Insurance Law

Beneficiary: Effects: Irrevocable Beneficiary (2005)

What are the effects of an irrevocable designation of a beneficiary under the

Insurance Code? Explain. (2%) SUGGESTED ANSWER:The irrevocable designation
gives the beneficiary a vested right over Life Insurance. The Insured cannot act to
divest the irrevocable beneficiary, in whole or in part, without the beneficiary's
consent. To be specific:

(1) The beneficiary designated in a life insurance contract cannot be changed without
the consent of the beneficiary because he has a vested interest in the policy (Philamlife
v. Pineda, G.R. No. 54216, July 19,

Mercantile Law Bar Examination Q & A (1990-2006)

1989, citing Gcrcio v. Sun Life, G.R. No. 23703, September 28, 1925; and Go v. Redfern, G.R. No.
47705, April 25, 1841);

(2) Neither can the Insured take the cash surrender value, assign or even borrow on
said policy without the beneficiary's consent (Nario v. Philamlife, G.R. No. 22796, June 26,
1967);

(3) The Insured cannot add another beneficiary because that would reduce the
amount which the first beneficiary may recover and therefore adversely affect his
vested right (Go v. Redfem, G.R. No. 47705, April 25, 1941);

(4) Unless the policy allows, the Insured cannot even designate another beneficiary
should the original beneficiary predecease him. His estate acquires the beneficiary's
vested right upon his death; and

(5) The Insured cannot allow his creditors to attach or execute on the policy.
(Philamlife v. Pineda, G.R. No. 54216, July 19, 1989)

Beneficiary: Rights; Irrevocable Beneficiary (2005)

Jacob obtained a life insurance policy for P1 Million 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. (2%)

SUGGESTED ANSWER:

No, Jacob can no longer add Yob and Jojo as his beneficiaries in addition to Diwata.
As the irrevocable beneficiary, Diwata has acquired a-vested right over Jacob's life
insurance policy. Any additional beneficiaries will reduce the amount which Diwata,
as the first beneficiary, may recover, which will adversely affect her vested right. (Go v.
Redfern, G.R. No. 47705, April 25, 1941)

Beneficiary; Life Insurance; Prohibited Beneficiaries(1998)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 is married to Cynthia with whom he has three
legitimate children. He, however, designated Purita, his common-law wife, as the
revocable beneficiary. Juan referred to Purita in his application and policy as the legal
wife. 3 years later, Juan 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? (5%)
SUGGESTED ANSWER:

The proceeds of the insurance policy shall be awarded to the ESTATE of Juan de la
Cruz. Purita, the common- law-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

Page 50 of 103 relation, Purita cannot be a donee of the deceased. Hence, she
cannot also be his beneficiary.

Concealment; Material Concealment (2001)

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? (5%)
SUGGESTED 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.

Concealment; Material Concealment: Incontestability Clause (1994)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 two years and
prior to the commencement of the action. Is the contention of the beneficiaries
tenable?
SUGGESTED ANSWER:

No. The incontestability clause does not apply. The insured dies within less than two
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. (Tan v CA 174 s 143)

Concealment; Material Concealment: Incontestability Clause (1996)Juan procured a

non-medical life insurance from Good Life Insurance. He designated 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
part of Juan.
Mercantile Law Bar Examination Q & A (1990-2006)

Will Petras suit prosper? Explain.

SUGGESTED 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. (See Sunlife Assurance Co of Canada v CA GR 105135, June 22, 1995 245 s 268)
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 rescindible by reason of the
fraudulent concealment or misrepresentation of Juan ( Sec 48 Ins Code)

Concealment; Material Concealment: Incontestability Clause (1997)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 7 Sep 1991, the assured is killed in a plane crash. The insurance company
denies the claim for insurance proceeds and returns the premiums paid. Is the
decision of the insurance company justified?
SUGGESTED ANSWER:

Assuming that the incontestability clause does not apply because the policy has not
been in force for 2 years, from the 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 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, if the incontestability clause which applies to the insurance policy covering
the life of the insured had been in force for 2 years from issuance thereof, the
insurance company would not be justified in denying the claim for proceeds of the
insurance and in returning the premium paid. In that case, the insurer cannot prove
the policy void ab initio or rescindible by reason of fraudulent concealment or
misrepresentation of the insured.

Page 51 of 103

Concealment; Material Concealment; Incontestability Clause (1991)Atty Roberto

took out a life insurance policy from the Dana Ins Co (DIC) on 1 Sep 1989. On 31
Aug 1990, Roberto died. DIC refused to pay his beneficiaries because it discovered
that Robert 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.
SUGGESTED ANSWER:

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 (Tan v CA GR 48044 29Jun1989)
ALTERNATIVE ANSWER:

I would rule in favor of the insurance company. Although an insurer may not rescind
the contract on ground of misrepresentation after an action is commenced for
recovery under the policy, the insurer is not precluded from invoking the ground of
misrepresentation as a defense in the action for recovery. This is alright since the bar
problem is not covered yet by the incontestability clause.

