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INSURANCE DELEON SUMMARY

INSURABLE INTEREST validity of an insurance contract whatever the subject matter

of the policy, whether upon property or life.
Section 10 - A policy issued to a person without interest in the
subject matter insured is a mere wager policy or
Insurable interest in general contract and is void for illegality.

Insurable interest - Interest which the law requires the
owner of an insurance policy to have in the person or thing
insured.
(1) Pecuniary in nature. — In general, a person is deemed
to have an insurable interest in the subject matter insured
- where he has a relation or connection with or
- concern in it that he will derive pecuniary or
- financial benefit or
- advantage from its preservation and will suffer
pecuniary loss or
- damage from its destruction, termination, or injury
by the happening of the event insured against.
(a) Interest does not necessarily imply a right to the whole
or a part of a thing.
- To have an interest in the preservation of a thing is
to be circumstanced
- with respect to it as to have benefit from its existence
and prejudice from its destruction.
(b) The property of a thing and the interest devisable from
it may be very different;
- of the first, the price is generally the measure,
- but by interest in a thing, every benefit or
- advantage arising out of or
- depending on such thing may be considered as being
comprehended.
(2) Exception. — The term has a somewhat broader meaning
in connection with life insurance.
- To have an insurable interest in the life of a person,
- the expectation of benefit from the continued life of
that person need not necessarily be of a pecuniary
nature.
The insurable interest requirement is held not to apply to
industrial life insurance.
Requirement, a matter of public policy
(1) As a deterrence to the insured — The requirement of
an insurable interest to support a contract of insurance is
based upon considerations of public policy which
render wager policies invalid.
a. A wager policy is obviously contrary to public
interest.
It is demoralizing in that:
(a) It allows the insured to have an interest in the
destruction of the subject matter rather than in its
preservation or
(b) It affords a temptation or an inducement to the
insured, having nothing to lose and everything to gain, to
bring to pass the event upon the happening of which the
insurance becomes payable.
(2) As a measure of limit of recovery — The legal
requirement has been devised with another object in
view.
a. If and to the extent that any particular insurance
contract is a contract to pay indemnity,
b. the insurable interest of the insured will be the
measure of the upper limit of his provable loss
under the contract.
The insurance should not provide the insured with the means
of making a net profit from the happening of the event insured
against. The requirement is enforced and the defense
permitted not in the interest of the insurer but of a sound
public policy.

Necessity of insurable interest to validity of contract Two general classes of life policies

The existence of insurable interest is a primary concern in Insurance upon one’s life
determining the liability of an insurer under a policy of
insurance. In one class are those taken
out by the insured upon his
Insurable interest may be in life and health or in property own life for the benefit of
himself, or of his estate, in
(1) The existence of insurable interest gives a person the case it matures only at his
legal right to insure the subject of the policy of death, or for the benefit of a
insurance. third person who may be
a. In the absence of such interest, the person designated as beneficiary.
insuring in effect would be gambling,
which is prohibited by law.
b. It is a fundamental postulate of all An application for
insurance that it must not be a mere bet insurance on one's own life
upon a future event. does not usually present an
insurable interest question.
(2) The rule is that an insurable interest is necessary to the
Insurance upon life of
another
In the other class belong
policies taken out by the
insured upon the life of
another, When one applies
for insurance on the life of
another for the former's
benefit, he must have an
insurable interest in the life
of that person.
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INSURANCE DELEON SUMMARY

Insurable interest in one's own life Similarity between a life insurance policy and a civil
donation
Every person has an unlimited insurable interest in his own
life whether the insurance is for the benefit of himself or Civil Donation Life Insurance Policy
another; and it is not at all necessary that the beneficiary Donation is an act of No different from a civil
designated in the policy should have any interest in the life of liberality whereby a person donation insofar as the
the insured. disposes gratuitously a beneficiary is concerned.
thing or right in favor of Both are founded upon the
(1) Insurance taken out by insured on his life for the another who accepts it. same consideration:
benefit of another. — The presence of insurable interest is liberality
really required only as evidence of the good faith of the A beneficiary is like a
parties. donee, because from the
premiums of die policy
- It is contrary to human experience that a person will which the insured pays out
insure his own life for the benefit of another for the of liberality, the beneficiary
purpose of speculation, will receive the proceeds or
- to be tempted to take his own life in order to secure profits of said insurance.
the payment of money to another, or As a consequence, the
- designate as the beneficiary, a person interested in proscription in Article 739
the destruction and not in the continuance of his life. (infra.) of the Civil Code
should equally operate in
Consequently, the mere fact that a man on his own motion life insurance contracts.
insures his life for the benefit either of himself or of
another is sufficient evidence of good faith to validate the
contract.
Under Article 87 of the Family Code (Exec. Order No.
Although there are cases on record where the beneficiary 209.)
without interest has yielded to the temptation to terminate
unlawfully the life insured as if he himself had taken out the "Every donation or grant of gratuitous advantage, direct
policy, the law considers this danger too slight for notice, or indirect, between the spouses during the marriage shall
since the selection of the beneficiary by the insured is in be void, except moderate gifts which the spouses may give
ordinary cases sufficient guaranty of the existence of such each other on the occasion of any family rejoicing. The
good faith and confidence between them as will sufficiently prohibition shall apply also to persons living together as
protect the insured. husband and wife without a valid marriage/' A life
insurance policy taken by a spouse on his (her) life in
(2) When the insurance regarded a wager policy — An favor of the other takes effect after the death of the
exception to the general rule exists in cases in which the court insured.
finds that a wagering policy has been taken out by the
insured on his life at the behest of a third person who is Insurable interest in life of another
named as beneficiary.
(1) Insurance for benefit of insured — A person cannot
Evidence of a wagering policy is usually found in such lawfully procure insurance for his own benefit on the life of
facts as: another in whose life he has no insurable interest.

