INSURANCE QUESTION AND ANSWER

JD 3C

Q. When is there insurable interest in life insurance?

A: In life insurance, insurable interest exists where there is reasonable ground founded on the
relations of the parties whether pecuniary, contractual, or by blood or affinity, and to expect some
benefit or advantage from the continuance of the life of the insured.

Q: Remington Industrial Sales Corporation (Remington) shipped on board a vessel, seamless steel
pipes from Japan to the Philippines and insured the shipment with Cathay Insurance Co. (Cathay).
Upon receipt of said shipment, losses and damages were discovered. Upon demand under the
insurance contract, it was denied by Cathay. Remington contends that the rust on the seamless steel
pipes is not an inherent vice of the shipment, thus the same is considered as a peril of the sea. Cathay,
on the other hand claims that the loss was occasioned by an inherent defect or vice in the insured
article. Is the “rusting” of the seamless steel pipes considered as a “peril of the sea”?
A: YES. The rusting of steel pipes in the course of a voyage is a “peril of the sea” in view of the toll on
the cargo of wind, water, and salt conditions. Moreover, it is a cardinal rule in the interpretation of
contracts that any ambiguity therein should be construed against the maker/issuer/drafter thereof,
namely, the insurer. Besides the precise purpose of insuring cargo during a voyage would be rendered
fruitless. (Cathay Insurance Co., v. CA, et. al., G.R. No. L-76145, June 30, 1987)

Q: What are the 4 kinds of Ocean Marine Insurance?

A:
1. Insurance over the vessel, craft and other conveyances;
2. Insurance for the protection of the carrier against liability to others for loss or damage to property of
another;
3. Insurance over cargoes that are being transported; and
4. Insurance over freight and income.

Q: What is the difference between suretyship and insurance?

A: In suretyship, three persons or entities are involved: the surety, the principal and the obligee. In
insurance, there are only two: the insurer and the insured.
In insurance, there is a theoretical distribution of losses over a group or classification of risks, the
insurance company assuming the losses of the individual insured. In suretyship, no losses is
anticipated as the surety guarantees the obligation of the principal.

Q: 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 in the second lighter resulting in the loss of 325 out of 400 pieces. The owner of
the shipment filed claims against the insurance company on the ground of constructive total losd
inasmuch as more than 3/4 of the vakue of the stones had been lost in ine of the lighters. Is the
insurance liable?
A: No. under its police the insurance company covers “total loss only” the shipment of 1,000 poeces of
mindoro garden stones. There is no constructive total loss that can be claimed since the 3/4 rule is to
be computed on the total 1,000 pieces of mindoro garden stones covered by the single policy coverage.

Q: On June 1, 2011, X mailed to Y Insurance, Co. his application for life insurance, with payment for 5
years of premium enclosed in it. On July 21, 2011, the insurance company accepted the application and
mailed, on the same day, its acceptance plus the cover note. It reached X's residence on August 11,
2011. But, as it happened, on August 4, 2011, X figured in a car accident. He died a day later. May X's
heirs recover on the insurance policy?
A: No, X’s heirs cannot recover on the insurance policy because the contract of insurance is not
perfected therein since X had no knowledge of the insurer's acceptance of his application before he
died. The contract of insurance is perfected when the assent or consent is manifested by the meeting of
the offer and the acceptance upon the thing and the cause which are to constitute the contract. Mere
offer or proposal is not contemplated. (De Lim v. Sun Life Assurance Co., G.R. No. L-15774, November
29, 1920). Hence, the insurance contract is not perfected because it has not been proved satisfactorily
that the acceptance of the application ever came to the knowledge of the applicant. In accordance with
Art. 1262 of the Civil Code, an acceptance made by letter shall not bind the person making the offer
except from the time it came to his knowledge. (Enriquez vs Sun Life Assurance Co. 41 Phil. 269.
November 29, 1920)

Q: After some convincing by Perla, Manuel filed an application for pension plan with Philam Plans.
Manuel signed the application and left to Perla the task of supplying the information needed in the
application. Ma. Celeste, Perla’s daughter, signed the application as sales counselor. Few months after,
Manuel died of blood poisoning. The beneficiary, Lourdes, filed a claim which Philam Plans denied on
the ground that Philam found that Manuel was on maintenance medicine for his heart and had an
implanted pacemaker, and suffering from diabetes mellitus and taking insulin. Is good faith a defense
when there is a material concealment?
A: No. In accordance with the Insurance Code, concealment is a neglect to communicate that which a
party knows and ought to communicate. Insurance policies are traditionally contracts of utmost good
faith, as such insured is required to disclose to the insurer conditions affecting the risk of which he was
aware or material facts that he knew or ought to know. If there is concealment, the remedy of the
insurer is rescission since concealment vitiates the contract of insurance. Good faith is not a defense in
concealment. In the case at bar, since Manuel signed the application without filling in the details
regarding his continuing treatments for heart condition and diabetes, the assumption is that he has
never been treated for the said illnesses. The responsibility for preparing the application belonged to
Manuel. Thus, he cannot sign the application and disown the responsibility for having it filled up. If he
furnished Perla the needed information and delegated to her the filling up of the application, then she
acted on his instruction, not on Philam‘s instruction. Moreover, when Manuel signed the pension plan
application, he adopted as his own the written representations and declarations embodied in it. Hence,
the non-disclosure of matters relating to his health which are material and relevant to the approval of
the issuance of the insurance policy which definitely affect the insurer’s action to the application is
tantamount to concealment wherein good faith is not a defense. (Florendo vs. Philam Plans, February
22, 2012)

