REVIEWER IN COMMERCIAL LAW

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SEC. 1 – THIS DECREE SHALL BE KNOWN AS insurance company upon the advice of its legal
‘THE INSURANCE CODE’. advisers.

Case #1 3. When there are conflicting provisions, they must

Enriquez vs. Sun Life Assurance of Canada be harmonized and construed strictly against the
insurer and liberally in favor of the insured.
- There must be an agreement between the insurer and
the insured to constitute a valid contract of insurance. Case #4
- Acceptance of the insurer shall only bind the insured Dela Cruz vs. Capital Insurance and Surety Inc.
from the time the acceptance came to his knowledge.
- Terms which are clear like (accident and accidental)
Case #2 should be construed in their ordinary and plain
Insular Life Assurance Company vs. Ebrado acceptation.
- Death is not ordinarily anticipated in human activities
- When the Insurance Code is silent on a given issue (ie which could categorize it to accidental/accident.
donation made between persons committing illicit - Accident is an event that proceeds from an unknown
relationships) the Civil Code shall be applied in cause and therefore, not expected.
suppletory character.
Case #5
Case #3 Ty vs. First National Surety and Assurance Corp.
Constantino vs Asia Life Insurance Corp.
- Clear and definite stipulations in the contract should be
- When the Insurance Code AND the Civil Code are construed in their plain and ordinary context.
silent on a given issue ( ie effectiveness of a policy - Amputations which are clearly stated to be permanent
where payment of premiums was stopped by reason of loss of hand from the wrist should not include temporary
war), the US Insurance Laws particularly that of State of loss or paralysis.
California (where our current Insurance Code was
patterned) shall be applied in suppletory character. Case #6
Panaton vs Malayan Insurance Corp.
Q: When is an Insurance Contract deemed
perfected? - Amputation of legs should include total paralysis of the
leg. To interpret the phrase “amputation of legs” to
A: A contract of insurance is deemed perfected from the exclude total permanent paralysis of the legs would be
time the minds of the parties meet in agreement as when contrary to public good, sound morality and public policy.
the insurer accepts the application and such acceptance Hence, terms in an insurance policy which can be
came to the knowledge of the applicant. subject to multiple interpretations should be subject to
multiple interpretations should be construed strictly
Q: How is an insurance contract construed? against the insurer and liberally in favor of the insured.

A: The following rules of construction apply to an Case #7

Insurance Contract: Qua Chee Gan vs Law Union and Rock Insurance
Comp.
1. When the provisions are clear, they must be
construed in their plain, ordinary and popular - The clause containing the warranty of not storing in the
sense. area “oils and other flammable materials” being
2. When the provisions are ambiguous, uncertain ambiguous, hence it must be construed strictly against
or doubtful. They must be construed strictly the insurer and liberally in favor of the insured. Hence,
against the insurer and liberally in favor of the oils would be construed to mean lubricants and would
insured. not include gasoline or kerosene.

REASON: Insurance contract is a contract of

adhesion: The insured has no voice in the
selection of the words used, and the language of
the contract which are all selected by the

Reference: The Insurance Code and Financial Rehabilitation and Insolvency Act by Hernando B. Perez
Made by: Juan Paolo R. Datinguinoo, UB College of Law Page 1 of 12
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Case #8 any of the foregoing in a manner

