FEU INSTITUTE OF LAW

INSURANCE
Mid-Term Examinations
INSTRUCTIONS
This Examination consists of SEVENTEEN (17) Multiple Choice Questions
on SIX (6) PAGES. The Questions are based on a set of Common Facts, with
additional facts given for specific Questions. Apart from the Common Facts and
unless otherwise expressly provided, there is NO CARRYOVER of facts from one
Question to another. Read each Question and Item VERY CAREFULLY, and
focus on the issue to be addressed. Choose the BEST Answer for each
Question and write down the Letter corresponding to your choice.
No
explanations are necessary and none will be given credit. Answer this
Examination sequentially. Good luck! (6 points each)
Common Facts:
a.

J, K, and X all live within the same gated community.

b.

While J is married to K and have a child together, J kept X as his mistress

and they (J and X) likewise have a child, D.

c.

On 20 October 2011, X decided that she wanted to have her house

renovated, so she borrowed One Million Pesos (P1,000,000.00) from J,
who gladly lent her the money, but required that her house be mortgaged
to him by way of security, so X executed the required real estate mortgage
in favor of J.

d.

On 21 October 2011, J procured the following insurance policies from ABC

Insurance Co.:
(1)

a life insurance policy insuring the life of X for One Million Pesos
(P1,000,000.00), with J as beneficiary, and with a rider on a
separate paper providing for double indemnity in case of
accidental death, i.e., death due to fortuitous event; and

(2)

a fire insurance policy insuring the house of X against fire, also for
One Million Pesos (P1,000,000.00), with J as beneficiary.

e.

On 22 October 2011, K, who was blissfully unaware of Js liaison with X,

insured her (Ks) own life for Three Million Pesos (P3,000,000.00) also
with ABC Insurance Co., and designated her husband J as irrevocable
beneficiary.

f.

On 23 October 2011, K found out about J and Xs dalliance, so K went to

Xs house to confront X, but found Js car in the driveway instead.

g.

When X came out, K hurled invectives at X and a Molotov cocktail at Js

car, which exploded, killing X and burning down Xs house.

h.

Realizing what she had done, K rushed home, sent a notice to ABC
Insurance Co. revoking Js designation as beneficiary in her (Ks) life
insurance policy on the ground of adultery, and feeling intense remorse,
designated D (Js child with X) as beneficiary.

i.

On 24 October 2011, K hanged herself, for as the song goes, everything

ends.

j.

After sending the proper notices and proofs of loss to ABC Insurance Co.,
J is claiming the following:

(1)

One Million Pesos (P1,000,000.00) for the proceeds of the life

insurance he procured to cover Xs life;

(2)

One Million Pesos (P1,000,000.00), as mortgagee, for the fire

insurance he procured to cover Xs house; and

(3)

Three Million Pesos (P3,000,000.00), as beneficiary of the life

insurance policy of K.

Questions Regarding the Life Insurance Policy Covering Xs Life

1.

2.

3.

4.

In determining any issue which may arise out of the life insurance contract
procured by J on Ks life, which, if at all, will be the LAST to be applied?
a.

the Insurance Code

b.

the general principles prevailing on the subject in the United States.

c.

the Civil Code

d.

the general customs and usage.

Can ABC Insurance Co. validly refuse to pay Js claim on the ground that
he has no insurable interest in the life of X?
a.

Yes, because X, being Js mistress, is disqualified from being the

insured in an insurance policy procured by J, since they are guilty
of adultery or concubinage.

b.

Yes, because J has no insurable interest in the life of X, since the

latter is not Js wife, but merely his mistress.

c.

No, because while X is Js mistress, J is also a creditor of X, and

therefore has an insurable interest in Xs life as her creditor.

d.

Yes, because while J is a creditor of X, Js interest as such is

already secured by the property insurance on Xs house.

If it was subsequently established that X neither gave her consent to be

insured by J nor subsequently ratified the insurance contract, can ABC
Insurance Co. validly refuse to pay Js claim on the ground that there is no
valid insurance contract?
a.

Yes, because where a life insurance policy is taken by one person

on the life of another, the person procuring insurance must not only
have insurable interest in the life of the insured but he must likewise
obtain the consent of the insured whose life is the subject matter of
the policy.

b.

No, because the consent necessary for an insurance contract to be

valid is between the insurer and the party procuring the insurance,
even if the party procuring the insurance is not the insured.

c.

No, because while the consent of the insured is generally required

for a life insurance contract on the life of the insured to be valid,
such consent is not necessary where the insurable interest is not
based on consanguinity or affinity.

d.

No, because while the lack of consent on the part of X to the

insurance contract is a form of concealment, ABC Insurance Co.,
by failing to cancel the policy before the claim is made, is estopped
from raising lack of consent as a defense to resist the claim of J.

