SEC. 10.

Every person has an insurable interest in the life and health:

(a) Of himself, of his spouse and of his children;
(b) Of any person on whom he depends wholly or in part for education or support, or in
whom he has a pecuniary interest;
(c) Of any person under a legal obligation to him for the payment of money, or respecting
property or services, of which death or illness might delay or prevent the performance;
and
(d) Of any person upon whose life any estate or interest vested in him depends.
Insurable interest

One of the most basic of all requirements

Pecuniary in nature
o
E life insurance
o
Benefit need not be pecuniary

Necessity of insurable interest

Gives a legal right to insure

Necessary for the validity of an insurance contract, without which, it is a mere

wagering policy
Requirement a matter of public policy

As a deterrence to the insured

As a measure of limit of recovery

General classes of life policies

Upon ones life

Unlimited insurable interest
o
Not necessary that the beneficiary designated should have any interest in
o
the life of the insured
Unlikely that a person will insure his own life for the benefit of another or
o
for speculation
Insurance of own life
o
Evidence of good faith

Selection of beneficiary of the insured sufficient to guaranty existence of

o
good faith and confidence
When regarded upon as a wagering policy
o
At the behest of a third person named as a beneficiary

Evidences
Original proposal to take out insurance was
o
that of the beneficiary
The premiums are paid by the beneficiary
o
The beneficiary has no interest, economic,
o
emotional in the continued life of the insured

Life of another
There must be insurable interest in that life of another
o
Insurance for the benefit of the insured
o
Pecuniary

Relation by blood, marriage or commercial intercourse

Must have interest to preserve the life of the insured in spite of

the insurance rather than destroy it
Insurance for the benefit of a third party
o
Both owner and beneficiary must have insurable interest in the

life of the cestui que vie

Insurable interest in the life of a person upon whom one depends upon for education or
support or in whom he has pecuniary interest

When blood relationship sufficient

Natural affection in the following cases is sufficient, if not more powerful to
o
protect the life of the insured than any other consideration
Brother sister

Father child

Persons obliged to support each other

Under art. 195 of the Family Code
o
Spouses

Legitimate ascendants and descendants

Parents and their legitimate children and the legitimate children

of the latter
Parents and their illegitimate children and the legitimate or

illegitimate children of the latter

Legitimate brothers and sisters, whether of the full or half-blood

Brothers and sisters not legitimately related, whether of the full

or half-blood

Where pecuniary benefit essential

Lesser degree of kinship
o
Uncle-aunt

Nephew-neice

By affinity

Son-in-law

Brother-in-law
There must be expectation of pecuniary benefit
o
There must be dependence on the insured for support and care
o
The expectation need not have legal basis, it is sufficient that it is actual
o
Assumption of parental relations when a man sends a girl to

school
Woman who takes a girl from an orphan asylum and gives her a

home
Corporation has insurable interest over the life of an officer

whose services the corporation depends for its prosperity

On a business partner on the theory that his death may

adversely affect the business operations

On the reasonable expectation of substantial future benefits of

employees

President

Executive officers

Dept heads
Insurable interest of a person in life of another under a legal obligation to former

Related by contract or commercial relation

That the right possessed by him will be extinguished or impaired by the
o
death or illness of the other may lawfully procure an insurance on the
others life

Risk that performance of obligation might be delayed or prevented

Must show that the death or illness of the insured might delay or prevent
its performance

Insurable interest of a creditor on the life of his debtor

Extent
Only to the amount of the debt AND the cost of carrying the insurance on
o
the debtors life
Amount must not be so disproportionate to the amount of the debts and
o
liens plus cost of the insurance ! speculative/wagering

Right of the debtor in insurance taken by creditor

Creditor not an agent of the debtor
o
Contract is purely between the insurer and the creditor
o
Does not inure to the benefit of the creditor unless the contrary is
o
expressly stipulated

Extent of the amount which may be recovered by the insuring creditor

Amounts which remain unpaid at the time of the death of the debtor
o
If whole debt paid ! none
o

Where insurance taken by debtor for the benefit of the creditor

Full payment by the debt does not invalidate the policy, the proceeds
o
should go to the estate of the debtor

When debt becomes legally unenforceable

Does not cut off the insurable interest of the creditor although there is no
o
reasonable expectation of the debtor becoming solvent
Moral or equitable obligation to pay the debt is not destroyed
o
The creditor may not insure the life of his debtor unless the latter has a
o
legal obligation to him for payment
Insurable interest in the life of person upon which an estate or interest depends

One may insure the life of the person where the continuation of the estate or interest
vested in him who takes the insurance depends upon the life of the insured
Ex A receives as legacy the usufruct of a house. The ownership of which
o
is vested in B. In the legacy, should B first die, both the usufruct and
ownership will pass to C. A has an insurable interest in the life of B
Consent of person whose life is insured

Not essential

Provided, it can be proved that

There is insurable interest at the inception of the policy
o
Similarity between a life insurance policy and a civil donation

Donation
Act of liberality whereby a person disposes gratuitously a thing or right in
o
favor of another who accepts it
Both founded upon LIBERALITY
o
Beneficiary is like a done
o
Recipient of the profits or proceeds

SEC. 11. The insured shall have the right to change the beneficiary he designated in the
policy, unless he has expressly waived this right in said policy. Notwithstanding the
foregoing, in the event the insured does not change the beneficiary during his lifetime, the
designation shall be deemed irrevocable.