Concealment; Material Concealment; Incontestability Clause (1998)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? (5%)SUGGESTED ANSWER:

Yes. The life insurance policy in question was issued on January 9, 1990. More than 2
years had elapsed when Renato, the insured, died on March 1, 1992. The
incontestability clause applies.
INCONTESTABILITY CLAUSE

The insurer has two years from the date of issuance of the insurance contract or of its
last reinstatement within which to contest the policy, whether or not, the insured still
lives within such period. After two years, the defenses of concealment or
misrepresentation, no matter how patent or well founded, no longer lie.

Insurable Interest: Bank Deposit (2000)

BD has a bank deposit of half a million pesos. Since the limit of the insurance
coverage of the Philippine Deposit Insurance Corp (PDIC) (RA 3591) is only one
tenth of BDs deposit, he would like some protection for the excess by taking out an
insurance against all risks or contingencies of loss arising from any unsound or unsafe
banking practices including unforeseen adverse effects of
Mercantile Law Bar Examination Q & A (1990-2006)

the continuing crisis involving the banking and financial sector in the Asian region.
Does BD have an insurable interest within the meaning of the Insurance Code of the
Philippines (PD1460)? (2%)
SUGGESTED ANSWER:

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, PBD will be damnified. He will suffer pecuniary loss of P300,000.00, that
is, his bank deposit of half a million pesos minus P200,000.00 which is the maximum
amount recoverable from the PDIC.

Insurable Interest: Public Enemy (2000)

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 Phils (PD 1460)?
Explain. (3%)
SUGGESTED ANSWER:

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 Phils. 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.

Insurable Interest: Separate Insurable Interest (1999)

A businessman in the grocery business obtained from First Insurance an insurance

policy for P5M to fully cover his stocks-in-trade from the risk of fire.

Three months thereafter, a fire of accidental origin broke out and completely
destroyed the grocery including his stocks-in-trade. This prompted the businessman
to file with First Insurance a claim for five million pesos representing the full value of
his goods.

First Insurance denied the claim because it discovered that at the time of the loss, the
stocks-in-trade were mortgaged to a creditor who likewise obtained from Second
Insurance Company fire insurance coverage for the stocks at their full value of P5M.
a) May the businessman and the creditor obtain

separate insurance coverages over the same stocks- in-trade? Explain (3%) b) First
Insurance refused to pay claiming that double

insurance is contrary to law. Is this contention tenable? (3%) c) Suppose you are the
Judge, how much would you

allow the businessman and the creditor to recover

from their respective insurers. Explain (3%)

SUGGESTED 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) 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.

Page 52 of 103 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.

c) As Judge, I would allow the businessman to recover his total loss of P5M
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.

Insurable Interest; Equitable Interest (1991)

A piece of machinery was shipped to Mr Pablo on the basis of C&F Manila. Pablo
insured said machinery with the Talaga Merchants Ins Co (Tamic) for loss or damage
during the voyage. The vessel sank en route to Manila. Pablo then filed a claim with
Tamic which was denied for the reason that prior to deliver, Pablo had no insurable
interest. Decide the case.
SUGGESTED ANSWER:

Pablo had an existing insurable interest on the piece of machinery he bought. The
purchase of goods under a perfected contract of sale already vests equitable interest
on the property in favor of the buyer even while it is pending delivery (Filipino
Merchants Ins Co v CA GR 85144 28Nov1989)

Insurable Interest; Life vs. Property Insurance (1997)

a) 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? b) 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?
SUGGESTED ANSWER:

a) No. In property insurance, the beneficiary must have insurable interest in the
property insured. (Sec 18 Ins Code). B does not have insurable interest in the house
insured.
b) Yes. In life insurance, it is not 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.

Insurable Interest; Life vs. Property Insurance (2000)

IS, an elderly bachelor with no known relatives, obtained life insurance coverage for
P250,000.00 from Starbrite Insurance Corporation, an entity licensed to engage in the
insurable business under the Insurance Code of the Philippines (PD1460). He also
insured his residential house for twice that amount within the same corporation. He
immediately assigned all his rights to the insurance proceeds to BX, a friend-
companion living with him. Three years later, IS died in a fire that gutted his insured
house two days after he had sold it. There is
Mercantile Law Bar Examination Q & A (1990-2006)

no evidence of suicide or arson or involvement of BX in these events. BX demanded

payment of the insurance proceeds from the two 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 ISs insurance coverage on his life and also on his
property. Is Starbrites contention

valid? Explain? (5%)

SUGGESTED 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 friend-companion of IS, has no
insurable interest in the residential house of IS. BX is not entitled to receive the
proceeds from ISs 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.