Assuming that instead of J, it was D (J and Ks illegitimate child) who was

designated as the beneficiary, can ABC Insurance Co. validly refuse to
pay Js claim on the ground that D is disqualified as a beneficiary?

5.

6.

7.

a.

Yes, because D is an illegitimate child born out of an adulterous

union and is therefore disqualified from being named a beneficiary.

b.

No, because being an illegitimate child born out of an adulterous

union is not a ground for disqualification as a beneficiary.

c.

Yes, since Js insurable interest in Xs life is not based on blood

relationship; hence, the beneficiary, D, cannot be designated based
on blood relationship.

d,

No, because while Js insurable interest in Xs life is not based on

blood relationship, D, being an illegitimate child of J and X, has an
insurable interest in the life of X.

Assuming that the rider is countersigned by the owner of the policy (J), is
the rider providing for double indemnity valid?
a.

No, because for a rider to be valid, the insurance contract itself

must be valid, which is not the case here, since there is a lack of
insurable interest and/or invalid designation of beneficiary.

b.

No, because for a rider to be valid, the same must be pasted or

attached to the insurance policy, which is not the case here, since
the rider is on a separate paper.

c.

No, because for a rider to be valid, it must not be contrary to law,

which is not the case here, since the provision for double indemnity
is a form of wagering.

d.

Yes, because the insurance contract is valid, a rider can be on a

separate paper, and the payment of double indemnity, which will
only arise in case of accidental death, does not negate the validity
of the insurance contract itself, since the amount provided therein is
not grossly disproportionate to the insurable interest of J in Ks life.

Assuming that the rider on double indemnity is valid, and J claims Two
Million Pesos (P2,000,000.00) based on such rider, what ground can ABC
Insurance Co. NOT invoke to validly refuse to pay Js claim for double
indemnity?
a.

Xs death was not due to a fortuitous event.

b.

J forfeited his entitlement to the proceeds because, by carrying on

his dangerous liaison with X, he effectively brought about her
death.

c.

J committed concealment since he failed to disclose his illicit

relationship with X, which is material.

d.

J has no insurable interest for the additional amount claimed.

In determining any of the issues in Questions 2 to 6 above, which principle

of interpretation of insurance contracts will NOT apply?
a.

If ambiguous, insurance contracts, being contracts of adhesion,

should be strictly construed against the insurer.

b.

If ambiguous, insurance contracts should be strictly construed

against the insurer, since it is the party who drafted the said
contract.

c.

If unambiguous, the terms of an insurance contract should be

applied as worded even if they will result in iniquity.

d.

If unambiguous, the terms of an insurance contract can NOT be

applied as worded if they will result in iniquity.

8.

Assuming that J had not yet paid the insurance premiums for the life
insurance policy, can ABC Insurance Co. validly refuse to pay Js claim on
such ground?
a.

Yes, because the payment of premiums is essential, without which

no insurance contract can be valid and binding.

b.

No, because while the payment of premiums is generally necessary

to make an insurance contract valid and binding, the exception is in
the case of a life or an industrial life policy where the grace period
provision applies.

c.

Yes, because while there is a grace period provision in the case of

life insurance, the same will only apply if there is payment of at
least one (1) premium, which is not the case here.

d.

No, because the fact that J was able to procure a policy from ABC
Insurance Co. shows that the insurer already received the
premiums, and the issuance of the policy in favor of J is conclusive
proof of payment of premiums.

Questions Regarding the Fire Insurance Policy Covering Xs House

9.

10.

11.

Can ABC Insurance Co. validly refuse to pay Js claim on the ground that
he does not have insurable interest in the property insured, and therefore
he is not entitled as beneficiary to the proceeds of the fire insurance
policy?
a.

Yes, because it is only the property owner, X, that is entitled to the

proceeds, which shall then be used to pay her debt to J.

b.

No, because J has an insurable interest in the proceeds of the fire

insurance policy as mortgagee of the insured property.

c.

Yes, because Js interest in the proceeds of the fire insurance

policy is as unpaid creditor of X, which is inchoate, and will only
arise if there is failure to pay the loan obligation.

d.

No, because there is no requirement that the designated

beneficiary must have insurable interest in the property insured.

Can ABC Insurance Co. validly refuse to pay Js claim on the ground of
concealment, since J failed to disclose that the house insured belonged to
his mistress?
a.

Yes, because as shown by the facts, the fact that X was Js

mistress led to the loss of the property; hence, such fact is material
and should have been disclosed.

b.

No, because it was impossible for J to foresee that X being his

mistress would have anything to do with the loss of the insured
property.

c.

No, because while an insured is required to disclose all facts which

have any relation whatsoever to the contract of insurance, whether
or not they led to the loss of the property insured, such does not
include purely personal and possibly self-incriminating facts.

d.