Beneficiary defined

Person named or designated in a contract of life, health or accident insurance as the

one who is to receive the benefits which become payable according to the terms of
the contract

Intended recipients of the proceeds or benefits of the insurance or benefits of the

insurance if the risks occurs

Those who upon a proper basis of insurable interest, secure insurance for their own
benefit upon the lives of others
Kinds

Insured himself
Third person who paid a consideration
Third person through mere bounty of the insured
No valuable consideration
o
Beneficiary may be the estate of the insured or third party
o
2nd and 3rd cases
The beneficiary is not a party of the contract
o
In all three cases
o
The proceeds become the exclusive property of the beneficiary

upon the death of the insured

Therefore, where the insured before dying became insolvent, the

proceeds should be paid to the beneficiary and not the assignee

Limitations on the appointment of beneficiary

Any person forbidden from receiving any donation (Art. 739. CC)
Those guilty of adultery or concubinage at the time of donation
o
Those made between persons found guilty of the same criminal offense in
o
consideration thereof
Those made to a public officer or his wife, descendants and ascendants,
o
by reason of his office

Beneficiary is like a done ! Art. 739 of CC should likewise apply

Right of the insured to change beneficiary

GR: power to change even without the consent of the beneficiary who has no vested
right but only an expectancy of receiving the proceeds

Insured may without the consent of the insured

Retain the right to receive cash value
o
Assign the policy
o
Surrender the police
o

Effect of death of the insured

Beneficiaries designation deemed irrevocable
o

Where right is waived

Beneficiary acquires absolute and vested interest to all benefits accruing to
o
the policy from the date of its issuance and delivery, including that of
obtaining a policy loan to the extent stated in the schedules of values
attached to the policy
New beneficiary cannot be added
o
Insured does not have power to destroy the contract by refusing to pay
o
premiums for the beneficiary can protect his interest by paying the
premiums
Measurement of vested interest

In full face value and not in cash surrender value

Incase of death, beneficiary is paid on full face value
In case the insured discontinues paring for the premiums, the beneficiary may
continue paying it and is entitled to automatic extended term or paid up insurance
options and vested right cannot be divisible at any given time

When beneficiary dies before the insured

View that beneficiaries representative is entitled to insurance proceeds

When the right to change the beneficiary is expressly waived
o
The benefits should pass to his representatives and not to the

estate of the insured

View that estate of the insured is entitled to the insurance proceeds
o
Especially if the designation is subject to the express condition

to pay if surviving
Most but not all courts hold beneficiaries executors,

administrators, or assigns, sufficient to negative the implied

condition that the death of the beneficiary before maturity of the
policy terminated all his rights to it
Designation of beneficiary

Construed broadly in order that the benefit shall be received by those intended by
the insured as the object of his bounty
Children include;
o
Adopted child

Adult child not forming part of the household

After born children even of a marriage subsequently contracted

X include grandchildren

Husband, wife, widow

o
Description personae

Answers the description but does not have the legal

status of wife does not prevent her from taking as
beneficiary as when she is designated by name
although the words his wife are added
Not named but designated merely by status

Legal husband or wife ascertained at time of death

Note: X extend to those forbidden to receiving a donation i.e. common law
o
spouse, etc.
Husband and children, wife and children
o
Their children

Includes children by another wife but prevailing view is

children common to both
Wife and children, Husband and children

All children of the insured

Insurance money divided per capita

Family
o
Court will ascertain. If was so regarded, the court may include

him though by no way related to the insured

Heirs or legal heirs
o
Heirs at law and persons who would take the property in case

the insured died intestate

Estate or legal representatives of the deceased
o
Strict legal sense

Executors or administrators unless

It appears that the insured intended to use these

expressions in the sense of heirs or next of kin

If no beneficiary
Legal heirs in accordance with law

2 women innocently in good faith

Each family entitled to one half of the
o
insurance benefits

SEC. 12. The interest of a beneficiary in a life insurance policy shall be forfeited when the
beneficiary is the principal, accomplice, or accessory in willfully bringing about the death
of the insured. In such a case, the share forfeited shall pass on to the other beneficiaries,
unless otherwise disqualified. In the absence of other beneficiaries, the proceeds shall be
paid in accordance with the policy contract. If the policy contract is silent, the proceeds
shall be paid to the estate of the insured.
Forfeiture of interest of the beneficiary in a life insurance policy

Other qualified beneficiaries

Nearest relatives not otherwise disqualified of the insured shall inherit the
o
proceeds in accordance with the rules of intestate succession
Order (Refer to p.110 of De Leon)
o
Liability of insurer on death of insured

Death at the hands of the law

Ex. Legal execution
o
One of the risks in the absence of a valid policy exception
o

Death by self destruction

Insurer not liable in case committed intentionally with whatever motive
o
when in sound mind
No recovery

Death caused by voluntary act

Insurer liable
o
Purely accidental even though due to negligence if not excluded

from the coverage by words such as death by his own had,

self destruction and the like

Death by suicide wile insane

Insurer liable in the absence of express conditions to the contrary
o
Insanity is one of the diseases the insurer must have known
o

Death caused by beneficiary

Intentional amounting to a felony
o
Interest forfeited on the ground of public policy

Nearest relative shall receive the proceeds if not otherwise

disqualified
Circumstances not amounting to a felony, beneficiary insane, self-defense,
o
accidental
Rights of the beneficiary under the policy not affected