(a) that the original proposal to take out insurance was
that of the beneficiary;
(b) that premiums are paid by the beneficiary; and
(c) that the beneficiary has no interest, economic or
emotional, in the continued life of the insured.
On finding that such a policy is primarily a wager, the court
will generally void the policy entirely.
A person has an insurable interest in his own life
- But if the policy is applied for and owned by
someone other than the insured,
- the applicant-owner must have an insurable interest
in the life of the insured.
The insurable interest in the life of another must be a
pecuniary one (related to money) and it exists whenever
the relation between the assured and the insured,
- whether by blood, marriage or commercial intercourse,
- is such that the assured has a reasonable expectation of
deriving benefit from the continuation of the life insured or
- of suffering detriment or incurring liability through its
termination.
- Or to put it more briefly, the policy of the law requires that
the assured shall have an interest to preserve the life insured
in spite of the insurance, rather than destroy it because of the
insurance.
(3) Insurance for benefit of a third party. — When the
owner of the policy insures the life of another
— the cestui que vie — and designates a third party
as beneficiary,
- both the owner and beneficiary must have an
insurable interest in the life of the cestui que vie.
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INSURANCE DELEON SUMMARY
- If the insurable interest requirement is satisfied, a
life policy is assignable regardless of whether the
assignee has an insurable interest in the life of the
cestui que vie
Under our law, in order that one may have an insurable
interest in the life of another, it must be one of those
mentioned
i.e.,
The interest is pecuniary or founded upon the close
relationship between the parties. Hence, the mere fact that
two persons are engaged to be married does not give one an
insurable interest in the life of the other.
EXAMPLE:
X takes an insurance on his own life and names his friend
Y as beneficiary and another insurance on Y's life with
himself (X) as beneficiary.
The first insurance is valid because the beneficiary (Y) need
not have an insurable interest in the life of the insured. The
second insurance is void because X has no insurable interest
on the life of Y.
Insurable interest in life of person upon whom one
depends for education or support or in whom he has a
pecuniary interest
(1) When mere blood relationship sufficient. —the mere
relationship of brother or sister, father or child is sufficiently
close to give either an insurable interest in the life of the other.
- The reasoning upon which the rule is based is that
the natural affection in cases of this kind is
considered sufficient,
o if not more powerful, to protect the life of
the insured than any other consideration.
- The essential thing is this: that the policy shall be
obtained in good faith, and not for the purpose of
speculating upon the hazard of a life in which the
insured has no interest.
Generally, blood or material relationships fit the concept of
insurable interest.
In any event, the following have an insurable interest in
each other's life since under the provisions of Article 195
of our Family Code, they are obliged to support each
other:
(a) The spouses;
(b) Legitimate ascendants and descendants;
(c) Parents and their legitimate children and the legitimate
or illegitimate children of the latter;
(d) Parents and their illegitimate children and the legitimate
or illegitimate children of the latter;
(e) Legitimate brothers and sisters, whether of the full or
half-blood. Brothers and sisters not legitimately related,
whether of the full or half-blood, are likewise bound to
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support each other except only when the need for support of
the brother or sister, being of age, is due to a cause imputable
to the claimant's fault or negligence.
(2) When pecuniary benefit essential. —
- In other cases, mere blood relationship
o {e.g., lesser degree of kinship, such as
uncle or aunt, and nephew or niece, and
cousins)
o does not create an insurable interest in the
life of another.
o Also, mere relationship by affinity
(e.g., son-in-law, brother-in-law, step-
children) ordinarily does not constitute an
insurable interest.
Under our law, there must be an expectation of pecuniary
benefit in the life of the insured to sustain the insurance, that
is, a risk of actual monetary loss from his death.
- Hence, "love and affection/' "gratitude," or
"friendship," by itself is not sufficient.
The expectation, however, need not have legal basis
whatever; it is sufficient that it be actual. Thus:
(a) The assumption of parental relations when a man sends a
girl to school and pays her expenses is sufficient to give her
an insurable interest in his life.
(b) Upon like principle, a woman who takes a girl from
an orphan asylum and gives her a home under circumstances
calculated to raise a reasonable expectation of help and care
from the girl during the declining years of the benefactress,
has an insurable interest in the girl's life, although she is not
formally appointed her guardian.
(c) It is generally held that a corporation has an insurable
interest in the life of an officer on whose services the
corporation depends for its prosperity, and whose death will
be the cause of a substantial pecuniary loss to it.
(d) Similarly, a person may take out a policy on the life of
his business partner on the theory that the latter's death may
adversely affect the business operations which can, in turn,
cause financial losses
(e) In the case of employees, insurable interest is dependent
upon the value of the employee to the business.
One who could be easily replaced would hardly be one in
whom the employer could reasonably claim an insurable
interest. However, a chemist working on research problems
might reasonably be insured, particularly if his experiments
had a reasonable expectation of substantial future benefits. A
business usually has an interest in other employees occupying
key positions, such as the president, executive officers, and
department heads who are important to the organization
which expects to receive some necessary gain from the
continuation of their lives or some financial loss from their
death. However, valid insurance may be written when the
employee himself applies for the policy and designates the
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INSURANCE DELEON SUMMARY
employer as beneficiary.
Insurable interest of a person in life of another under a
legal obligation to former.
(1) Related by contract or commercial relation. —
- Any person so related to another, either by contract
or commercial relation, that a right possessed by him
will be extinguished or impaired by the death or
illness of the other may lawfully procure insurance
on the other's life.
- Thus, the employer may insure the life of the
employee and vice versa: a corporation, the life of
its manager; a partner, the life of his co-partner; a
partnership, the life of each partner; and a surety, the
life of his principal although the principal has no
insurable interest in the life of his surety.
(2) Risk that performance of obligation might be delayed
or prevented — In all the instances mentioned, it must
appear that the death or illness of the insured person who is
under a legal obligation, might delay or prevent its
performance.
- Accordingly, it has been held that while a partner has an
insurable interest in the life of a co-partner who is indebted to
him for his proportion of the capital or against whose skill the
said partner has advanced money, a partner has no insurable
interest in the life of the other if both have no capital invested
and neither is indebted to the other.
Insurable interest of creditor in life of his debtor
(1) Extent of interest. — The creditor has unquestionably an
insurable interest in the life of his debtor under Section 10(c).
- Thus, a creditor may insure his debtor's life for the
purpose of protecting his debt but only to the extent
of the amount of the debt and the cost of carrying the
insurance on the debtor's life.
- It is clear that the creditor will not be fully damnified
if the insurance is limited only to the exact amount
of the debt.
- However, the amount of the policy must not be so
disproportionate to the amount of the debts and liens
thereon plus the cost of the insurance as to justify the
conclusion that the policy is merely a wagering or
speculative one.
- For instance, a policy on the life of another for
P300,000.00 to cover a debt of P50,000.00 is a mere
wagering policy, and is void
(2) Right of debtor in insurance taken by creditor — A
creditor who insures the life of his debtor does not act as the
agent of the latter (see Sec. 53.), cases to the contrary
notwithstanding.
- The contract is one purely between the insurer and
the insuring creditor inasmuch as by law,
- the creditor is given an insurable interest on the life
of his debtor.
- In other words, the insurance does not inure to the
benefit of the debtor unless, of course, the contrary
is expressly stipulated.
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(3) Extent of the amount that may be recovered by
insuring creditor. — Strictly speaking, an insurance taken
by the creditor on the life of his debtor is not purely a contract
of life insurance.
The principle of indemnity applies in this particular kind of
insurance as in the case of property insurance.
- It follows that the insuring creditor could only recover such
amounts as remain unpaid at the time of the death of the
debtor.
- If the whole debt has already been paid, then recovery on
the policy is no longer permissible.
(4) Where insurance taken by debtor for the benefit of
creditor. —
A distinction should be made between a policy taken by a
debtor on his life and made payable to his creditor and one
taken by a creditor on the life of his debtor. Where a debtor
in good faith insures his life for the benefit of the creditor, full
payment of the debt does not invalidate the policy; in such
case, the proceeds
should go to the estate of the debtor.
(5) Where debt becomes legally unenforceable.
— According to American cases, the fact that a valid debt
becomes subsequently unenforceable, by reason of being
barred by the statute of limitations or of the debtor's discharge
in insolvency, does not cut off the insurable interest of the
creditor although there is no reasonable expectation of the
debtor becoming solvent so as to be able to pay his debt. The
reason given is that the moral or equitable obligation of the
debtor to pay his debt is not destroyed by the discharge which
affects only the legal obligation to pay.
Under our law, however, it is clear that a creditor may not
insure the life of his debtor unless the latter has a
legal obligation to him for the payment of money.
Insurable interest in life of person upon which an estate or
interest depends. Section 10(d) provides that every person
has an insurable interest in the life and health of "any person
upon whose life any estate or interest vested in him depends."
This simply means that one may insure the life of a person
where the continuation of the estate or interest vested in him
who takes the insurance depends upon the life insured.
EXAMPLE:
Suppose A receives as legacy, the usufruct of a house. The
ownership of which is vested in B. It is provided in the legacy
that should B die first, both the usufruct and the ownership of
the property will pass to C.
In this case, A has an insurable interest in the life of B for A
will suffer pecuniary loss by B's death. Consent of person
whose life is insured.
Is the consent of the person whose life is insured essential to
the validity of the insurance taken by another?
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INSURANCE DELEON SUMMARY