Eternal Gardens Memorial Park vs PhilAm Life designed to evade the provisions of
this Code.
- Conflicting provisions must be harmonized and
construed strictly against the insurer and liberally in favor In the application of the provisions of this
of the insured. Code the fact that no profit is derived from
the making of insurance contracts,
Q: Can the Courts, in the exercise of judicial agreements or transactions or that no
construction, change or alter the terms of an separate or direct consideration is received
insurance contract? therefore, shall not be deemed conclusive to
show that the making thereof does not
A: NO. While insurance contracts should be construed
constitute the doing or transacting of an
strictly against the insurer and liberally in favor of the
insure, when the provisions are clear and simple in
insurance business.
language, there is no room for the judiciary to employ (3) As used in this code, the
judicial construction. term "Commissioner" means the "Insurance
Commissioner".
Sec. 2. Whenever used in this Code, the
following terms shall have the respective Q: What is a contract of insurance?
meanings hereinafter set forth or indicated,
unless the context otherwise requires: A: A contract of insurance is an agreement whereby
one undertakes for a consideration to indemnify
(1) A "contract of insurance" is an another against loss, damage or liability arising from
agreement whereby one undertakes for a an unknown or contingent event.
consideration to indemnify another against
loss, damage or liability arising from an Q: What are the elements of a contract of
unknown or contingent event. insurance?
A contract of suretyship shall be deemed to
A: The elements of a contract of insurance are the
be an insurance contract, within the following: (I-R-A-S-P)
meaning of this Code, only if made by a
surety who or which, as such, is doing an 1. The insured posses an interest (called insurable
insurance business as hereinafter provided. interest) of some kind susceptible of pecuniary
(2) The term "doing an insurance estimation.
business" or "transacting an insurance 2. The insured is subject to a risk of loss through
the destruction or impairment of that interest by
business", within the meaning of this Code,
the happening of designated perils.
shall include: 3. The insurer assumes that risk of loss.
(a) making or proposing to make, as 4. Such assumption is part of a general scheme to
insurer, any insurance contract; distribute actual losses among a large group of
persons bearing somewhat similar risks.
(b) making or proposing to make, as 5. As consideration for the insurer’s promise, the
surety, any contract of suretyship as a insured makes a ratable contribution (called
vocation and not as merely incidental premiums) to a general insurance fund.
to any other legitimate business or
activity of the surety; Q: What is ‘suretyship’?
(c) doing any kind of business,
A: A suretyship is an agreement whereby a party called
including a reinsurance business, the surety guarantees the performance by another party
specifically recognized as constituting called the principal or obligor of an obligation or
the doing of an insurance business undertaking in favor of a third party called obligee.
within the meaning of this Code;
(d) doing or proposing to do any
business in substance equivalent to

Reference: The Insurance Code and Financial Rehabilitation and Insolvency Act by Hernando B. Perez
Made by: Juan Paolo R. Datinguinoo, UB College of Law Page 2 of 12
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4. It is executory contract after payment of

Q: When is a suretyship deemed an insurance? premiums.
- After payment of the premium, the contract
A: A contract of of surety shall be deemed an insurance shall be wholly executory on both parties.
contract when made by a surety who is doing an 5. It is a conditional contract.
insurance business (offering, making, or proposing - The insurer is not obligated to pay the
surety as a vocation) and not merely incidental to any beneficiary or the insured himself unless the
other legitimate business or activity of the surety. risk insured against happens.

When the surety is only incidental, it is not an insurance Q: What are the nature of Insurance Contracts?
contract since it lacks the requirement that the
assumption of loss should be part of a general scheme A: GEN’L RULE: Insurance contracts shall be deemed
to distribute actual losses among a large group of contracts of indemnity which means that the right to
persons bearing somewhat similar risks. recover shall be commensurate to the amount of loss
incurred upon the happening of the loss.
Q: What are the tests to determine whether a
contract is an insurance contract? EXCEPTIONS:
1. Life Insurance – The amount of the insurance
A: The following tests may be used to determine whether may be for ANY value as there can be no
a contract is an insurance contract: (A-N-A) monetary value for the life of a person.
2. Accident Insurance where the result is death
1. Nature of the promise
2. Act required to be performed
3. Exact nature of the agreement in light of the Sec. 3. Any contingent or unknown event,
occurrence, contingency or circumstances under whether past or future, which may damnify a
which the performance becomes a requisite. person having an insurable interest, or
create a liability against him, may be insured
Case #9
White Gold Marine Services vs. Pioneer Insurance against, subject to the provisions of this
and Surety Corp. chapter.