Not intentional but amounting to a felony

o
Beneficiaries interest in the policy not forfeited

Murder of the insured in all cases

o
Forfeiture of interest

Death caused by violation of law

o

Insurer must establish that the violation of the law was the cause
of had a causal connection with the accident resulting in death of
the insured to avoid liability

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

May be the
Property itself
o
Any relation thereto (interest of a trustee or a commission agent)
o
Liability in respect thereof (interest of a carrier or depositary)
o

Anyone who derives benefit from its existence or would suffer loss from its
destruction

Occurrence of loss may be uncertain

Sufficient that the interest might be subject to loss
o

Title or right to possession not essential

Insured has insurable interest if he is so situated with respect to the
o
property that he will suffer loss as the proximate result of its damage or
destruction
Mortgagor sold interests to vendee and thus parted with all his

interests still has an insurable interest in the property because of

his personal liability for the debt and his right to be subrogated to
the mortgage security.

Legal expectation of loss or benefit

Not necessarily the interest in property in the sense of title but the concern
o
in the preservation of the property and such a relation to or connection with
it as will necessarily entail a pecuniary loss in case od its injury or
destruction

Mere factual expectation of loss or benefit

Such expectation arising from any legal right or duty in connection with the
o
property does not constitute insurable interest
Ex
o
Owner of a gasoline station near a hotel has no sufficient

insurable interest in the hotel simply becase its burning or

destruction though it leaves the gasoline station physically
unharmed, will lessen his income from guests of the hotel
Also known as factual expectation

Insufficient in strict indemnity insurance but will suffice

in life insurance
SEC. 14. An insurable interest in property may consist in:
(a) An existing interest;
(b) An inchoate interest founded on an existing interest; or
(c) An expectancy, coupled with an existing interest in that out of which the expectancy
arises.

Legal title
Trustee as in the case of a seller of property not yet delivered,

mortgagor of the property mortgaged, lessor of the property

leased
Equitable title
o
Purchaser of property before delivery

Mortgagee of property mortgaged

Mortgagor after foreclosure but before expiration of the

redemption period
Inchoate interest
Founded on an existing interest
o
Stockholder in the property of the corporation of which he is a

stockholder which is founded on an existing interest from his

ownership of shares in he corporation
Insurable interest is limited to the value of his interest or to his

share in the distribution of the corporate assets upon dissolution

A stockholder has neither legal nor equitable tittle to assets of

the corporation
A partner has insurable interest in the firm property which will

support a separate policy for his benefit

An expectancy
Must be coupled with an existing interest in that out of which such
o
expectancy arises
Farmer may insure future crops if they are to be grown on a land

owned by him at the time of the issuance of the policy

An owner of a business can insure against a contingency which

may cause loss of profits resulting from the cessation or

interruption of his business
o

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

Loss of the thing may cause liability to the carrier or depository to the extent of the
value

Bailee may insure merely his interest in the chattels to protect himself against loss of
the benefits to which he is entitled, or insure himself against the liability which may
incur upon the destruction of the chattels
SEC. 16. A mere contingent or expectant interest in any thing, not founded on an actual
right to the thing, nor upon any valid contract for it, is not insurable.
Mere contingent or expectant interest not insurable

A mere hope or expectation of benefit which may be frustrated by the happening of

some event uncoupled with any present legal right will not support a contract of
insurance
A father cannot insure the property of his son or vice versa that he expects
o
to inherit the same
Life of parents, children, spouses may be insured since they are under
o
mutual obligation to support each other and to save the party entitled to
support from being the subject of public charity.

Insurable interest in property in particular cases

Existing interest

A general or unsecured creditor cannot insure the specific property of his

debtor who is alive even though destruction of such property would render
worthless any judgment he may obtains
But an unsecured creditor may insure the property of a

deceased debtor since all personal liability ceases with the

death of the debtor
Proceedings are in rem

Also an unsecured creditor who obtains a judgment in his favor

becomes a judgment creditor and has been held to have an

insurable interest in the property as he has a right to levy on
such property as may be necessary to satisfy the judgment
An unsecured creditor has an insurable interest in the life of his

debtor to the extent of the amount of the debt

Property of testator still alive
One named as beneficiary in a will has no insurable interest in a

property before the testators death

Expectation has no legal basis since it will pass no

legal effect before the death of the testator

Can be revoked at any time before the death unless

the right has been expressly waived

SEC. 17. The measure of an insurable interest in property is the extent to which the
insured might be damnified by loss or injury thereof.
Measure of insurable interest in property

Only on the actual loss and not more

Mortgagor has insurable interest equal to the value of the mortgaged property and
the mortgagee, only to the extent of the credit secured by the mortgage

Purpose is indemnity
SEC. 18. No contract or policy of insurance on property shall be enforceable except for
the benefit of some person having an insurable interest in the property insured.
Effect of absence of insurable interest

Principle of indemnity available

Basis of all contracts
o
No insurable interest ! void ! premiums ordinarily returned to insured
o
unless in pari delicto with the insurer
In fire insurance, void if no insurable interest even if the insurer

knew and insurable interest was subsequently acquired.