Insurable Interest; Life vs. Property Insurance (2002)

Distinguish insurable interest in property insurance from insurable interest in life

insurance. (5%)SUGGESTED ANSWER:a) 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.

b) 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.

c) 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.

Insurable Interest; Property Insurance (1994)

In a civil suit, the Court ordered Benjie to pay Nat P500,000.00. 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 P1,000,000.00 the same building that was sold at public
auction to Nat. Benjie failed to redeem the property by March 18, 1993.

Page 53 of 103 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?
SUGGESTED 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 had 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.

Insurable Interest; Property Insurance (2001)

JQ, owner of a condominium unit, insured the same against fire with the 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. (5%)
SUGGESTED ANSWER:

JQ can recover on the fire insurance policy for the loss of 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.

Insurance; Cash & Carry Basis (2003)

What is meant by cash and carry in the business of insurance?SUGGESTED

ANSWER:

Insurance; Co-Insurance vs. Re-Insurance (1994)

Distinguish co-insurance from re-insurance.

SUGGESTED 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, a
Mercantile Law Bar Examination Q & A (1990-2006)

reinsurance is an insurance against liability which the original insurer may incur in
favor of the original insured.

Insurance; Double Insurance (2005)

When does double insurance exist? (2%)

SUGGESTED ANSWER:

Under Section 93 of the Insurance Code, there is double insurance when there is
over-insurance with two or more companies, covering the same property, the same
insurable interest and the same risk. Double insurance exists where the same person
is insured by several insurers separately in respect of the same subject matter and
interests. (Geagonia v. Court of Appeals, G.R. No. 114427, February 6, 1995)

Insurance; Double Insurance; effect (1993)

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 Co for P350th. Subsequently, she again got
an insurance contract with RSI for P1m and then from EIC for P200th. A fire of
unknown origin gutted the store of the partnership. Julie filed her claims with the
three 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 coverages 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. May she recover on
her fire insurance policies? Explain.
SUGGESTED ANSWER:

1) No. An insured is required to disclose the other insurances covering the subject
matter of the insurance being applied for. (New Life Ent v CA 207 s 669)

2) No, because she is guilty of violation of a warranty/ condition.

Insurance; Effects; Payment of Premiums by Installment (2006)The Peninsula

Insurance Company offered to insure Francis' brand new car against all risks in the
sum of PI Million for 1 year. The policy was issued with the premium fixed at
160,000.00 payable in 6 months. Francis only paid the first two months installments.
Despite demands, he failed to pay the subsequent installments. Five 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? (5%)
SUGGESTED ANSWER:

Page 54 of 103 Yes, when insured and insurer have agreed to the payment of
premium by installments and partial payment has been made at the time of loss, then
the insurer becomes liable. When the car loss happened on the 5th month, the six
months agreed period of payment had not yet elapsed (UCPB General Insurance v.
Masagana Telamart, G.R. No. 137172, April 4, 2001). Francis can recover from Peninsula
Insurance Company, but the latter has the right to deduct the amount of unpaid
premium from the insurance proceeds.

Insurance; Life Insurance; Assignment of Policy (1991)

The policy of insurance upon his life, with a face value of P100th was assigned by
Jose, a married man with 2 legitimate children, to his nephew Y as security for a loan
of P50th. 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.

SUGGESTED 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 (Secs 181-182 Ins
Code). 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.

Insurance; Perfection of Insurance Contracts (2003)

Josie Gatbonton obtained from Warranty Insurance Corporation a comprehensive

motor vehicle insurance to cover her brand new automobile. She paid, and the
insurer accepted payment in check. Before the check could be encashed, Josie was
involved in a motor vehicle accident where her car became a total wreck. She sought
payment from the insurer. Could the insurer be made liable under

the insurance coverage? (6%)

SUGGESTED ANSWER:

(per Dondee) Yes, because there was a perfected contract of insurance the moment
there is a meeting of the minds with respect to the object and the cause of payment.
The payment of check is a valid payment unless upon encashment the check
bounced.

Insurance; Property Insurance; Prescription of Claims (1996)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 one year after the rejection of
the claim.
Mercantile Law Bar Examination Q & A (1990-2006)

After his building burned down, Robin filed his claim for fire loss with EFG. On Feb
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.
SUGGESTED ANSWER:

No, Robins action should not be given due course. Is filing of the request for
reconsideration did not suspend the running of the prescriptive period of one year
stipulated in the insurance policy. Thus, when robin commenced judicial action
against EFG Assurance on March 20, 1995, his ability to do so had already
prescribed. The one-year period is counted from Feb 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. (See Sun Ins Office Ltd v CA gr 89741, Mar 13 91
195s193)

Insurance; Return of Premiums (2000)

Name at least three instances when an insured is entitled to a return of the premium
[Link] 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.
ALTERNATIVE INSTANCE:

In case of an over insurance by several insurers, the insured is entitled to a ratable

return of the premium, proportioned to the amount by which the aggregate sum
insured in all the policies exceeds the insurable value of the thing at risk.