(1) Essential to validity of policy. — A leading authority maintain it. Such such; that is, the in the policy but
has said: a person is thus insured may have is designated as
an immediate taken the policy recipient of the
"On clear principle and by the weight of authority, it is party to the for the benefit of proceeds of the
believed that all such contracts (without the consent of the contract and is a creditor or to policy through
insured) are contrary to public policy, and void, x x x The ordinarily called secure some mere bounty of
amount of insurance that may be validly procured is not the assured as other obligation; the insured, The
limited strictly to the amount of the pecuniary interest to where the or beneficiary
be protected. A margin must be allowed to cover premiums creditor insures designated may
and other charges. But this excess of insurance offers a strong the life of his be the estate of
temptation to hasten the death of the insured by criminal debtor; the insured or a
means. The danger to the public of such insurances is largely third party
obviated when the insured, with knowledge of all the
circumstances, has given consent to the contract. His very
consent is strong evidence of the good faith of the person
procuring the insurance, and thus affords a needed guaranty In the second and third cases:
to society." - the beneficiary is not a party to the contract.
In all the three cases:
(2) Not essential to validity of policy. — It seems, however, - the proceeds of the life insurance policy become the
that under our law (Sec. 10.), the consent of the person exclusive property of the beneficiary upon the death
insured is not essential to the validity of the policy. So long of the insured.
as it could be proved that the assured has a legal insurable - Therefore, where the insured, before dying, was
interest at the inception of the policy, the insurance is valid judicially declared insolvent, the proceeds should be
even without such consent. The presence of insurable interest paid to the beneficiary and not to the assignee in
takes the contract out of the class of forbidden wagers. Sec. insolvency.
11. The insured shall have the right to change the beneficiary
he designated in the policy, unless he has expressly waived Limitations in the appointment of beneficiary
this right in said policy, (n)
A person may take out a policy of insurance on his own life
Beneficiary defined. and make it payable to whomsoever he pleases, irrespective
(1) In insurance cases, the term beneficiary is ordinarily of the beneficiary's lack of insurable interest, provided he acts
used in referring to the person who is named or designated in in good faith and without intent to make the transaction
a contract of life, health, or accident insurance as the one who merely a cover for a forbidden wagering contract. (44 C.J.S.
is to receive the benefits which become payable, according to 899.) Our Civil Code, however, imposes certain limitations in
the terms of the contract, upon the death of the insured, the appointment of a beneficiary.

(2) It is also used in insurance law to indicate only those

persons,
- whether natural or juridical,
- who, though not parties to the contract,
- are mentioned in it as the intended recipients of the proceeds
or
- benefits of the insurance if the insured risk occurs,
Article 2012 of the Civil Code provides as follows:
"Any person who is forbidden from receiving any donation
under Article 739 cannot be named beneficiary of a life
insurance policy by the person who cannot make any
donation to him, according to said article, (n)"