A contract of lease which provides that any fire insurance policy

obtained by the lessee over his merchandise inside the leased

premises without the consent of the lessor shall automatically
assign the proceeds of the policy to the lessor who has no
interest in the property insured ! void

Doctrine of waiver or estoppel not applicable

X invoked since the public has an interest in the matter independent of
o
consent or concurrence of the parties
But where the real intention of the insured was to insure his goods for 15K
o
but through error or mistake of the insurer the policy issued for 15K is the
building in which the goods were stored which was never owned by the
insured nor had ay insurable interest, it was held that in case of loss the
insured can recover

Measure of indemnity

Marine or fire insurance

Valued policies
o
Valuation of the thing insured conclusive between the parties

thereto in the adjustment of loss, the insured has some interest

at risk and there is no fraud on his part although it might be
proved that the actual value of the thing is less
Principle of indemnity cannot be invoked by the insurer who

agreed to repair or replace the thing insured with a new one

even though the cost of the undertaking may exceed the
original amount of the insurance

Liability insurance contracts

Contracts of indemnity against liability not against loss
o
Proceeds are paid to the third person to whom the insured is liable
o

Life insurance contracts

Not contracts of indemnity
o
Amount fixed payable is not the true value of the thing insured because
o
the life of a person is priceless
More of an investment that indemnification
o
Amount is governed by the amount of premium he contracted to pay
o

Personal accident insurance

Not contracts of indemnity
o
Principle of indemnity not applicable
o
If insurance on the life of another person
o
Amount recoverable is the loss sustained by the person who

effected the policy

In theory, it becomes a contract of indemnity

Almost impossible to assess extent of injury

A policy with fixed benefits may be effected

Health insurance
Not contracts of indemnity
o
Contracts which provide for specific periodic income to disabled

persons
Contracts of indemnity
o
Those which cover medical expenses

Health care agreement

Agreement with a health maintenance organization is the nature of a nono
life insurance which is primarily a contract of indemnity
Once a member incurs hospital, medical or any other expense arising
o
from sickness or injury or other stipulated contingent, the health care
provider must pay for the same to the extent agreed upon under a
contract
Payment should be made to the party who pad all the hospital and
o
medical expenses
SEC. 19. An interest in property insured must exist when the insurance takes effect, and
when the loss occurs, but need not exist in the meantime; and interest in the life or health
of a person insured must exist when the insurance takes effect, but need not exist
thereafter or when the loss occurs.
Time when insurable interest must exist

GR: applicable only to insurance on property and not to life insurance except that on
the life of the debtor
In property
When insurance takes effect and loss occurs
o
Insurable interest must exist in 2 distinct times
o
Date of execution of the contract AND

Date of the occurrence of the risk

Otherwise ! void

Why? Suffered no loss

In life
When insurance takes effect
o
Must exist at the time the policy is procured or took effect
o
Even if it ceased to exist at the time of the insureds death
o
Debtor whose life was insured by the creditor who subsequently pays the
o
debt remains in force provided the former creditor continues to pay the
premiums although there is no longer insurable interest
Liability insurance
When liability attaches
o
Need not exist during intervening period
To prevent the issue of wagering policies
o
Need not exist in the meantime
o
In the absence of a special provision to the contrary, the alienation of a
o
property will not defeat a recovery if the insured has subsequently
reacquired the property and possess an insurable interest at the time of
the loss

Existence of insurable interest when risk attaches

It must be noted that notwithstanding the great volume of authority, the existence of
insurable interest at the inception of the contract, unless made so by statute, is not
all necessary to its validity. It is sufficient that insurable interest exists at the time the
risk attaches.
Insurable interest in life and property distinguished
Life

Property

Unlimited

Limited to the actual value of the interest

Enough that it exists at the time the

policy takes effect

Must exist at the time the policy takes

effect and when the loss occurs

Expectation of benefit need not have a

legal basis whatever

Expectation must have a basis of a legal

right

SEC. 20. Except in the cases specified in the next four sections, and in the cases of life,
accident, and health insurance, a change of interest in any part of a thing insured
unaccompanied by a corresponding change of interest in the insurance, suspends the
insurance to an equivalent extent, until the interest in the thing and the interest in the
insurance are vested in the same person.
Effect in general of change of interest

GR: mere transfer of a thing insured does not transfer the policy but suspends it until
the same person becomes both the owner of the policy and the thing insured
E
Life, health an accident insurance
o
Change of interest in the thing insured after the occurrence of an injury
o
which results to a loss
Change of interest in one or more of several things separately insured by
o
one policy
Change of interest by will or succession on the death of the insured
o
Transfer of interest by one of several partners, joint owner or owners in
o
common who are jointly insures to the others
When a policy is so framed that it will inure to the benefit of whomsoever,
o
during the continuance of the risk, may become the owners of the interest
insured
When there is express prohibition against alienation In the policy in case
o
of alienation the contract is avoided

Object of rule against alienation

To provide against changes which might supply a motive to destroy the property or
might lessen the interest of the insured in protecting and guarding it
Change of interest covered by law

Means absolute transfer of the property insured such as conveyance of the property
by means of absolute deed of sale

Interest does not pass by mere execution of a pledge or a chattel mortgage

No alienation within the meaning of insurance law
o
SEC. 21. A change of interest in a thing insured, after the occurrence of an injury which
results in a loss, does not affect the right of the insured to indemnity for the loss.
Change of interest in a thing insured after a loss

Liability of insurer becomes fixed

Insured has a right to assign hi claim against the insurer as freely as any
other money claim

Absolute and cannot be delimited by agreement

Insured has absolute right to transfer the thing insured after the
occurrence of the loss

Does not affect his right of indemnity for the loss

SEC. 22. A change of interest in one or more of several distinct things, separately insured
by one policy, does not avoid the insurance as to the others.
Change of interest where several things separately insured in the policy

Divisible contract
Cause or consideration made up of several parts
o
Violation of a condition which avoids a policy with respect to one or more
o
thins does not affect the others

Indivisible
Cause or consideration for a gross sum or for an entire premium
o
Change of interest in one or more of the things will also avoid the
o
insurance

Divisibility

Determined by the intention by the language employed by the parties

SEC. 23. A change of interest, by will or succession, on the death of the insured, does not
avoid an insurance; and his interest in the insurance passes to the person taking his
interest in the thing insured.