Insured; Accident Policy (2004)

CNI insure SAM under a homeowner's policy against claims for accidental injuries by
neighbors. SAM's minor

Page 55 of 103 son, BOY, injured 3 children of POS, a neighbor, who sued SAM
for damages. SAM's lawyer was 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 one million pesos 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's 3 children were intentional, hence
excluded from the policy's coverage. POS countered that CNI was estopped 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. (5%)
SUGGESTED ANSWER:

CNI is not estopped from using ATT's 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 side their interests being
congruent with each other, namely, to oppose POS's 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 insured's 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. ATT's report is not conclusive
on POS or the court.

Insured; Accident vs. Suicide (1990)

Luis was the holder of an accident insurance policy effective Nov 1, 1988 to Oct 31,
1989. At a boxing contest held on Jan 1, 1989 and sponsored by his employer, he
slipped and was hit on the fact 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 intra-cranial hemorrhage.

Can his father who is a beneficiary under said insurance policy successfully claim
indemnity from the insurance company? [Link] ANSWER:

Yes, the father who is a beneficiary under the accidental insurance can successfully
claim indemnity for the death of the insured. Clearly, the proximate cause of death
was the boxing contest. Death sustained in a boxing contest is an accident. (De la Cruz
v Capital Ins & Surety Co 17s559)

Mercantile Law Bar Examination Q & A (1990-2006) Page 56 of 103 or willful exposure
to needless peril which are excepted risks. The insureds

Insured; Accident vs. Suicide (1993)

S Insurance Co issued a personal accident policy to Bob Tan with a face value of
P500th. In the evening of Sep 5, 1992, after his birthday party, Tan was in a happy
mood but not drunk. He was playing with his hand gun, 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 deliberate 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.
SUGGESTED ANSWER:

No. These two contentions 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 hand gun means that the insured did not willfully expose himself
to needless peril. At most, the insured is only guilty of negligence (Sun Ins v CA 211 s
554)

Insured; Accident vs. Suicide (1995)

Sun-Moon Insurance issued a Personal Accident Policy to Henry Dy with a face

value of P500th. 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. Six months later Henry Dy 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
fired and Henry slumped on the floor.

Henrys wife Beverly, as the designated beneficiary, sought to collect under the policy.
Sun-Moon Insurance rejected her claim on the ground that the death of Henry was
not accidental. Beverly sued the insurer. Decide and Discuss [Link]
ANSWER:

Beverly can recover the proceeds of the policy from the insurer. The death of the insured was not due to
suicide

act was purely an 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.

Insurer: Effects: Several Insurers (2005)

What is the nature of the liability of the several insurers in double insurance? Explain.
(2%)SUGGESTED ANSWER:The nature of the liability of the several insurers in double
insurance is that each insurer is bound to the contribute ratably to the loss in
proportion to the amount for which he is liable under his contract as provided for by
Sec 94 of ICP par. The ratable contribution of each of each insurer will be
determined based on the following formula: AMOUNT OF POLICY divided by
TOTAL INSURANCE TAKEN multiplied by LOSS = LIABILITY OF THE
INSURER.
ALTERNATIVE ANSWER:

Each insurer is bound, as between himself and other insurers, to contribute ratably to
the loss in proportion to the amount for which he is liable under his contract. (Sec.
94, Insurance Code)

Insurer; 3rd Party Liability (1996)

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. a) Is
the contention of the insurer correct? Explain. b) May the insurer be held liable with
Cesar?
SUGGESTED ANSWER:

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 (Sherman Shafer v Judge RTC Olongapo City Branch 75 GR l-78848, Nov 14 88 167s386)
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
Mercantile Law Bar Examination Q & A (1990-2006)

stated in the insurance policy, the principles underlying solidary obligations would be
violated. (Malayan Ins Co v CA GR L-36413 Sep 26, 88 165s536; Figuracion vda de Maglana v
Consolacion GR 60506 Aug 6, 92 212s268)

Insurer; 3rd Party Liability (2000)

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 CMVLI policy issued by Dragon Ins Co. X, Y, and Z
jointly sued RM Travel and Dragon Ins for indemnity under the Insurance Code of
the Phils (PD1460). The lower court applied the no fault indemnity policy of the
statute, dismissed the suit against RM Travel, and ordered Dragon Ins to pay
indemnity to all three plaintiffs. Do you agree with the courts judgment? Explain
(2%)
SUGGESTED 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 Ins 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.