(3) A broader use of the term would include also those who, Article 739 above referred to provides as follows:
upon a proper basis of insurable interest, secure insurance for
their own benefit upon the lives of others "The following donations shall be void:
(1) Those made between persons who were guilty of
Kinds of beneficiary. adultery or concubinage at the time of the donation;
(2) Those made between persons found guilty of the same
Where the beneficiary designated is a person other than the criminal offense, in consideration thereof;
insured, such person may occupy one of three relations to the (3) Those made to a public officer or his wife, descendants
insured: and ascendants, by reason of his office.
Insured Himself Third person who Third person
paid through mere In the case referred to in No. 1: the action for declaration
consideration bounty of insured of nullity may be brought by the spouse of the donor or
He may himself The third person The beneficiary donee;
be the person named as may be one who - and the guilt of the donor and donee may be proved
who beneficiary may gives no by preponderance of evidence in the same action, (n)"
procures the have paid a consideration
contract and pays valuable whatsoever for
the premiums consideration for any right that
necessary to his selection as may be acquired
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INSURANCE DELEON SUMMARY
In order that Article 739 may apply: it is not required that
there be a previous conviction for adultery or concubinage.
This can be inferred from the clause that "the guilt of the
donor and donee may be proved by preponderance of
evidence."
As already pointed out (under Sec. 10), a life insurance
policy, in essence, is no different from a civil donation insofar
as the beneficiary is concerned. Both are founded on the same
consideration: liberality. A beneficiary is like a donee
because from the premiums of the policy which the insured
pays out of liberality, the beneficiary will receive the
proceeds or profits of said insurance. As a consequence, the
proscription in Article 739 of the Civil Code should equally
operate in life insurance contracts.
EXAMPLE:
M, a married man, takes out an insurance policy on his life
and designates B, with whom M is cohabiting at the time, as
beneficiary.
The designation of B is void since M and B are guilty of
concubinage at the time it is made. Hence, in case M dies, his
legal heirs and not B will be entitled to the insurance
proceeds. But the designation is valid if both M and B are
single.
The insured in a life insurance may designate any person as
beneficiary unless disqualified to be so under the
provisions of the Civil Code.
- In the absence of any beneficiary named in the life
insurance policy or where the designated beneficiary
is disqualified
- the proceeds of the insurance will go to the estate of
the deceased insured.
Right of insured to change beneficiary in life insurance
(1) General rule. — Section 11 abandons the former rule
that unless the policy reserves to the insured the right to
change the beneficiary, no such right exists and the named
beneficiary has vested right in the policy of which he cannot
be divested without his consent,
- Now, whether or not the policy reserves to the
insured the right to change the beneficiary, he has
the power to so change the beneficiary without the
consent of the latter who acquires no vested right but
only an expectancy of receiving the proceeds under
the insurance. It follows that the insured retains the
right to receive the cash value of the policy, to take
out loans against the cash value, to assign the policy,
or to surrender it without the consent of the
beneficiary.
(2) Effect of death of insured. — The right must be
exercised specifically in the manner provided in the policy or
contract.
- But the insured's power to extinguish the
beneficiary's interest ceases at his death,
- and cannot be exercised by his personal
representatives or assignees.
- The beneficiary's right then becomes completely
fixed.
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(3) Where right to change is waived. — If the right to
change the beneficiary is expressly waived in the policy, then
the insured has no power to make such change without the
consent of the beneficiary.
(a) The beneficiary acquires an absolute and vested
interest to all benefits accruing to the policy from the date of
its issuance and delivery, including that of obtaining a policy
loan to the extent stated in the schedules of values attached
to the policy.
- The beneficiary has thus a property right in the
policy of which could not be deprived without his
consent.
(b) Neither can a new beneficiary be added to the
irrevocably designated beneficiary for this would in effect
reduce the latter's vested rights.
(c) The insured does not even retain the power to
destroy the contract by refusing to pay premiums for the
beneficiary can protect his interest by paying the premiums
for the reason that the fulfillment of an obligation may be
made by a third person even against the will of the debtor and
if he has an interest in the fulfillment of the obligation, even
against the will of the creditor
Measurement of vested interest of beneficiary in policy
The vested right or interest of the beneficiary in a policy
should be measured on its full face value and not on its cash
surrender value for in case of death of the insured, said
beneficiary is paid on the basis of its face value. In case the
insured should discontinue paying premiums, the beneficiary
may continue paying it and is entitled to automatic extended
term or paid up insurance options, etc. and that said vested
right under the policy cannot be divisible at any given time.
- An application of loan under the policy and the
surrender of the policy by the insured constitute acts
of disposition or alienation of property rights of the
beneficiary and not merely of management or
administration because they involve the incurring or
termination of contractual obligations.
ILLUSTRATIVE CASE:
Insurer required authority from court for surrender of policy
designating an unemancipated son as beneficiary.
Facts: W was issued by X Co. (insurer) a 20-year endowment
plan, with a face value of P5,000.00. She designated her
husband H, and their unemancipated minor son S, as her
irrevocable beneficiaries. After the denial by X Co. of her
policy loan application, W signified her decision to surrender
her policy to X Co., which she was also entitled to avail of
under one of the provisions of the same policy, and demanded
its cash value which then amounted to P520.00.
X Co. denied the loan application and the surrender of the
policy on the same ground — that the written consent for the
minor son must not only be given by his father H, as legal
 MIRANDA, CLARISSE ANN
INSURANCE DELEON SUMMARY
guardian, but it must also be authorized by the court in
competent guardianship proceeding.
Issue: Is X Co. justified in disapproving the proposed
transactions in question?
Held: Yes. Under Article 3204 of the Civil Code, "when the
property of the child is with more than two thousand pesos,
the father or mother shall be considered a guardian of the
child's property subject to the duties and obligations of
guardians under the Rules of Court." In this case, the full face
value of the policy is P5,000.00 and the minor's vested
interest therein, as one of the two (2) irrevocable
beneficiaries, consists of one-half (1/2) of said amount of
P2,500.00. (ibid.)
Note: The ruling in this case has been modified by Section
180.
Where beneficiary dies before insured
(1) View that beneficiary's representative is entitled to
insurance proceeds. — It would necessarily follow as a
consequence of the vested interest rule,
- where the right to change the designated beneficiary is
expressly waived in the policy,
- that if the beneficiary dies before the insured, his rights so
vested should pass to his representatives, and on the death of
the insured, the proceeds of the policy should belong, not to
estate of the insured,
- but to the representatives of the beneficiary. But this result,
however logical in form, does great violence to the purpose
of the insured, who must have intended, in the ordinary case,
- to provide a fund for the support after his death, of those
whom he was accustomed to support during his lifetime.
- He can scarcely have intended to make a provision for the
distributees and legatees of the deceased beneficiary,
- who may well be persons without claim to his bounty or
interest in his life. (Vance, op. cit., p. 710.)
(2) View that estate of the insured is entitled to insurance
proceeds.
— In view of the above considerations, it is believed that
where the beneficiary predeceases the insured,
- the estate of the insured should be entitled to the
proceeds of the insurance especially
- where the designation is subject to the express
condition
- to pay the beneficiary if he survives the insured or
"if surviving."
However, most, but not all, courts hold that the mere fact that
such a policy is made payable to the designated beneficiary,
"his executors, administrators, or assigns," is sufficient to
negative the implied condition that death of the beneficiary
before maturity of the policy terminated all his rights to it.
Designation of beneficiary
Words used in designating the beneficiaries of a life policy
will not be given their technical significance but will be
construed
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broadly in order that the benefit of the insurance shall be
received by those intended by the insured as the object of his
bounty.
- The beneficiary designated may be the
insured or his estate, a specifically designated person or
persons, or a class or classes of persons.
(1) Children. — broad enough to include the following:
(a) an adopted child; or
(b) an adult child not forming a part of the household of the
insured; or
(c) after-born children even of a marriage subsequently
contracted.
The word "children" in an insurance policy ordinarily means
a descendant of the first degree and is never intended to
include grandchildren.
Where the children are named individually, other children
cannot share in the insurance proceeds unless the insured
subsequently amend his designation to include them.
(2) Husband; wife or widow. — The word "wife" in the
description of the beneficiary of life insurance is generally
regarded as descriptio personae,
- and the fact that one who otherwise answers the description
does not have the legal status of the wife of the insured does
not prevent her from taking as beneficiary,
- as when she is designated by name, although the words "his
wife" are added,
However, if the beneficiary is not named but is designated
merely by a status, such as the "husband," "wife," or "widow"
of the insured, the legal husband or wife as ascertained at the
death of the insured, is entitled to the benefits of such
insurance
Note that under our law (Arts. 2012 and 739, Civil Code,
supra.), any person who is forbidden from receiving any
donation such as a common-law spouse, cannot be named
beneficiary of a life insurance policy by the person who
cannot make any donation to him.
(3) Husband and children; wife and children. — A policy
payable to the wife of the insured and "their children"
includes children by another wife, although the prevailing
view state that the beneficiaries are limited to children
common to both,
- But if the designation is made to the insured's "wife and
children" or "my wife and children," the insurance is deemed
for the benefit of all children of the insured, whether by the
named wife or those of another.
Under a policy payable to the insured's "husband and
children," he and they do not take the insurance by inheritance
but upon her death, the insurance money must be divided per
capita among the husband and children.
The same rule applies to a policy payable to "wife and
children."
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INSURANCE DELEON SUMMARY
(4) Family. — The term "family" is sometimes used to
indicate the recipient of the proceeds of an insurance policy.
In deciding whether a particular person claiming a share of
the fund is of the family of the insured,
- the court will ascertain whether that person was so regarded
by the insured.
- If he was so regarded, he will be allowed to participate
although in no way related to the insured.
(5) Heirs or legal heirs. — When a life policy is made
payable to the insured's "heirs" or "legal heirs," these terms
will not ordinarily be construed as indicating merely the heirs
at law but rather that class of persons who would take the
property of the insured in case he died intestate.
- Therefore, it is generally held that the widow of the deceased
is entitled to take under a policy payable to his "heirs" or
"legal heirs" as well as the children of the deceased
(6) Estate or legal representatives of deceased. — The
words "estate," "representatives," or "legal representatives,"
when used in designating beneficiaries,
- are to be construed in their strict technical sense and
the courts will ordinarily assume that they are used
to mean executors or administrators,
- unless it appears that the insured intended to use
these expressions in the sense of heirs or next of kin.
- Policies payable to the insured's "executors,
administrators or assigns" are clearly assets of the
deceased insured's estate while those payable to his
"heirs" or "next of kin" are not.
If no beneficiary is designated in the life insurance policy, the
proceeds thereof will go to his legal heirs in accordance with
law.
It has been held, however, that where two women, innocently
and in good faith,
- contracted marriage with the same man, the insured,