Non-existence of loss from occurrence of event

Wager
o
No loss but profit from it

Change of interest by death of insured

Insurance on property passes automatically to the heir, legatee or devisee who

acquired interest in the thing insured, on the death on the insured

Rights to succession are transmitted from the moment of the deat of the decedent
SEC. 24. A transfer of interest by one of several partners, joint owners, or owners in
common, who are jointly insured, to the others, does not avoid an insurance even though
it has been agreed that the insurance shall cease upon an alienation of the thing insured.
Transfer of interest by one of the several partners, etc., jointly insured

Will not avoid the insurance

Each partner is interested in the whole property
o
Hazard is not increased because the purchasing partner has acquired a
o
greater interest in the property by a transfer of his co-partners share
E
o
When done without the consent of the insurer and before the

loss occurs where the policy contains the condition that in case
of ANY sale, transfer, or change of title of any property insured
by this company, or of any undivided interest therein such
insurance will be void and cease
Transfer to strangers
o
Avoid the policy

SEC. 25. Every stipulation in a policy of insurance for the payment of loss whether the
person insured has or has not any interest in the property insured, or that the policy shall
be received as proof of such interest, and every policy executed by way of gaming or
wagering, is void.
Stipulations prohibited in an insurance policy

2 stipulations declared void

Stipulation for the payment of loss whether the person insured has or has
o
not any interest in the subject matter of insurance
Mere wager policy

Pretended insurance where the insured has no

interest in the thing insured and can sustain no loss by
the happening of the misfortunes insured against

E Sec 181
Stipulation that the policy shall be received as proof of insurable interest
o
Existence of insurable interest does not depend upon the

stipulations in a contract of insurance

Defense of absence is available only to the insurer

who has a legitimate interest in raising the defense

May be raised by and for the benefit of the insurer

alone
Wagering or gaming policies void

A mere bet upon a future event

Void on the ground of public policy
o

Sec. 26. A neglect to communicate that which a party knows and

ought to communicate, is called a concealment.

In making a contract, the parties have 4 primary concerns

1. Correct estimation of the risk w/c enables the insurer to decided

whether he is willing to assume it, and if so, at what rate of premium
2. The precise delimitation of the risk w/c determines the extent of the
contingent duty to pay undertaken by the insurer
3. Such control of the risk after it is assumed as will enable the insurer to
guard against the increase of the risk because of change in conditions
4. Determining whether a loss occurred and if so, the amount of such
loss.

Devices for ascertaining and controlling risk & loss

1. The devices of concealment and representative were originally developed
for the purpose of enabling the insurer to secure the same info with
respect to the risk that was possessed by the applicant for insurance, so
that he might be equally capable of forming a just estimate of its quality.
2. Warranties and condition affirmative; deals with conditions existing at
the inception of the contract, and exceptions are used for the purpose of
making more definite and certain the general words used to describe the
risk the insurer undertook to bear
General description of risk has 2 parts
1. Designation of the specific property interest to be covered.
2. Specification of such of the perils to w/c that property interest
would be exposed.
3. Exceptions
perform a similar function in making more definite the coverage
indicated by the general description of the risk by excluding certain
specified risks that otherwise would have been included under the
general language describing the risks assumed.
It may be of certain property or of certain peril within the general
coverage.
4. Executory warranties and conditions
undertakings the certain conditions should or should not exist in the
future, are used to enable the insurer to rescind the contract in case
subsequent events increased the risk to such an extent that he is no
longer willing to bear.
Exceptions are also used for the purpose of controlling risk.

5. Conditions precedent
Insurer must also protect himself against fraudulent claims of loss, this
he attempts to do by inserting in the policy various conditions.
Conditions requiring immediate notice of loss or injury and detailed
proofs of loss within a limited period and in many great many policies
there is found a condition requiring that any action thereon shall be
brought within a limited time.
It is necessary for the insurer to ascertain not only that fact of loss, but
also the amount of any loss that may in fact have occurred.
Secure such protection, the insurer inserts the various conditions
providing for the appointment of appraisers and for arbitration in case no
agreement can be reached as to the amount of loss

Concealment a neglect to communicate that w/c a party knows and

ought to communicate.
It is the intentional withholding by the insured of any fact material to the
risk.
Requisites:
1. A party knows the fact w/c he neglects to communicate or disclose to
the other
2. Such party concealing is duty bound to disclose such fact to the other
3. Such party concealing makes no warranty of the fact concealed
4. The other party has not the means of ascertaining the fact concealed.
A warranty is made of the fact concealed, the non-disclosure of such fact is
not concealment but constitutes a violation of warranty.