Q: Alfredo took out a policy to insure his commercial building from fire. The broker for the insurance
agreed to give him a 15- day credit within which to pay the insurance policy. Upon delivery of the
policy on May 15, 2006, Alfredo issued a post- dated check payable on May 30, 2006. On May 28, 2006,
a fire broke on and destroyed the building of Alfredo. May he recover from the insurance policy?
A: Yes. It is valid to stipulate that the insured will be granted credit term to payment of premium.
Payment by means of check which was accepted by the insurer prior to the loss would be sufficient.
THE subsequent effect of encashment retroact to the date of the check (UPCB GENERAL INSURANCE
vs. Masagana Telemart)

Q: Kardo is a landowner. However, in 1996, due to poor harvests, he was forced to mortgage his land
on Landgraab Credit Co. for P2,000,000.00. The value of the land during that time was 3,000,000.00.
Landgraab insured the property to iPayMaya Insurance Corp. Two years later, seeing imminent
bankruptcy, Landgraab sold the mortgage credit to Utangnatayo Inc.
a. Is Kardo allowed to insure the land?
b. Suppose that Landgraab did not deliver the P3,000,000 to Kardo, and the latter demanded the
money from Utangnatayo Inc. Utangnatayo Inc. did not get an insurance contract and sued Landgraab.
Is iPayMaya liable as an insurer to landgraab suppose that Landgraab lost the case?
A:
a. Yes. The law on insurance provides that when the insurable interest constitutes property, the
insured must be the owner thereof. In the case at bar, Kardo is still the owner of the thing despite the
fact that it was under mortgaged. Therefore, he can insured the land on its full amount.
b. No. Ipaymaya is not liable. Under the law, the insurer is liable only to the subject matter of the
contract, that is the one that the insured has insurable interest which he contracted to the insurer. In
the case at hand, the liability of iPaymaya is only limited to the 2,000,000 credit; and suppose that
Kardo paid his liability, which in this case, is absent. Hence, iPaymaya is not liable.

Q: Distinctions between concealment in ordinary insurance and concealment in marine insurance.

A:
(1) In ordinary insurance, belief and expectations of third persons need be disclosed while in marine
insurance the beliefs and expectations of third persons as to material facts should be disclosed; and
(2) Under Section 110 of the Insurance Code, the insurer is exonerated only if the same are the causes
of the loss while in ordinary insurance, the general rule is that the insurer is always exonerated even if
the matter concealed is not the cause of the loss.

Q: Carlo and Bianca met in the La Boracay festivities. Immediately, they fell in love with each other and
got married soon after. They have been cohabiting blissfully as husband and wife, but they did not have
any offspring. As the years passed by, Carlo decided to take out a life insurance on Bianca's life for 1M
with him (Carlo) as sole beneficiary given that he did not have a steady course of income and always
depended on Bianca both emotionallh and financially. During the term of the insurance, Bianca died of
what appeared to be a mysterious cause so that Carlo immediately requested for an autopsy to be
conducted. It was established that Bianca died of natural cause. More than that, it was established that
Bianca was a transgender all along- a fact unknown to Carlo. Can Carlo claim the insurance benefit?
A: Yes, Carlo can claim the insurance benefit. If a person insures the life or health of another person
with himself as beneficiary, all his rights, title, and interests in the policy shall automatically vests in
the person insured. Carlo, as the husband of Bianca, has an insurable interest in the life of the latter.
Further, every person has an insurable interest in the life and health of any person on whom he
depends wholly or in part for support. The insurable interest in the life of the person insured must
exist when the insurance takes effect but need not exist when the loss occur. Thus, the subsequent
knowledge of Carlo, upon the death of Bianca, that the latter is a transgender does not destroy his
insurable interest on the life of the insured.

Q: On a clear weather, MV Sundo, carrying insured cargo, left the port of Manila bound for Cebu. While
at sea, the vessel encountered a strong typhoon forcing the captain to steer the vessel to the nearest
island where it stayed for 7 days. The vessel ran out of provisions for its passengers. Consequently, the
vessel proceeded to Leyte to replenish its supplies.
a) Assuming that the cargo was damaged because of such deviation, who between the insurance
company and the owner of the cargo bears the loss? Explain.
b) Under what circumstances can a vessel properly proceed to a port other than its port of destination?
Explain.
A:
a) The insurance company should bear the loss. Since the deviation was caused by a strong typhoon, it
was caused by circumstances beyond the control of the captain, and also to avoid a peril whether or
not insured against. Deviation is therefore proper.

b) A vessel can properly proceed to a port other than its port of destination in the following cases:
1. When caused by circumstances over which neither the master or the owner of the ship has any
control;
2. When necessary to comply with a warranty, or to avoid a peril, whether or not the peril is insured
against;
3. When made in good faith, and upon reasonable grounds of belief in the necessity to avoid peril;
4. When made in good faith for the purpose of saving human life or relieving another vessel in distress.