and the latter did not designate any beneficiary who
would receive the proceeds of his life insurance,
each family shall be entitled to one half of the
insurance benefits.
Sec. 12. The interest of a beneficiary in a life insurance
policy shall be forfeited when the beneficiary is the principal,
accomplice, or accessory in willfully bringing about
the death of the insured; in which event, the nearest relative
of the insured shall receive the proceeds of said insurance
if not otherwise disqualified,
Forfeiture of the interest of the beneficiary in a life
insurance policy.
The word "interest" mentioned in Section 12 means the right
of the beneficiary to receive the proceeds of the life insurance
policy.
It does not mean insurable interest since the beneficiary need
not have an insurable interest in the life of the insured.
8
In case the interest of a beneficiary in a life insurance policy
is forfeited as provided in Section 12, the nearest relatives,
not otherwise disqualified, of the insured shall receive the
proceeds of the insurance in accordance with the rules on
intestate succession provided in the Civil Code.
The nearest relatives of the insured in the order of
enumeration are the following:
(1) The legitimate children;
(2) The father and mother, if living;
(3) The grandfather and grandmother, or ascendants nearest
in degree, if living;
(4) The illegitimate children;
(5) The surviving spouse; and
(6) The collateral relatives, to wit:
(a) brothers and sisters of the full blood;
(b) brothers and sisters of the half-blood; and
(c) nephews and nieces, (see Arts. 978, 979, 985-987, 988,
995,1003-1006, Civil Code.)
(7) In default of the above, the State shall be entitled to
receive the insurance proceeds, (see Art. 1011, ibid.)
Liability of insurer on death of insured
Check chart
ILLUSTRATIVE CASE:
The insured, who died while driving his motorcycle, was not
allowed to drive a motorcycle in his driver's license.
Facts: While the life insurance policy with a face value of
P2,000 was in force, D (insured) died as a result of a vehicular
accident wherein he was bumped by a car while driving his
motorcycle. The policy carried with it a Special Accident
Rider providing for an additional benefit of P2,000.00 in case
of death by accident.
R (insurer) denied payment to D's widow of the Special
Accident Rider benefits on the ground that the death of D was
an excepted risk as he was then "committing a felony" at the
time of the accident as he was not allowed to drive a
motorcycle in his driver's license.
Issue: Should R be exonerated from paying the Special
Accident Rider benefit?
Held: No. An act or omission punishable by a special law
is strictly not a felony but more of the general term — crime,
offense, transgression or infraction of law. Therefore, the act
of driving a motorcycle without the license to do so, while in
violation of a special law, particularly the Land
Transportation and Traffic Code, would not constitute a
"felony"; and even if such act is a "felony," the mere fact that
the accident occurred while D was committing such felony
would not exonerate R from paying the benefit under the
Special Accident Rider to avoid liability. It must also be
shown that the violation of law was the cause or had causal
connection with the accident, (ibid.)
Sec. 13. Every interest in property, whether real or personal,
or any relation thereto, or liability in respect thereof, of such
nature that a contemplated peril might directly damnify the
insured, is an insurable interest.
 MIRANDA, CLARISSE ANN
INSURANCE DELEON SUMMARY
Insurable interest in property in general
Section 13 defines insurable interest in property. The
interest
may be in the property itself (e.g., ownership), or any relation
thereto (e.g., interest of a trustee or a commission agent), or
liability in respect thereof (e.g., interest of a carrier or
depository of goods). The principle may be stated generally
that anyone has an insurable interest in property who derives
a benefit from its existence or would suffer loss from its
destruction.
(1) Occurrence of loss may be uncertain. — Note that
under the law, it is not necessary that the interest is such that
the event insured against would necessarily subject the
insured to loss. It is sufficient that it might do so, and that
pecuniary injury would be the natural consequence.
Thus, an insurer of property against fire has an insurable
interest therein co-extensive with his liability, (see Sec. 95.)
(2) Title or right to possession not essential — What is
more,
although a person has no title, legal or equitable, in the
property, and neither possession nor right to possession, yet
he has an insurable interest if he is so situated with respect to
the property that he will suffer loss as the proximate result of
its damage or destruction.
(a) Accordingly, it has been held that where a mortgagor
had sold the mortgaged premises to a vendee who assumed
the payment of the mortgage debt, and had thus parted with
all his interest in the property, the mortgagor yet had an
insurable interest in the property because of his personal
liability for the debt and his right to be subrogated to the
mortgage security in case he should be compelled to make
payment.
(b) Similarly, a vendor or seller retains an insurable interest
on the property sold so long as he has any interest therein. In
other words, so long as he has a vendor's lien,
i.e., he retains ownership merely to insure that the buyer will
pay the price, (see Art. 1504[1], Civil Code.) Unlike die civil
law concept of jus perit domino, where ownership is the basis
for consideration of who bears the risk of loss, in property
insurance, one's interest is not determined by concept of title,
but whether the insured has substantial economic interest in
the property.
(3) Legal expectation of loss or benefit. — Insurable
interest in property is not necessarily an interest in property
in the sense of title, but a concern in the preservation of the
property and such a relation to or connection with it as will
necessarily entail a pecuniary loss in case of its injury or
destruction.
As a general rule, however, the expectation of benefit to be
derived from the continued existence of property must have a
basis of legal right, although the person insured has no title,
either legal or equitable, to the property insured.
9
The rule is different in life insurance
(4) Mere factual expectation of loss. — Such expectation
not arising from any legal right or duty in connection with
the property, does not constitute an insurable interest. Thus,
an owner of a gasoline filling station near a hotel has no
sufficient insurable interest in the hotel simply because its
burning or destruction, though it leaves the filling station
physically unharmed, will lessen his income from guests of
the hotel.
This type of interest called "factual expectation," though
usually insufficient in strict indemnity insurance, will suffice
in life insurance,
Sec. 14. An insurable interest in property may consist
in:
(a) An existing interest;
(b) An inchoate interest founded on an existing interest; or
(c) An expectancy, coupled with an existing interest in
that out of which the expectancy arises.
Insurable interest in property in particular cases
Insurable interest in property need not be an existing interest.
It may consist merely of an inchoate interest or an expectancy.
(1) An existing interest. —may be a legal title or equitable
title.
- Undoubtedly, the absolute owner of property has an
insurable interest thereon.
(a) The following are examples of persons who have
insurable interest arising from legal title:
- trustee, as in the case of the seller of property not
yet delivered;
- mortgagor of the property mortgaged;
- lessor of the property leased;
- lessee and sublessee may also insure the property
leased or subleased; and
- assignee of property for the benefit of creditors.
Where legal title is held in a representative capacity, as by an
executor, administrator, trustee, or receiver, the
representative has sufficient insurable interest for the purpose
of taking out insurance on the property under his control, but
any proceeds from such insurance are to be held for the
benefit of those for whose benefit the representative is acting
(b) The following have insurable interest arising from
equitable title:
- purchaser of property before delivery, or before he
has performed the conditions of sale;
- mortgagee of property mortgaged;
- mortgagor, after foreclosure but before expiration
of the period within which redemption is allowed;
the beneficiary under a deed of trust; the creditors
under a deed of assignment ;
 MIRANDA, CLARISSE ANN
INSURANCE DELEON SUMMARY
- a judgment debtor whose property has been seized
under execution until the right to redeem or the right
to have the sale set aside has been lost (44 C.J.S.
881.); and builders and constructors in the buildings
pending the payment of the construction price.
A purchaser of an option to buy real estate has an insurable
interest to the extent of the advance payment for the option.
Thus, more than one insurable interest may exist over the
same property.
(2) An inchoate interest. — Such inchoate interest must be
founded on an existing interest.
(a) A stockholder has an inchoate interest in the property of
the corporation of which he is stockholder, which is founded
on an existing interest arising from his ownership of shares in
the corporation. His insurable interest is limited to the extent
of the value of his interest or to his share in the distribution of
the corporate assets upon dissolution
The stockholder has an interest in the preservation of the
corporate property; in its destruction, he sustains a loss in so
far as the value of his stock is depreciated in consequence
of such destruction, or his dividends are reduced or cut off.
Note that a stockholder has neither legal nor equitable
title to assets of the corporation.
(b) Likewise, a partner has an insurable interest in the
firm property which will support a separate policy for his
benefit.
(3) An expectancy. — The expectancy must be coupled with
an existing interest in that out of which such expectancy
arises.
(a) Thus, a farmer may insure future crops if they are to
be grown on land owned by him at the time of the issuance
of the policy, or although the crops are to be raised by him
on the land of another, provided the crops will belong to him
when produced.
(b) Similarly, an owner of a business can insure against a
contingency which may cause loss of profits resulting from
the cessation or interruption of his business.
(c) Any binding contract giving rights which will be
injuriously affected by the destruction of any designated
property will also afford an insurable interest in such
property even though the insured may have neither interest
in the property nor specific lien upon it. So, a workman has
an insurable interest in any building he may have contracted
to repair, or an artist might insure the structure for the interior
decoration of which he had been employed.
Sec. 15. A carrier or depository of any kind has an insurable
interest in a thing held by him as such, to the extent
of his liability but not to exceed the value thereof.
10
Insurable interest of carrier or depository
The reason for this provision is that the loss of the thing may
cause liability to the carrier or depository to the extent of its
value.
A person having a "qualified property" in chattels entitling
him to possession and the right of using or dealing with them
in accordance with the terms of the bailment, has such interest
in the chattels as may be the subject of a valid contract of
insurance.
Such bailee may insure merely his interest in the chattels to
protect himself against loss of the benefits to which he is
entitled, or he may, and does more frequently, insure himself
against the liability which he may incur upon the destruction
of the chattels.
It has been held by our Supreme Court that a policy effected
by a bailee and covering by its terms his own property and
property held in trust, inures, in the event of loss, equally and
proportionately to the benefit of all the owners of the property
insured. (Lopez vs. del Rosario, 44 Phil. 98 [1922].)
Under the General Bonded Warehouse Act, a warehouseman,
licensed to engage in the business of receiving commodities
for storage, is required to insure the same against fire.
Sec. 16. A mere contingent or expectant interest in anything,
not founded on an actual right to the thing, nor upon any valid
contract for it, is not insurable.
Mere contingent or expectant interest not insurable
A mere hope or expectation of benefit which may be
frustrated by the happening of some event uncoupled with
any present legal right will not support a contract of
insurance. Thus:
(1) Property offather Isonl spouse. — A father cannot
insure his son's property nor can a son insure the property that
he expects to inherit from his father as his interest is merely
an expectancy of inheriting,
Similarly, a spouse has no insurable interest in the property
of the other.
(2) Life of parents/children/spouses. — By statutory
provisions, parents and children, and spouses can insure the
life of each other,
Since under the law, they are under mutual obligation to
support each other, a life policy is held to be a means of
fulfilling that obligation or a means of saving the party
entitled to support from being the subject of public charity.
(3) Property of debtor — Nor can a general or unsecured
creditor insure specific property of his debtor who is alive,
even though destruction of such property would render
worthless any judgment he might obtain.
(a) But an unsecured creditor may insure the property of