Sec. 27. A concealment whether intentional or unintentional

entitles the injured party to rescind a contract of insurance. (As
amended by Batasang Pambansa Blg. 874)
Effect of concealment
1. By the insured
Failure on the part of the insured to disclose conditions affecting the risk,
of w/c he is aware, makes the contract VOIDABLE at the insurers
option.
Contracts of the utmost good faith.
Rely primarily upon the info supplied by to him by the applicant

 Not limited to material facts but extends to those w/c he ought to know

necessary for the insurer to evaluate the risk therefore no defense

to plead mistake or forgetfulness.
2. By the insurer
Dominant bargaining position carries with it stricter responsibility
Sec 27 entitles the rescind of the contract, implying that it is optional on
his part WON to exercise such right.
Proof of fraud in concealment
Insurer need not prove fraud in order to rescind a contract on the ground of
concealment
1. Existence of fraud not required
legal effect of concealment, whether intentional or unintentional is the
same, it entitles the insurer to rescind the contract of insurance,
concealment being defined as negligence to communicate that w/c a
party knows and ought to communicate
2. Reason for the rule
If it were necessary for the insurance company to show actual fraud on
the part of the insured, it would then be impossible for it to protect
itself and its honest policyholders against fraudulent and improper
claims. As it wold be impossible to show actual fraud except in the
extremest cases.
3. Basis and criterion for provision
It misleads or deceives the insurer into accepting the risk or accepting it
at the rate of premium agreed upon.
Insurer is mixed into a belief that the circumstance withheld does not
exist, he is thereby induced to estimate the risk upon a false basis that it
does not exist.
Rules as to marine insurance
1. In the Phil
Fraud in not necessary in order that the insured may be guilty of
concealment the PRESENCE or ABSENCE of an INTENT TO
DECEIVE IS IMMATERIAL

Sec. 28. Each party to a contract of insurance must

communicated to the other, in good faith, all facts within his
knowledge which are material to the contract and as to which he

makes no warranty, and which the other has not the means of
ascertaining.
Effect that must be communicated even in the absence of inquiry
It is the duty of each party to a contract of insurance to communicate in
good faith all facts within his knowledge only when
1. Material to the contract
2. Other has not the means of ascertaining the said facts
3. To w/c the party with the duty to communicate makes no warranty.
Test it: If the applicant is aware of the existence of some circumstances w/c
he knows would influence the insurer in acting upon his application, good
faith requires him to disclose that circumstance, though unasked.
Effect of failure of insure to verify
Argument postulates an obligation of the insurance company before issuing
the policy to verify the statements made by the insured in his application.
Insurance company has the right to rely on the statements of the insured as
to material facts such as his previous sickness and the matter is not one of
w/c disclosure is excused by law.

Sec. 29. An intentional and fraudulent omission, on the part of

one insured, to communicate information of matters proving or
tending to prove the falsity of a warranty, entitles the insurer to
rescind.
When fraudulent intent necessary
Non-disclosure under Sec 29 must be INTENTIONAL & FRAUDULENT
in order that the contract may be rescinded.
Omission is on the part of the insured and partly entitled to rescind is the
insurer.
In every contract of marine insurance, the warranty is implied that the ship
is seaworthy the intentional and fraudulent omission on the part of the
insured when applying for a policy to communicate info that his ship is
industries or in special peril would entitle the insurer to rescind because the
concealment refers to matters proving or tending to prove the falsity of the
warranty that the ship seaworthy.

Sec. 30. Neither party to a contract of insurance is bound to

communicate information of the matters following, except in
answer to the inquiries of the other:chanroblesvirtuallawlibrary
(a) Those which the other knows;
(b) Those which, in the exercise of ordinary care, the other ought
to know, and of which the former has no reason to suppose him
ignorant;
(c) Those of which the other waives communication;
(d) Those which prove or tend to prove the existence of a risk
excluded by a warranty, and which are not otherwise material;
and
(e) Those which relate to a risk excepted from the policy and
which are not otherwise material.
Matters made the subject of special inquiries material
General proposition, matters made the subject of inquiry must be deemed
material, even though otherwise they might not be so regarded
Insured is required to make full and true disclose to questions asked.
Failure of an apparently complete answer to make full disclosure will avoid
the policy.
Answer incomplete on its face will not defeat the policy in the absence of
good faith.
When there is no duty to make disclosure
1. Matters known to, or right to be known by insurer, or w/c he waives
disclosure
Insured cannot be penalised for failure to disclose matters already known
to the insurer insurer cant say there is deception; ought to be known
to the insurer or his agent for to hold otherwise would be to charge the
insured with the default of the insurer or his agent; or of w/c the insurer
waives communication for the insurer is in estopped.
2. Risks excepted from the policy
Insurer cannot complain of the insureds failure to disclose facts that
concern only risks excepted from the policy, either expressly or
warranty, from the liability assumed under the policy
The undisclosed fact must not be material for otherwise THE RULE
WILL NOT APPLY.
3. Nature or amount of insureds interest

Info of the nature or amount of the interest of one insured need not be

communicated UNLESS in answer to an inquiry EXCEPT as prescribed

by Sec 51.