Insurer; 3rd Party Liability; No Fault Indemnity (1994)

What is your understanding of a no fault indemnity clause found in an insurance

policy?SUGGESTED ANSWER:Under the NO FAULT INDEMNITY clause, any
claim for 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 P5,000.00, provided they are under oath, the following
proofs shall be sufficient:
1. police report of the accident;2an. d death certificate and evidence sufficient to
establish the proper payee; or3. medical report and evidence of medical or hospital
disbursement in respect of which refund is [Link]. Claim may be made against one
motor vehicle [Link]; 3rd Party Liability; Quitclaim (1994)Rauls truck
bumped the car owned by Luz. The car was insured by Cala Insurance. For the
damage caused, Cala paid Luz P5,000.00 in amicable settlement. Luz executed a
release of claim, subrogating Cala to all her rights against Raul. When Cala demanded
reimbursement from Raul, the latter refused saying that he had already paid

Page 57 of 103 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 P9,500.00 Since Cala paid P5,000 only, Luz contends that she
was entitled to go after Raul to claim the additional P4,500.00 1) Is Cala, as subrogee
of Luz, entitled to reimbursement from Raul? 2) May Cala recover what it has paid
Luz?
SUGGESTED ANSWER:

1) No. Luz executed a release in favor of Raul (Manila Mahogany Mfg Corp v CA GR
52756, 12 Oct 1987)

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 form Luz (Manila Mahogany Mfg Corp v CA GR 52756, 12 Oct 1987).

Insurer; Authorized Driver Clause (1991)

Sheryl insured her newly acquired car, a Nissan Maxima against any loss or damage
for P50th and against 3rd party liability for P20th with the XYZ Ins Co. 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.

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
repair was P40th. 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?
SUGGESTED ANSWER:

The insurer was not correct in denying the claim since the proviso that the person
driving is permitted in accordance with the licensing, etc. qualified only a person
driving the vehicle other than the insured at the time of the accident (Palermo v Pyramid
Ins Co GR 36480 31 May 88)

ALTERNATIVE ANSWER:

The insurer is correct. The clause authorized driver in the policy evidently applies
to both the insured and any other person driving the vehicle at the time of the
accident. The term authorized driver should be construed as a person who is
authorized by law to driver the vehicle (Peza v Alikpala 160s31)

Insurer; Authorized Driver Clause (2003)

Rick de la Cruz insured his passenger jeepney with Asiatic Insurers, Inc. The policy
provided that the authorized driver of the vehicle should have a valid and existing
drivers license. The passenger jeepney of Rick de la Cruz which was at the time
driven by Jay Cruz,
Mercantile Law Bar Examination Q & A (1990-2006)

figured in an accident resulting in the death of a passenger. At the time of the

accident, Jay Cruz was licensed to drive but it was confiscated by an LTO agent who
issued him a Traffic Violation Report (TVR) just minutes before the accident. Could
Asiatic Insurers, Inc., be made liable under its policy? Why? (6%)
SUGGESTED ANSWER:

Asiatic Insurers, Inc., should be made liable under the policy. The fact that the driver
was merely holding a TVR does not violate the condition that the driver should have
a valid and existing drivers license.

Besides, such a condition should be disregarded because what is involved is a

passenger jeepney, and what is involved here is not own damage insurance but third
party liability where the injured party is a third party not privy to the contract of
insurance.

Insurer; Authorized Driver Clause; vehicle is stolen (1993)HL insured his brand new
car with P Ins Co for comprehensive coverage wherein the insurance company
undertook to indemnify him against loss or damage to the car a) by accidental
collision ... 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 said car before it
was carnapped reported immediately the incident to various government agencies in
compliance with the insurance requirements.
Because the car could not be recovered, HL filed a claim for the loss of the car with
the insurance company but it was denied on the ground that his wife who was driving
the car when it was carnapped was in the 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 as well as installments not yet payable. Because of 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 other installments not yet due at the
time of the loss of the car. Decide.
SUGGESTED 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. (Perla Compania de
Seguros v CA 208 s 487)

2) The promissory note is not affected by whatever befalls the subject matter of the
accessory contract. The

Page 58 of 103 unpaid balance on the promissory note should be paid and not
only the installments due and payable before the loss of the car.

Insurer; Group Insurance; Employer-Policy Holder (2000)

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
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 the settlement check to the order of 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 Co. Will the
suit prosper? Explain (3%)
SUGGESTED ANSWER:

Yes. The suit will prosper. Y Ins Co is liable. X Co, through its executive, PJ, acted as
agent of Y Ins Co. 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 insurer.

