board 12 trucks owned by CGM, Inc., driven by its employed drivers and accompanied by its
employed truck
helpers. Of the 12 trucks en route to Valenzuela City, only 11 reached the destination. One truck,
loaded with
11 bundles of copper cathodes, failed to deliver its cargo.
Because of this incident, FCL Corp. filed with ELP Insurance, Inc. a claim for insurance indemnity
in the
amount of P1.5 M. After the requisite investigation and adjustment, ELP Insurance, Inc. paid FCL
Corp. the
amount of P1,350,000.00 as insurance indemnity.
ELP Insurance, Inc., thereafter, filed a complaint for damages against CGM, Inc. before the RTC,
seeking
reimbursement of the amount it had paid to FCL Corp. for the loss of the subject cargo. CGM, Inc.
denied the
claim on the basis that it is not privy to the contract entered into by and between FCL Corp. and
ELP
Insurance, Inc., and hence, it is not liable therefor. If you are the judge, how will you decide the
case?
Answer:
CGM, Inc. should be held liable for damages against ELP Insurance, Inc. The insurer, upon
happening of the risk
insured against and after payment to the insured is subrogated to the rights and cause of action
of the latter. As such,
the insurer has the right to seek reimbursement for all the expenses paid. (BAR 2014)