Sec. 31. Materiality is to be determined not by the event, but

solely by the probable and reasonable influence of the facts upon
the party to whom the communication is due, in forming his
estimate of the disadvantages of the proposed contract, or in
making his inquiries.
Determination of materiality
1. Test of materiality
To be material a fact need not increase the risk or contribute to any
loss or damage suffered.
It is sufficient if the knowledge of it would influence the parties in
making the contract.
Matter must be determined ultimately by the court.
2. From the standpoint of the INSURER
Fact is material knowledge of it is probably and reasonable influence
upon the insurer in assessing the risk involved and in making or omitting
further inquiries & cause him either to reject the risk or to accept it only
at a higher premium rate or on different terms though that fact nay not
even reeky contribute to the contingency upon w/c the insurer would
become liable or in any wise affect the risk
Sufficient that his non-disclosure misled the insurer in forming his
estimates of the risks of the proposed insurance policy or in making
inquiries.
Its disclosure is one of the conditions specified in the fire insurance
policy, is not open to doubt.
Waiver by the insurance company of medical examinations renders more
material, the info required of the applicant concerning the previous
condition of health and disease suffered, for such info necessarily
constitutes an important factor w/c the insurer takes into consideration in
deciding whether to issue the policy or not.
The insurer accepted his application as a standard risk where only the
insured died of hypertension insurer may rescind the contract of
insurance and delay payment on the ground of concealment /
misrepresentation.
3. Concealment regarded as intentional

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 Nature of the facts not conveyed to the insurer may be such that the

failure of the insured to communicate must have been intentional rather

than INADVERTENT.
There is concealment could not have been unaware that his heart beat
would at times rise to high & alarming levels and that he had consulted a
doctor 2x in 2 months before applying for non-medical insurance.
In absence of evidence, concealment thereof is no ground for annulment
of the policy.
4. Where fact concealed not material
Insured cannot be guilty of concealment where the fact concealed is not
material.
Time when info acquired
No info possessed by one party can be material, in the sense of requiring
disclosure UNLESS it is possible that it may influence the other in making
of the contract
1. After contract has become effective
No duty resting upon the insured to disclose it, even though the policy is
yet to issue.
Concealment must take place at the time the contract is entered into in
order that the policy may be avoided and not afterwards.
Duty of disclosure ends with the completion and effectivity of the
contract.
2. Before contract becomes effective
Contract is to be effective only upon the issuance of the policy, an
applicant for life insurance, is under a duty to disclose to the insurer,
changes in his health occurring or coming to his knowledge between the
date of submitting his application after satisfactory medical examination
and the date the policy is delivered.

Sec. 32. Each party to a contract of insurance is bound to know

all the general causes which are open to his inquiry, equally
with that of the other, and which may affect the political or
material perils contemplated; and all general usages of trade.
Matters each party bound to know
Insured need not communicate public events, such as that a nation is at war
or the laws and political conditions in other countries or the allegiance of

particular countries, the SOURCES of his info being equally open to the
insurer who is presumed to know them.
Insurer is charged with the knowledge of the general trade usages and rules
of navigation, kind f seasons and all the risks connected with navigation.

Sec. 33. The right to information of material facts may be

waived, either by the terms of the insurance or by neglect to
make inquiry as to such facts, where they are distinctly implied
in other facts of which information is communicated.
Right to info may be waived
Right to info of material facts may be waived, either EXPRESSLY by
the terms of insurance; or IMPLIEDLY by neglect to make inquiry as to
the facts already communicated.
If the applicant has answered the questions asked in the application, he is
justified in assuming that no further info is desired.

Sec. 34. Information of the nature or amount of the interest of

one insured need not be communicated unless in answer to an
inquiry, except as prescribed by section fifty-one.
Disclosure of nature and extent of interest of insured
It is required that a policy of insurance just specify The interest of the
insured in property insured, if he is not the absolute oner thereof.
A mortgagee must disclose his particular interest even if no inquiry is made
by the insurer in relation thereto.
Requirement is made so that the insurer may determine the extent if the
insureds insurable interest.
NO need to disclose the inters in the property insured if it is absolute.

Sec. 35. Neither party to a contract of insurance is bound to

communicate, even upon inquiry, information of his own
judgment upon the matters in question.
Disclosure of judgment upon the matters in question
Duty to disclose is confined to facts.
Hence, no duty to disclose mere opinion, speculation, intention or
expectation.
This is true even if the insured is asked.

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Sec. 49. The written instrument in which a contract of insurance

is set forth, is called a policy of insurance.
Sec. 50. The policy shall be in printed form which may contain
blank spaces; and any word, phrase, clause, mark, sign, symbol,
signature, number, or word necessary to complete the contract of
insurance shall be written on the blank spaces provided therein.
Any rider, clause, warranty or endorsement purporting to be part
of the contract of insurance and which is pasted or attached to
said policy is not binding on the insured, unless the descriptive
title or name of the rider, clause, warranty or endorsement is
also mentioned and written on the blank spaces provided in the
policy.
Unless applied for by the insured or owner, any rider, clause,
warranty or endorsement issued after the original policy shall be
countersigned by the insured or owner, which countersignature
shall be taken as his agreement to the contents of such rider,
clause, warranty or endorsement.
Notwithstanding the forgoing, the policy may be in electronic
form subject to the pertinent provisions of RA # 8792, otherse
known as the Electronic Commerce Act and to such rules and
regulations as may be prescribed by the Commissioner.
1. Policy of Insurance written document embodying the terms and
stipulations of the contract of insurance between the insured and the
insurer.
2. Policy / Insurance policy / Policy of Insurance signed ONLY by the
INSURER or his DULY AUTHORIZED AGENT.
Need not to be signed by the insured EXCEPT where express warranties
are contained in a separate instrument forming part of the policy in w/c
case the law requires that the instrument must be signed by the insured.
Standard practice is to have the prospective insured FILLED OUT and
SIGN an application prepared by the insurer.
Policy controls terms of insurance contract.
1. Measure of insurers liability
Its terms measures the insurers liability and in order to recover, insured
must show himself within the terms.