Insurer; Liability of the Insurers (1990)

a) Suppose that Fortune owns a house valued at P600th and insured the same against
fire with 3 insurance companies as follows: X P400th Y P200th Z P600th

In the absence of any stipulation in the policies from which insurance company or
companies may Fortune recover in case fire should destroy his house completely?
SUGGESTED ANSWER:

Fortune may recover from the insurers in such order as he may select up to their
concurrent liability (Sec 94 Ins Code)

Valued Policy

b) If each of the fire insurance policies obtained by Fortune in the problem (a) is a
valued policy and the value of his house was fixed in each of the policies at P1m, how
much would Fortune recover from X if he has already obtained full payment on the
insurance policies issued by Y and Z?SUGGESTED ANSWER: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.

ALTERNATIVE:

Mercantile Law Bar Examination Q & A (1990-2006)

Having already obtained full payment on the insurance policies issued by Y and Z,
Fortune may no longer recover from X insurance policy.

Open Policy

c) If each of the policies obtained by Fortune in the problem (a) above is an open
policy and it was immediately determined after the fire that the value of Fortunes
house was P2.4m, how much may he collect from X,Y and Z?
SUGGESTED ANSWER:

In an open policy, the insured may recover his total loss up to the amount of the
insurance cover. Thus, the extent of recovery would be P400th from X, P200th from
Y, and P600th from Z.

d) In problem (a), what is the extent of the liability of the insurance companies
among themselves?SUGGESTED ANSWER:In problem (a), the insurance companies
among themselves would be liable, viz: X 4/12 of P600th = P200th Y 2/12 of
P600th = P100th Z 6/12 of P600th = P300th

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?
SUGGESTED ANSWER:

No, he can only be indemnified for his loss, not profit thereby; hence he must return
P200th of the P800th he was able to collect.

Loss: Actual Total Loss (1996)

RC Corporation purchased rice 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.
SUGGESTED 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 total 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 (Pan Malayan Ins Co v CA gr 95070 Sep 5, 1991)

Loss: Constructive Total Loss (2005)

M/V Pearly Shells, a passenger and cargo vessel, was insured for P40,000,000.00
against constructive total loss. Due to a typhoon, it sank near Palawan. Luckily,
there were no casualties, only injured passengers. The ship owner sent a notice of
abandonment of his interest over the vessel to the insurance company which then

Page 59 of 103 hired professionals to afloat the vessel for P900,000.00. When re-
floated, the vessel needed repairs estimated at P2,000,000.00. The insurance company
refused to pay the claim of the ship owner, stating that there was no constructive
total loss. a) Was there constructive total loss to entitle the ship
owner to recover from the insurance company? Explain. b) Was it proper for the ship
owner to send a notice of

abandonment to the insurance company? Explain.

(5%)
SUGGESTED ANSWER:

No, there was no "constructive total loss" because the vessel was refloated and the
costs of refloating plus the needed repairs (P 2.9 Million) will not be more than three-
fourths of the value of the vessel. A constructive total loss is one which gives to a
person insured a right to abandon. (Sec, 131, Insurance Code) There would have
been a constructive total loss had the vessel MN Pearly Shells suffer loss or needed
refloating and repairs of more than the required three-fourths of its value, i.e., more
than P30.0 Million (Sec. 139, Insurance Code, cited in Oriental Assurance v. Court of Appeals and
Panama Saw Mill, G.R. No. 94052, August 9, 1991)

However, the insurance company shall pay for the total costs of refloating and
needed repairs (P2.9 Million).

c) Was it proper for the ship owner to send a

notice of abandonment to the insurance company?

of abandonment to the insurance company because abandonment can only be availed

of when, in a marine insurance contract, the amount to be expended to recover the
vessel would have been more than three-fourths of its value. Vessel MN Pearly Shells
needed only P2.9 Million, which does not meet the required three-fourths of its value
to merit abandonment. (Section 139, Insurance Code, cited in Oriental Assurance v. Court
of Appeals and Panama Saiv Mill, G.R. No. 94052, August 9, 1991)

Loss: Total Loss Only (1992)

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 34 of the value of the stones had been lost in one of the
lighters. Is the insurance company liable under its

policy? Why?
SUGGESTED 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 claimed since the 34 rule is to be computed on the total 1,000
pieces of Mindoro
SUGGESTED ANSWER:

[Link], it was not proper for the ship owner to send a notice
Mercantile Law Bar Examination Q & A (1990-2006)

garden stones covered by the single policy coverage (see Oriental Assurance Co v CA 200 s
459)

Marine Insurance; Implied Warranties (2000)

What warranties are implied in marine insurance?