Q: A filed an application for a fire insurance policy to cover his house. He signed the application on Jan
15, 2007 and delivered it to his insurance broker, B, on Jan 16, 2007 together with the required
premium. B submitted the application to the office of XYZ Insurance Corp on Jan 20, 2007 and the
application was processed and approved on Jan 25, 2007. On Jan 26, 2007, XYZ sent a notice to A. A
received the notice on Jan 28, 2007. In the meantime, on Jan 26, 2007, the house of A was totally
destroyed by fire. Can A recover from XYZ?
A: No, A cannot recover from XYZ. There is no perfected insurance contract between A and XYZ at the
time of the loss. An insurance contract is perfected only from the time the insured had notice of the
acceptance of his offer. The application of A constitutes the offer to enter into an insurance contract.
While the offer had already been accepted on Jan 25 or before the loss, the insured learned about the
acceptance of the offer only after the loss or on Jan 28.

Q: 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 claim on the proceeds of the life
insurance policy of Renato?
A: Yes. The life insurance policy in question was issued on January 2, 1990. More than 2 years had
elapsed when Renato, the insured, died on March 1, 1992. The incontestability clause applies. In
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.

Q: Enrique obtained from Siguro 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 Enrique's check with 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?
A: The insurer is not liable under the insurance policy. Under Art. 1249 of the Civil code, the delivery of
a check produces the effect of payment only when it is encased. The loss occurred on Apri 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 of the premium. (Vitug, Commercial Laws and Jurisprudence, Vol. I,p.250).
Q: Does the buyer of the goods, after the perfection of the contract and before delivery of the articles
purchased have insurable interest in the goods?
A: Yes. A buyer of goods has an insurable interest in the goods purchased after perfection of the
contract and before delivery of the goods. The shipping arrangement is immaterial in determining
whether the vendee has an insurable interest or not in the goods in transit. The perfected contract of
sale, even without delivery, vests in the vendee an equitable title, an existing interest over the goods
sufficient to be the subject of the insurance.

Q: Should thr proceeds of the policy be automatically given to the legitimate wife and children if the
husband-insured named the common law wife and illegitimate children as beneficiaries?
A: No. The proceeds of the policy shall be given to the illegitimate children, not to the legitimate wife
and legitimate children for they were not named as beneficiaries. There is no prohibition in naming the
illegitimate children as beneficiaries. The insurance proceeds shall be applied exclusively to the proper
interest of the person in whose name of for whose benefit it is made unless otherwise specified in the
policy.
NOTE: Common law spouses designated as beneficiary barred from receiving life insurance proceeds
from a legally married person. (Insular life Assurance Co. Ltd vs. Ebrado)

Q: When may the insurer in a marine insurance rescind the entire contract?
A: When the representation made is intentionally false in material respect on which the character and
nature of the risk depends. Sec.111 of the Insurance Code provides that “if a representation by a
person insured by a contract of marine insurance, is intentionally false in any material respect of any
fact on which the character & nature of the risk depends, the insurer may rescind the entire contract.”

Q: X bought P5,000 worth of lotto tickets. He applied for an insurance policy over the lotto tickets with
ABC Insurance. May ABC insurance allow or approve the application?
A: No. A contract of insurance is a contract of indemnity and not a wagering or gambling contract.
Although it is true that an insurance contract is also based on a contingency, it is not a contract of
chance. Section 3 provides that any contingent or unknown event, whether past or future, which may
damnify a person having an insurable interest, or create a liability against him, may be insured against,
subject to the provisions of this chapter. However, this section does not authorize an insurance for or
against the drawing of any lottery, or for or against any chance or ticket in a lottery drawing a prize.
(Section 4)

Q: Pepito Taloloto lives in a Spanish era house. Dreaming that one day he would be rich, Pepito is fond
in betting at PCSO lotto. Finding out that the prize for the 6/58 now reaches P500,000,000.00, he
placed his bet and a ticket was issued to him. Pepito Taloloto then insured the ticket to Fireproof
Insurance Co. and paid 400 pesos as a premium. Later on that night, Pepito Taloloto hit the jackpot.
However, due to his negligence, the ticket was partially burned by the gas lamp. When he went to
PCSO, the PCSO rejected his ticket. Can Pepito Taloloto file a claim against Fireproof? And if Yes, How
much can Pepito can claim from Fireproof?
A: No. The law on insurance provides that only pure risks can be insured. In the instant case, insuring
a lotto ticket does not involve a pure risk but a speculative risk, as the same can result to either loss or
gain on the part of the insured party. Therefore, Pepito cannot collect against Fireproof.