Yes, because the fact disclosed is material inasmuch as knowledge

of the true facts would have influenced the insurer in determining
whether to accept the risk or in fixing the amount of the premiums.

Assuming that prior to the loss of the property insured, X had sold the
same to Y. Can J still claim the proceeds of the insurance?

12.

13.

14.

a.

No, because insurable interest in property insurance must exist at

the time of loss, which is not the case here.

b.

Yes, because Js insurable interest in the insured property at the

time of loss remains, notwithstanding the sale thereof to Y.

c.

No, because regardless of whether Js insurable interest in the

property remains, the transfer of the property insured suspends the
insurance until the same person becomes the owner of both the
policy and the thing insured.

d.

Yes, because mortgaged property cannot be sold for the purpose of

depriving the insured mortgagee the right to collect on the
insurance, as that will be deemed as a sale in fraud of creditors.

Assuming that prior to the loss of the property insured, J assigned his
credit to Z, together with the mortgage on the insured property, can Z
claim the proceeds of the insurance?
a.

No, because for Z to be entitled to the proceeds, his insurable

interest in the property insured must exist when the insurance takes
effect and when the loss occurs, which is not the case here.

b.

Yes, because through assignment of the credit and the

corresponding security by J in favor of Z, the interest in the
insurance is thereby transferred to Z.

c.

No, because the transfer of the 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.

d.

Yes, because credit cannot be assigned without the consent of the

debtor, as the same may lead to the latters defraudation.

Can ABC Insurance Co. validly refuse to pay Js claim in its entirety if it is
shown that the actual value of the loss to Xs house only amounted to Five
Hundred Thousand Pesos (P500,000.00)?
a.

No, since in the absence of an express stipulation, property

insurance contracts are automatically deemed valued policies;
hence, the amount due to X is the full face value of the policy.

b.

No, because there is in fact an express stipulation fixing the value

of the policy in this case; hence, it is a valued policy and such fixed
amount must be paid.

c.

Yes, since in the absence of an express stipulation, property

insurance contracts are automatically deemed open policies;
hence, the amount to be paid is not fixed.

d.

Yes, since regardless of whether the fire insurance policy is an

open or a valued policy, insurance being a contract of indemnity,
the proceeds to be paid cannot exceed the actual loss incurred.

Which of the following will NOT, by and of itself, bar J from collecting the
proceeds of the property insurance?
a.

That J has likewise procured the life insurance for the life of X, with
him as beneficiary.

b.

That J has collected the full amount of the proceeds of the life
insurance covering Xs life.

c.

That J has foreclosed on the real estate mortgage over the property
insured.

d.

That J has not paid the premiums for the property insurance.

Questions Regarding the Life Insurance Policy Covering Ks Life

15.

16.

17.

Can ABC Insurance Co. validly refuse to pay Js claim on the ground that
his designation as beneficiary has been revoked by K?
a.

No, because the revocation of Js irrevocable designation as

beneficiary, made without his consent, is not valid under any and all
circumstances.

b.

Yes, because one of the grounds for revocation of designation of a

beneficiary, even if the designation is stipulated as irrevocable, is
adultery, with or without conviction.

c.

No, because while one of the grounds for revocation of designation

of a beneficiary, even if the designation is stipulated as irrevocable,
is adultery, there must be a conviction for such criminal offense.

d.

No, because the revocation of Js irrevocable designation as a

beneficiary due to adultery will be valid if the adulterous spouse is
the guilty spouse in cases of dissolution of marriage under the
Family Code, which is not the case here.

Can ABC Insurance Co. validly refuse to pay Js claim on the ground that
he is disqualified as a beneficiary?
a.

Yes, since Js acts of adultery, even without conviction, disqualifies

him as a beneficiary.

b.

Yes, Js interest in the life insurance policy over Ks life is forfeited

because Js acts of adultery which led to the willful death of K.

c.

No, because for Js interest in the life insurance policy over Ks life
to be forfeited because Js acts of adultery which led to the willful
death of K, there must be prior conviction.

d.

No, because Ks death was a suicide, there is no forfeiture of Js

interest in the life insurance policy, notwithstanding Js adultery.

Assuming that Js designation as beneficiary has been validly revoked,

and that ABC Insurance Co. interposes no defenses, to whom should the
proceeds of the life insurance be paid?
a.

D, as the new designated beneficiary, subject to revocation by K at

any time.

b.

D, as the new designated beneficiary, subject to revocation by K

only for authorized causes under the law.

c.

The estate of K, since D is disqualified as a beneficiary and has no

insurable interest in the life of K.

d.

The nearest relative of K other than J, since both D and J are

disqualified as beneficiaries.
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