a deceased debtor since all personal liability ceases with the
 MIRANDA, CLARISSE ANN
INSURANCE DELEON SUMMARY
death of the debtor. The proceedings to subject the estate to
the payment of the debt of the deceased debtor are in rem.
(b) Also, an unsecured creditor who obtains a judgment
in his favor becomes a judgment creditor and has been held
to have insurable interest in the debtor's property as he has a
right to levy on such property as may be necessary to satisfy
the judgment. However, to recover under the insurance, he
must show that the debtor has no other property out of which
the judgment may be satisfied.
(c) Of course, an unsecured creditor has an insurable
interest in the life of his debtor to the extent of the amount of
the debt. (Sec. 10[c].)
(4) Property of testator still alive. — One named as
beneficiary in a will has no insurable interest in a property
designated before the testator's death, however reasonable his
expectation of benefit to be derived from the continued
existence of the property. His expectation has no legal basis
since the will has no legal effect before the death of the
testator.
The will can be revoked at any time before the death of the
testator unless he has expressly waived this right in the policy
(Sec. 11.) in which case the beneficiary will have insurable
interest.
Sec. 17. The measure of an insurable interest in property
is the extent to which the insured might be damnified
by loss or injury thereof.
Measure of insurable interest in property
As already shown, a contract of insurance is one of indemnity.
Any contract of property insurance that gives to the insured
more than indemnity against his actual loss that may be
suffered by the happening of the event insured against is in
the nature of a wagering policy contrary to public policy and
void.
Thus, a mortgagor has an insurable interest equal to the value
of the mortgaged property and a mortgagee, only to the extent
of the credit secured by the mortgage, (see Sec. 8.) The
purpose of property insurance is to indemnify a person
against actual loss, and not to wager on the happening of the
event.
EXAMPLES:
(1) X insured his property valued at P100,000.00, for
P120,000.00. X suffered a total loss. The amount of the
insurance (P120,000.00) is not the amount payable in the
event of a loss but rather represents the maximum limit of
recovery of the insured, (see Sec. 60.)
Under the indemnity rule, the insurer would be liable only
to pay P100,000.00. If X receives P80,000.00 from the party
that caused the loss, the liability of the insurer is reduced in
the same amount. Anything that reduces or diminishes the
loss reduces the amount which the insurer is bound to pay.
(2) Under a building contract, X constructed a house for
11
P400,000.00 for Y who made an advance payment of
P80,000.00, the balance to be paid upon delivery of the house
on a certain date when Y would return from abroad and
occupy the house.
As X finished the construction at a much earlier date, he
insured the house against fire for P400,000.00. The house was
burned down before its delivery to Y.
What is the extent of the insurable interest of X?
It is P400,000.00 although he already received from Y
P80,000.00 as advance payment because X has to replace the
house destroyed with another worth P400,000.00, as per
contract, not P320,000.00.
(3) The financing lease contract stipulates that the equipment
and motor vehicles leased shall be insured at the cost and
expense of the lessee against loss, damage or destruction from
fire, theft, accident, or other insurable risk for the full term of
the lease. The lessee has an insurable interest in the equipment
and motor vehicles leased under Section 17 as it will be
directly damnified in case of loss, damage, or destruction of
any of the properties leased.
Sec. 18. No contract or policy of insurance on property
shall be enforceable except for the benefit of some person
having an insurable interest in the property insured, (a)
Effect of absence of insurable interest in property insured
(1) Principle of indemnity applicable. — This principle is
at
the basis of all contracts of property insurance.
- Accordingly, an insurance taken out by a person on
property in which he has no insurable interest is
void.
- It has been held that fire insurance taken on property
belonging to another is void, although the insurer
had full knowledge of the fact of ownership
- and even if the insured subsequently acquired
insurable interest. (Sec. 19.)
- In a case, the contract of lease provides that any fire
insurance policy obtained by the lessee over his
merchandise inside the leased premises without the
consent of the lessor is deemed assigned or
transferred to the lessor.
- It held that such automatic assignment is void for
being contrary to law and public policy,
- hence, the insurer cannot be compelled to pay the
proceeds of the policy to the lessor who has no
interest in the property insured
Where the insurance is invalidated on the ground that no
insurable interest exists, the premium is ordinarily returned
to the insured unless he is in pari delicto with the insurer,
- is consistent with the principle of indemnity to pay
the insured a benefit in an amount equal to or less
than the loss but the principle is violated if he is paid
a benefit more or greater than the loss.
In life insurance taken by a person on his own life, it is not
 MIRANDA, CLARISSE ANN
INSURANCE DELEON SUMMARY
necessary for the beneficiary to have an insurable interest in
the life insured,
(2) Doctrine of waiver or estoppel not applicable. — This
doctrine cannot be invoked since the public has an interest in
the matter independent of the consent or concurrence of the
parties.
- But where the real intention of the insured was to insure his
goods for P15,000.00 but through the error or mistake of the
insurer, the policy issued for P15,000.00 was for the building
in which the goods were stored which building the insured
never owned or had any insurable interest, it was held in case
of loss of the goods, the insured can recover.
This is a case where the insured's lack of insurable interest in
property insured is not sufficient to avoid an insurance.
Measure of indemnity in insurance contracts.
(1) Contracts of marine or fire insurance. — They are
contracts of indemnity.
- This means that the real purpose of the contract is,
in case of loss,
- to place the insured in the same situation in which he
was before the loss subject to the terms and
conditions of the policy.
- The amount of indemnity may be determined after
the loss (see Sec. 60.) or is previously fixed in the
contract,
Pursuant to the general rule regarding indemnity, the amount
of insurance fixed in th? policy of a marine or fire insurance
is not the exact measure of indemnity to which the insured is
entitled, but the maximum indemnity which he might obtain.
The insured cannot recover in excess of his actual loss.
(a) In valued policies (Sec. 61.), however, the valuation of
the thing insured is conclusive between the parties thereto
in the adjustment of loss, if the insured has some interest at
risk, and there is no fraud on his part (see Sees. 156, 171.),
although it might be proved that the actual value of the thing
is less.
(b) Similarly, the principle of indemnity cannot be
invoked by the insurer who agreed to repair or replace the
thing insured with a new one even though the cost of the
undertaking may exceed the original amount of the insurance,
(see Sec. 172.)
(2) Liability insurance contracts. — They are considered
contracts of indemnity against liability and not against loss,
In this type of insurance, the insurer's promise is to pay the
proceeds of the policy on behalf of the insured to a
third person to whom the insured is liable. If the insured
suffers no loss because his liability to the third person, for
some reason, cannot be enforced, the insurer has no
obligation to pay the proceeds,
(3) Life insurance contracts. - They are not contracts of
indemnity.
The amount fixed payable at the death of the insured
is not considered as the true value of the thing insured because
12
the life of a person is priceless, but is simply the measure of
indemnity
which the insurer has bound himself to pay the insured.
The contract of insurance may be to pay, on the happening
of the event insured against, a certain or ascertainable sum of
money, irrespective of whether or not the insured has suffered
loss or of the amount of such loss if he has suffered any. The
amount for which a person is insured is governed by the
amount of premium that he contracted to pay.
(4) Personal accident insurance contracts. — Like life
policies, they are not contracts of indemnity. Life and limb
are not susceptible to exact or uniform valuation. Hence, the
principle of indemnity is not applicable. However, if a person
effects a personal accident insurance on the life of another
person, the amount recoverable is the loss sustained by the
person who effected the policy. In theory, therefore, such a
personal accident insurance becomes a contract of indemnity,
but it is often impossible exactly to assess the injury suffered,
and a policy with fixed benefits may be issued.
(5) Health insurance contracts. — Like life insurance
contracts, health insurance contracts that provide a specific
periodic income to disabled persons are not contracts of
indemnity. But those that cover medical expenses are
contracts of indemnity. In these contracts, only medical
expenses incurred by the insured are paid.
(6) Health care agreement. — Such an agreement with a
health maintenance organization (HMO) is in the nature of a
non-life insurance which is primarily a contract of indemnity.
Once a member incurs hospital, medical or any other expense
arising from sickness,
- injury or other stipulated contingent, the health care
provider must pay for the same to the extent agreed
upon under the contract.
- Being in the nature of a contract of indemnity,
payment should be made to the party who incurred
the expenses.
- Hence, the fact that the one who paid all the hospital
and medical expenses was not the legal wife of the
deceased member considering that at the time of
their marriage,
- the deceased was previously married to another
woman who was still alive, is of no moment. She is
entitled to reimbursement.
Sec. 19. An interest in property insured must exist when
the insurance takes effect, and when the loss occurs, but
need not exist in the meantime; and interest in the life or
health of a person insured must exist when the insurance
takes effect, but need not exist thereafter or when the loss
occurs, (a)
Time when insurable interest must exist
The general rule stated in this section is applicable only to
insurance on property and not to life insurance except that on
the life of the debtor.
(1) When insurance takes effect and loss occurs. — Insurable
 MIRANDA, CLARISSE ANN
INSURANCE DELEON SUMMARY
interest in property must exist at two distinct times: on the
date
of execution of the contract of insurance; and on the date of
the occurrence of the risk insured against, otherwise, the
policy is void. Thus, if a fire occurs after the sale or alienation
of the property, the former owner cannot recover on the
policy.
(2) When insurance takes effect. — In life insurance, the
insurable interest requirement is satisfied if the interest exists
at the time the policy is procured, even if it has ceased to exist
at the time of the insured's death. Thus, if a debtor whose life
was insured by a creditor (see Sec. 10[c].) subsequently pays
the debt, remains in force provided, of course, the former
creditor continues to pay the premiums.
Most of the situations in which insurable interest may later
disappear involve business relationships. Under the law,
health, accident and disability insurance is deemed included
in the terms "life" and "non-life" insurance. (Sec. 187, par. 8.)
(3) When liability attaches. — In liability insurance,
questions of insurable interest are not particularly important.
It necessarily exists when the liability of the insured to a third
party attaches,
(4) Need not exist during intervening period. — The obvious
purpose of the provision is to prevent the issue of wagering
policies, (see Sec. 14[b], [c].) But the interest insured "need
not exist in the meantime." (Sec. 19.) It is well-settled that in
the absence of special provision in the policy to the contrary,
the alienation of insured property will not defeat a recovery if
the insured has subsequently reacquired the property and
possesses an insurable interest at the time of loss.
EXAMPLES:
(1) D insured his house on May 15, 2002 for a period of
one year. Without assigning the policy, he sold the house to
B on July 10, 2002.
If the house was accidentally burned on September 15,2002,
D cannot recover because his insurable interest was no longer
existing when the loss occurred. However, if on September
11, 2002, D reacquired the house from B, D may recover on
the policy because insurable interest need not exist during the
intervening period from July 10, 2002 when he sold the
house, to September 10, 2002.
(2) Suppose in the same example, C is an unsecured
creditor of D for the amount of P100,000.00 and he insured
D's house on September 12, 2002 for the same amount. The
house burned accidentally on September 15, 2002.
Has C the right to collect the proceeds of the insurance?
No, because being a general creditor without any lien on D's
house, C had no insurable interest when he insured it. (see
Sec. 16.) But, suppose D sold the house to C before
September 15, 2002 when the loss occurred. Not even then.
C did not have insurable interest in the house when the
insurance took effect.
(Sec. 19.)
13