SUGGESTED ANSWER:

The following warranties are implied in marine insurance: 1) That the ship is
seaworthy to make the voyageand/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 any document which will cast reasonable suspicion thereon; 4) That the ship
shall not carry contraband, especially if

it is making a voyage through belligerent waters.

Marine Insurance; Peril of the Ship vs. Peril of the Sea (1998)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? (5%)SUGGESTED 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.

Mutual Insurance Company; Nature & Definition (2006)

What is a mutual insurance company or association?

SUGGESTED ANSWER:

A mutual life insurance corporation is a cooperative that promotes the welfare of its
own members, with the money collected from among themselves and solely for their
own protection and not for profit. Members are both the insurer and insured. A
mutual life insurance company has no capital stock and relies solely upon its
contributions or premiums to meet unexpected losses, contingencies and expenses
(Republic v. Sunlife, G.R. No 158085, October 14, 2005).

Insurance Law
Beneficiary; Death of Insured Due to Beneficiary (2008)

[Link]. On January 1, 2000, Antonio Rivera secured a life insurance

from SOS Insurance Corp. for P1 Million 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.(4%)

SUGGESTED ANSWER:

Under Sec. 12 of the Insurance Code. The interest of a beneficiary 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. Thus, the insurance company must still pay out the proceed of the life
insurance policy to the nearest qualified relative of the insured.

Concealment; Material Concealment (2013)

[Link]. Benny applied for life insurance for Php 1.5 Million. 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 hepatoma, 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 two 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? (8%)

SUGGESTED ANSWERThe insurance company correctly rescinded the policy

because of concealment (Section 27 of Insurance Code). Benny did not disclose
that he was suffering from diabetes, hypertension, and hepatoma. The concealment
is material, because these are serious ailments (Florendo v. Philam Plans, Inc., 666
SCRA 618, 2012). Benny died less than two years from the date of the issuance of
the policy (Section 48 of Insurance Code).

Insurable Interest; Building Destroyed by Fire (2010)

No.X. To secure a loan of P10 million, Mario mortgaged his building
to Armando. In accordance with the loan arrangements, Mario had
the building insured with First Insurance Company for P10 million,
designating Armando as the beneficiary. Armando also took an
insurance of the building upon his own interest with Second
Insurance Company for P5 million.

The building was totally destroyed by fire, a peril insured against

under both insurance policies. It was subsequent 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.

(A) How much, if any, can Armando recover from either or both
insurance companies? (2%)SUGGESTED ANSWER:

Armando can receive P5 million from Second Insurance Company. As mortgagee,

he had an insurable interest in the building (Panlileo v. Cosio, 97 Phil. 919
(1955)). 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 (Section 87 of the Insurance Code; East
Furnitures, Inc. v.

Globe & Rutgers Fire Insurance Company, 57 Phil. 576 (1932)). Second, fire
insurance policies contain a warranty that the insured will not store hazardous
materials within the insured premises. Mario breached this warranty when he
stored inflammable materials in the building. (Young v. Midland Textile Insurance
Company, 30 Phil. 617 (1915)).These two factors exonerate First Insurance
Company from liability to Armando as mortgagee even though it was Mario who
committed them (Section 8 of the Insurance Code).

(B) What happens to the P10 million debt of Mario to Armando?

Explain. (3%) SUGGESTED ANSWER:Since Armando would have
collected P5 million from Second Insurance Company, this amount should be
considered as partial payment of the loan. Armando can only collect the balance of
P5 million (Panlileo v. Cosio, supra). Second Insurance Company can recover
from Mario the amount of P5 million it paid, because it became subrogated to the
rights of Armando (Panlileo v. Cosio, supra).

Insurance; Double Insurance, Validity

SUGGESTED ANSWER:

Yes. If X obtained an open policy then she could claim an amount corresponding to the extent of the
determined as of the date the damage occurred, but not to exceed the face value of the insurance poli

she obtained a valued policy then she could claim an amount corresponding to the extent of the dama
the house.

(2012)

No.V X borrowed from CCC Bank. She mortgaged her house and lot in favor of the
bank also got the house insured.

(A) Is this double insurance? Explain your

answer. (3%)

SUGGESTED ANSWER:

No, there is no double insurance. Double insurance exists where the same person is insured by severa
same subject and interest. (Sec. 93, Insurance Code)

(B) Is this legally valid? Explain your answer. (3%)

SUGGESTED ANSWER:

Yes, X and CCC Bank can both insure the house as they have different insurable interest therein. X,
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) In case of damage, can X and CCC Bank separately claim for the insurance pro
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.

Insurance; Perfection of Insurance Contracts (2009)

[Link]. 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. Quirico applied for insurance coverage,
stating that he was already 80 years old. Nonetheless, ALAC
approved his application

Quirico 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. Ten days after he received the cover note,
Quirico 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? (2%)

SUGGESTED 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 Quirico and ALAC? Explain. (3%)

SUGGESTED ANSWER:The issuance of a cover note by ALAC 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 notes 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 separate
policy but is integrated in the regular policy to be subsequently issued.