2. Presence of requisites for validity

All requisites necessary for a valid contract must be present only then
it will constitute a valid & binding contract, superseding all preliminary
agreements and negotiations.
3. Compliance of insured with conditions of the policy
Absence of statutory to the contrary, insur
Policy, a contract of adhesion
Policy different from contract itself
Form of contract of insurance
Perfection of insurance contract
Offer & acceptance in insurance contract
Importance of delivery of policy
Modes of delivery of policy
Delivery to insurers agent as delivery to insured
Effect of delivery of policy
Rider in a contract of insurance
Attached papers on insurance policy
Effect of failure of insured to read policy
Insurers duty to explain the policy

Sec. 51. A policy of insurance must specify:

(a) The parties between whom the contract is made;
(b) The amount to be insured except in the cases of open or
running policies;
(c) The premium, or if the insurance is of a character where the
exact premium is only determinable upon the termination of the
contract, a statement of the basis and rates upon which the final
premium is to be determined;
(d) The property or life insured;
(e) The interest of the insured in property insured, if he is not
the absolute owner thereof;
(f) The risks insured against; and
(g) The period during which the insurance is to continue.

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Sec. 52. Cover notes may be issued to bind insurance temporarily

pending the issuance of the policy. Within sixty days after the
issue of the cover note, a policy shall be issued in lieu thereof,
including within its terms the identical insurance bound under
the cover note and the premium therefor. chanrobles virtual law
library
Cover notes may be extended or renewed beyond such sixty days
with the written approval of the Commissioner if he determines
that such extension is not contrary to and is not for the purpose
of violating any provisions of this Code. The Commissioner may
promulgate rules and regulations governing such extensions for
the purpose of preventing such violations and may by such rules
and regulations dispense with the requirement of written
approval by him in the case of extension in compliance with
such rules and regulations.
Sec. 53. The insurance proceeds shall be applied exclusively to
the proper interest of the person in whose name or for whose
benefit it is made unless otherwise specified in the policy.
Sec. 54. When an insurance contract is executed with an agent or
trustee as the insured, the fact that his principal or beneficiary is
the real party in interest may be indicated by describing the
insured as agent or trustee, or by other general words in the
policy.
Sec. 55. To render an insurance effected by one partner or partowner, applicable to the interest of his co-partners or other partowners, it is necessary that the terms of the policy should be
such as are applicable to the joint or common interest.
Sec. 56. When the description of the insured in a policy is so
general that it may comprehend any person or any class of
persons, only he who can show that it was intended to include
him can claim the benefit of the policy.
Sec. 57. A policy may be so framed that it will inure to the
benefit of whomsoever, during the continuance of the risk, may
become the owner of the interest insured.
Sec. 58. The mere transfer of a thing insured does not transfer
the policy, but suspends it until the same person becomes the
owner of both the policy and the thing insured.

Sec. 59. A policy is either open, valued or running.

Sec. 60. An open policy is one in which the value of the thing
insured is not agreed upon, but is left to be ascertained in case of
loss.
Sec. 61. A valued policy is one which expresses on its face an
agreement that the thing insured shall be valued at a specific
sum.
Sec. 62. A running policy is one which contemplates successive
insurances, and which provides that the object of the policy may
be from time to time defined, especially as to the subjects of
insurance, by additional statements or indorsements.
Sec. 63. A condition, stipulation, or agreement in any policy of
insurance, limiting the time for commencing an action
thereunder to a period of less than one year from the time when
the cause of action accrues, is void.
Sec. 64. No policy of insurance other than life shall be cancelled
by the insurer except upon prior notice thereof to the insured,
and no notice of cancellation shall be effective unless it is based
on the occurrence, after the effective date of the policy, of one or
more of the following:chanroblesvirtuallawlibrary
(a) non-payment of premium;
(b) conviction of a crime arising out of acts increasing the hazard
insured against;
(c) discovery of fraud or material misrepresentation;
(d) discovery of willful or reckless acts or omissions increasing
the hazard insured against;
(e) physical changes in the property insured which result in the
property becoming uninsurable; or
(f) a determination by the Commissioner that the continuation
of the policy would violate or would place the insurer in
violation of this Code.
Sec. 65. All notices of cancellation mentioned in the preceding
section shall be in writing, mailed or delivered to the named
insured at the address shown in the policy, and shall state (a)
which of the grounds set forth in section sixty-four is relied upon
and (b) that, upon written request of the named insured, the
insurer will furnish the facts on which the cancellation is based.
13

Sec. 66. In case of insurance other than life, unless the insurer
at least forty-five days in advance of the end of the policy period
mails or delivers to the named insured at the address shown in
the policy notice of its intention not to renew the policy or to
condition its renewal upon reduction of limits or elimination of
coverages, the named insured shall be entitled to renew the
policy upon payment of the premium due on the effective date of
the renewal. Any policy written for a term of less than one year
shall be considered as if written for a term of one year. Any
policy written for a term longer than one year or any policy with
no fixed expiration date shall be considered as if written for
successive policy periods or terms of one year.

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