(3) D issued a promissory note in favor of C to secure a
loan of P100,000.00 payable within one (1) year.
To add further protection, C insured D's life for the amount
of the note for the year it was to run. D died on the 10th month
after paying the note at the end of the ninth month.
Can C recover on the insurance?
No. The principle of indemnity applies in this case as in
property insurance.
Neither can the estate of D recover since the contract was
purely between C and the insurer, unless, of course, the
contrary was stipulated.
But if the insurance was taken by D on his life for the benefit
of C, the payment of the debt did not invalidate the policy
which would remain in force for the full year for which the
premium was paid. In this case, the proceeds of the insurance
would be paid to the estate of D.
(4) X corporation insures the life of Y, its President, for
P100,000.00 with X as beneficiary. Thereafter, Y sells his
stockholdings and severes connections with X which
continues to pay the annual premiums. During the currency
of the policy, Y dies. Is X entitled to recover the insurance
proceeds?
Yes, under Section 19.
Existence of insurable interest when risk attaches.
It must be noted, however, that notwithstanding the great
volume of authority to the contrary, it seems that the existence
of an insurable interest at the inception of the contract, unless
made so by statute, is not at all necessary to its validity. It is
sufficient that insurable interest exists at the time the risk
attaches.
EXAMPLE:
D, contemplating the purchase of B's house, may take out
a policy of insurance under which the risk is to attach upon
D's purchase and acquisition of interest in the house. In this
case, the requirement of good faith and a real interest at the
time of the loss is amply sufficient to satisfy the demand of
public policy.
Insurable interest in life and property distinguished.
(1) As to extent of insurable interest. — Insurable interest in
life (save in life insurance effected by creditor on life of
debtor) is unlimited; in property, insurable interest is limited
to the actual value of the interest thereon, (see Sec. 17.)
(2) As to time when insurable interest must exist. — In life
insurance (save that effected by creditor on life of debtor), it
is enough that insurable interest exists at the time the policy
takes effect and need not exist at the time of the loss (see Sec.
181.); in property insurance, it is necessary that insurable
interest "must exist when the insurance takes effect and when
the loss occurs, but need not exist in the meantime." (Sec. 19.)
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INSURANCE DELEON SUMMARY
(3) As to expectation of benefit to be derived. — In life
insurance, the expectation of benefit to be derived from the
continued existence of life need not have any legal basis
whatever. A reasonable probability is sufficient without
more. Thus, a person is under no legal obligation to support a
friend or a cousin. Yet one who is dependent on another for
support has an insurable interest in the latter's life, even
though there is no legal right to support if there is reasonable
ground for believing that the support will be continued.
In property insurance, an expectation of benefit, to be derived
from the continued existence of the property insured,
however likely and morally certain of realization it may be,
will not afford a sufficient insurable interest unless that
expectation has a basis of legal right. If such legal basis exists,
an expected benefit, however remote, constitutes an insurable
interest.
Thus, an expectant heir cannot insure the property he
expects to inherit. But a stockholder may insure the property
of the corporation although he has no legal interest
whatsoever in such property. His expectation of benefit to be
derived from the continued existence of such property,
however, is based upon his legal right as stockholder to
demand participation in the profits of the corporation, or in its
assets upon dissolution, (see Sec.
14[b].)
Sec. 20. Except in the cases specified in the next four
sections, and in the cases of life, accident, and health
insurance,
a change of interest in any part of a thing insured
unaccompanied by a corresponding change of interest in
the insurance, suspends the insurance to an equivalent
extent, until the interests in the thing and the interest in
the insurance are vested in the same person.
Effect, in general, of change of interest.
Generally speaking, the mere transfer of a thing insured does
not transfer the policy but suspends it until the same person
becomes the owner of both the policy and the thing insured.
(Sec.
58.) This rule is embodied in Section 20 and is in accordance
with
Section 19 that an insured must have an insurable interest in
the
property insured at the time of loss.
Thus, a purchaser of insured property who does not take the
precaution to obtain a transfer of the policy of insurance,
cannot,
in case of loss, recover upon such contract, as the transfer has
the
effect of suspending the insurance until the purchaser
becomes
the owner of the policy as well as the property insured. In
such
case, nobody can recover on the policy. The purchaser cannot
recover because he has no contract with the insurer. The seller
(insured) cannot also recover because having sold the
property,
he has no more insurable interest in the same. (San Miguel
Brewery vs. Law Union & Rock Ins. Co., 40 Phil. 674
[1920].)
Note that the contract is not rendered void but is merely
14
suspended by a change of interest.
Object of rule against alienation.
The object of the provision against alienation or change of
interest or title is ordinarily to provide against changes which
might supply a motive to destroy the property, or might lessen
the interest of the insured in protecting and guarding it.
Change of interest covered by law.
The change of interest referred to in Sections 20, 21, 22, 23,
and 24 means absolute transfer of the property insured such
as the conveyance of the property by means of an absolute
deed of sale.
Consequently, the interest in the property insured does not
pass by mere execution of a pledge or mortgage. Thus, it has
been held that in a chattel mortgage, there is no alienation
within the meaning of the insurance law until the mortgagee
acquires a right to take possession of the property by default
of the mortgagor under the terms of the mortgage.
Exceptions to general rule.
The rule that change of interest suspends the insurance is
subject to exceptions, to wit:
(1) In life, health, and accident insurance (Sec. 20.);
(2) A change of interest in the thing insured after the
occurrence of an injury which results in a loss (Sec. 21.);
(3) A change of interest in one or more of several things,
separately insured by one policy (Sec. 22.);
(4) A change of interest by will or succession on the death of
the insured (Sec. 23.);
(5) A transfer of interest by one of several partners, joint
owners, or owners in common, who are jointly insured, to the
others (Sec. 24.);
(6) When a policy is so framed that it will inure to the benefit
of whomsoever, during the continuance of the risk, may
become the owner of the interest insured (Sec. 57.); and
(7) When there is an express prohibition against alienation
in the policy, in case of alienation, the contract of insurance
is not merely suspended but is avoided. (Art. 1306, Civil
Code; see Sec. 24.)
Sec. 21. A change of interest in a thing insured, after
the occurrence of an injury which results in a loss, does
not affect the right of the insured to indemnity for the loss.
Change of interest in a thing insured after loss.
After a loss has happened, the liability of the insurer becomes
fixed. The insured has a right to assign his claim against the
insurer as freely as any other money claim. This right is
absolute and cannot be delimited by agreement, (see Sees. 83,
173.) The insured has also the absolute right to transfer the
thing insured after the occurrence of the loss. Such change of
interest does not affect his right to indemnity for the loss.
(Sec. 21.)
Section 20 refers to change of interest in the thing insured
before loss has occurred. Sec. 22. A change of interest in one
or more of several distinct things, separately insured by one
policy, does not avoid the insurance as to the others.
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INSURANCE DELEON SUMMARY
Change of interest where several things separately
insured by one policy
In connection with the above section, it is important to make
a distinction between a divisible contract and an indivisible
contract, (see Art. 1420, Civil Code.)
(1) Effect dependent on divisibility of contract. — In the
former, the cause or consideration is made up of several parts
while in the latter, it is entire and single. If the things are
"separately insured in one policy" the contract is divisible and
the violation of a condition which avoids the policy with
respect to one or more of the things does not affect the others.
On the other hand, if the things are insured under one policy
for a gross sum and for an entire premium, the contract is
indivisible so that a change of interest in one or more of the
things will also avoid the insurance as to the others.
EXAMPLE:
Suppose D is the owner of a car and a jeep. He insured the
car for P500,000.00 and the jeep for P200,000.00 under a
single policy for which he paid a total premium of
P15,000.00.
Under Section 22, the sale of the jeep will not affect the
insurance of the car.
But if the car and the jeep were not separately valued in the
policy and D paid P15,000.00 as the premium for the
insurance of both the car and the jeep, the sale of the jeep
without the insurer's consent affects also the insurance on the
car. Hence, if, after the sale of the jeep, the car was lost or
destroyed, C cannot recover on the insurance of the car.
(2) Divisibility of contract, a question of intention.
— Whether a contract is entire or severable is a question of
intention to be determined by the language employed by the
parties.
Where only one premium was paid for the entire shipment of
goods, the insurance contract is indivisible and the fact that
the goods (which are not separately valued) are loaded on two
different vessels does not make the contract several and
divisible as to the items insured.
It has been held that where the amount of the insurance
agreed upon was merely apportioned among the various items
insured to limit the extent of the risk of the insurer as regards
each item, the contract of insurance is still indivisible.
Sec. 23. A change of interest, by will or succession, on
the death of the insured, does not avoid an insurance; and
his interest in the insurance passes to the person taking
his interest in the thing insured.
Change of interest by death of insured.
Under Section 23, the insurance on property passes
automatically, on the death of the insured, to the heir, legatee
or devisee who acquired interest in the thing insured. The
15
rights to the succession are transmitted from the moment of
the death of the decedent. (Art. 777, Civil Code.)
EXAMPLE:
D insures his house. Thereafter, he dies. H inherits the
property by will or by operation of law. The change of interest
in the house by the death of D does not affect the insurance
because it is likewise transferred to H who may collect on
the policy should the house be burned later on even before
he could transfer the insurance policy under his name.
Sec. 24. A transfer of interest by one of several partners,
joint owners, or owners in common, who are jointly insured,
to the others, does not avoid an insurance, even though it has
been agreed that the insurance shall cease upon an alienation
of the thing insured.
Transfer of interest by one of the several partners, etc.
jointly insured.
(1) Effect where transfer is to the others. — A transfer of
interest in the insured property by a partner, joint owner, or
owner in common, to the others who are jointly insured, will
not avoid the insurance. The rule is the same even if there is
a stipulation that the insurance shall cease upon an alienation
of the thing insured.
(2) Reason for the rule. — The underlying principle is that
each partner (or owner, or owner in common) is interested in
the whole property and the hazard is not increased because
the purchasing partner has acquired a greater interest in the
property by a transfer of his co-partners' share.
In other words, the transfer does not affect the risk because
no new party is brought into contractual relationship with the
insurer.
(3) Exception to the rule. — But a policy will be avoided by
a sale of an interest in partnership property by the partner to
one of his co-partners, without the consent of the insurer and
before the loss occurs, where the policy contains the condition
"that in case of any sale, transfer, or change of title of any
property insured by this company, or of any undivided
interest therein, such insurance will be void and cease."
(4) Effect where transfer is to strangers. — It is alienation or
transfer to a stranger or third person that will avoid the policy.
A sale by a partner of his interest to a stranger ends the
contract of insurance as to him but does not affect the
insurance as to the others.
EXAMPLE:
A policy of fire insurance was issued to partnership X under
its firm name. The policy makes no provision for changes in
the personnel of the firm.
Will the subsequent withdrawal of a partner or admission
of a new partner affect the validity of the policy?
No. Under Section 26, the insurance continues despite the
changes in the firm's membership. The policy was taken in
the name of the partnership X which has a juridical
 MIRANDA, CLARISSE ANN 16
INSURANCE DELEON SUMMARY