Insurance; Property Insurance; Assignments (2009)

[Link]. Ciriaco leased a commercial apartment from Supreme

Building Corporation (SBC). One of the provisions of the one-year
lease contract states:
[Link] 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 fire insurance
coverage without the consent of the LESSOR, the insurance policy
is deemed assigned and transferred to the LESSOR for the latters
benefit.

Notwithstanding the stipulation in the contract, without the

consent of SBC, Ciriaco insured the merchandise inside the leased
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.

(4%) SUGGESTED 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 (Cha v. Court of Appeals, 277 SCRA 690 (1997))

Insurance; Property Insurance; Late Payment of Premiums (2010)

[Link]. 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 Insurance 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? (3%)
SUGGESTED ANSWER:

The insurer is not liable under the insurance policy. Under Article 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 (Vitug, Commercial Laws and Jurisprudence, Vol.
I, p.250).

ALTERNATIVE ANSWER:Yes. The insurer is liable. The insurance policy

was issued. In effect, there was a grant of credit for the payment of the premium.
The insurer can deduct the amount of the check from the proceeds of the
insurance.

Insurance; Property Insurance; Payment of Premiums by Check (2007)

[Link]. Alfredo took out a policy to insure this commercial building

fire. The broker for the insurance company agreed to give a 15-day
credit within which 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. (10%)

(A) May Alfredo recover on the insurance policy?

SUGGESTED ANSWER:Yes, Alfredo may recover on the policy. It is valid to

stipulate that the insured will be granted credit term for 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 (UCPB General Insurance Co., Inc. v. Masagana
Telamart, Inc., 356 SCRA 307 [2001]).

(B) Would your answer in (a) be the same if it was found that the
proximate cause of the fire was an explosion and that fire was but
the immediate cause of loss and there is no excepted peril under
the policy? SUGGESTED ANSWER:

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 (Section 86, Insurance Code of the
Philippines).
(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).

SUGGESTED ANSWER: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 (Section 87, Insurance Code of The Philippines).

[Link]. Stable Insurance Co. (SIC) and St. Peter Manufacturing Co.
(SPMC) have had a long-standing insurance relationship with each
other; SPMC secures 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 with 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 form SIC? (8%)SUGGESTED

ANSWER:

St. Peter Manufacturing Company is entitled to recover for the loss from stable
Insurance Company. Stable Insurance Company granted a credit term to pay the
premiums. This is not against the law, because the standing business practice of
allowing St. Peter Manufacturing Company to pay the premiums after 60 or 90
days, was relied upon in good faith by SPMC. Stable Insurance Company is in
estoppels (UCPB General Insurance Company, Inc. v. Masagana Telemart, Inc.
356 SCRA 307, 2001).

Insurer: Effects: Several Insurers (2008)

[Link]. Terrazas de Patio Verde, a condominium building, has a

value of P50 Million. The owner insured the building against fire
with three (3) insurance companies for the following amounts:

Northern Insurance Corp. P20 Million Southern Insurance Corp.

P30 Million Eastern Insurance Corp. P50 Million

(A) Is the owners taking of insurance for the building with three (3)
insurers valid? Discuss. (3%)SUGGESTED ANSWER:

Taking out insurance covering the same property, same insurable interest and
same risk with three insurance companies is double insurance, recognized under
Sec. 93 of the Insurance Code. However, in American Home Assurance Co. v,
Chua, G.R. No. 130421, 28 June 1999, the court referred to the common inclusion
of the other insurance clause in fire insurance policies, requiring disclosure of
co-insurance of the same property with other insurers.

(B) The Building was totally razed by fire. If the owner decides to
claim from Eastern Insurance Corp. only P50 Million, will the claim
prosper? Explain. (2%)

SUGGESTED ANSWER:

Insured can recover from Eastern Insurance Corp. up to the extent of his loss.
However, Eastern may refuse to pay if the policy contains an other insurance
clause stipulating that non- disclosure of double insurance will avoid the policy
(Geagonia v. Country Bankers Insurance, G.R. No. 114427, 06 February 1995.)
As there is no indication of a contractual prohibition on double or other insurance,
all insurance contracts over the building are deemed valid and enforceable.

The law prohibits double or over- recovery, not double insurance. Since Eastern
insured the property up 50% of the total coverage, it is liable for only 50% of the
total actual loss. Eastern insurance Corp. is liable to the extent of its coverage but
may recover one-half of the total indemnity from the co-insurers in the proportion
of 60% (Southern Insurance) 40% (Northern Insurance)