personality separate and distinct from that of each of its
members,
Sec. 25. Every stipulation in a policy of insurance for
the payment of loss whether the person insured has or has
not any interest in the property insured, or that the policy
shall be received as proof of such interest, and every policy
executed by way of gaming or wagering, is void, (a)
Stipulations prohibited in an insurance policy
There are two stipulations in an insurance policy which
are declared void under this section.
d. and furnish strong temptation to the party
interested to bring about if possible the
event insured against,
(2) Non-existence of loss from occurrence of event. —
Wagers suffer no loss from the occurrence of the contingent
event.
- On the contrary, they actually profit from it. The
insurable interest requirement intends to deter the
insured from the temptation to bring about by
unnatural means the results of the contingent event.

(1) Stipulation for the payment of loss whether the person

insured has or has not any interest in the subject matter of the
insurance. — A policy issued to a person without interest in
the subject matter of the contract is a mere wager policy or
contract and is void.

A wager policy has been defined as a pretended

insurance where the insured has no interest in the thing
insured and can sustain no loss by the happening of the
misfortunes insured against.

The policy of the law does not admit of such insurance,

however willing the parties may be to enter it. The doctrine
of waiver has obviously nothing to do with it. The company
or its agents cannot, by waiver, invest the insured with interest
he does not own.

The law, however, makes an exception in the cases mentioned

in Section 181 regarding life insurance.

(2) Stipulation that the policy shall be received as proof of

insurable interest. — Whether or not insurable interest exists
does not depend upon the contract of insurance or the
stipulations therein.

The insurer can always show lack of insurable interest after

the issuance of a policy of insurance, (see Sec. 83.)

The defense of absence of insurable interest is available only

to the insurer being the only party to the insurance contract
who has a legitimate interest in raising the defense. It may be
raised by and for the benefit of the insurer alone.

Wagering or gaming policies void.

A contract of insurance is void for illegality unless the insured
has an insurable interest in the subject matter insured.

(1) A mere bet upon a future event. —

a. It is a fundamental postulate of all
insurance that it must not be a mere bet
upon a future event.
b. Wager or gaming policies are disapproved
and condemned not only under statutes
declaring them void, but also
independently of statute, on the ground of
public policy.
c. They are regarded as detrimental to society.
Such policies have a tendency to create a
desire for the event,