- A contract may be deemed an insurance contract not The consent of the husband is not
on how it is called but on the nature of the obligations of necessary for the validity of an insurance
the parties involved with regard to the loss or occurrence policy taken out by a married woman on her
insured against. life or that of her children.
Q: What are the characteristics of an insurance
contract? (A-I-P-EC) Any minor of the age of eighteen years or
more, may, notwithstanding such minority,
A: contract for life, health and accident
insurance, with any insurance company duly
1. It is aleatory and not wagering. authorized to do business in the Philippines,
- Both parties bind each other to give or to do provided the insurance is taken on his own
something in consideration of the other shall life and the beneficiary appointed is the
give or do upon the occurrence of the risk minor's estate or the minor's father, mother,
insured against. husband, wife, child, brother or sister.
2. It is a contract of indemnity.
- The right to recover shall be commensurate
to the amount of loss incurred upon the The married woman or the minor herein
happening of the loss. allowed to take out an insurance policy may
3. It is a personal contract. exercise all the rights and privileges of an
- An insurer contracts with reference to the owner under a policy.
character of the insured for integrity and
prudence.

Reference: The Insurance Code and Financial Rehabilitation and Insolvency Act by Hernando B. Perez
Made by: Juan Paolo R. Datinguinoo, UB College of Law Page 3 of 12
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All rights, title and interest in the policy of an insurer requires the assumption of risks and
insurance taken out by an original owner on accordinglu, the insurer is still responsible even if the
the life or health of a minor shall event could not be foreseen, or though foreseen, is
automatically vest in the minor upon the inevitable.
death of the original owner, unless
otherwise provided for in the policy.
Q: Does a married person need the consent of the
other spouse in obtaining a CI?
Q: What risks may be insured against in a contract
of insurance?

A: No, a married person may obtain a CI on his/her

life, or those of their children WITHOUT the consent of
the other spouse.
A: There are two types of risks insurable:

1. Risk which may cause damage to the insured

Q: What are the rules that apply when a minor obtains
2. Risk which may cause liability against the a CI?
insured

A: Under the Civil Code, contracts entered into by

Q: What types of events may be insured in an IC? minors need the consent of the parents or their
guardians.

A: GEN’L RULE: Events covered in an IC are future W/ CONSENT – Valid and enforceable
events. W/O CONSENT – Voidable (At the option of the
insured and not by the insurer, hence, the insurer cannot
raise the incapacity of the minor as a defense)

EXCEPTIONS: Past events may be covered by the Q: What happens to the interest in a CI taken upon the
insurance if two requisites are present: life of another upon the death of the policy holder?

A: GEN’L RULE: The interest to the insurance policy

1. The past event causing the loss must be shall pass on to insured.
UNKNOWN to both parties.
EXCEPTIONS:
2. It must be expressly stipulated in the policy 1. Unless otherwise is provided in the policy.
that a prior loss is insured against. 2. Where the beneficiary is different from that of the
policy holder

Sec. 4. The preceding section does not

Q: Can the insurer exempt himself from liability arising authorize an insurance for or against the
out of fortuitous event? drawing of any lottery, or for or against any
chance or ticket in a lottery drawing a prize.

Q: Distinguish gambling from a CI.

A: No, if the fortuitous event is among the risks
included in the policy. The nature of the obligation of A:

Reference: The Insurance Code and Financial Rehabilitation and Insolvency Act by Hernando B. Perez
Made by: Juan Paolo R. Datinguinoo, UB College of Law Page 4 of 12
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Gambling CI - Premiums paid before the insured became a public

May result in a profit May never result in a profit enemy should be returned.
(insurance benefits are equal
to the loss except in life
insurance)
Invites fortune Avoids misfortune
Tends to increase Tends to equalize fortune Sec. 8. Unless the policy otherwise provides,
inequality of fortune where a mortgagor of property effects
insurance in his own name providing that the
Sec. 5. All kinds of insurance are subject to the loss shall be payable to the mortgagee, or
provisions of this chapter so far as the assigns a policy of insurance to a mortgagee,
provisions can apply. the insurance is deemed to be upon the
interest of the mortgagor, who does not cease
Sec. 6. Every person, partnership, association, to be a party to the original contract, and any
or corporation duly authorized to transact act of his, prior to the loss, which would
insurance business as elsewhere provided in otherwise avoid the insurance, will have the
this code, may be an insurer. same effect, although the property is in the
hands of the mortgagee, but any act which,
Q: What are the parties to an insurance contract? under the contract of insurance, is to be
performed by the mortgagor, may be
A: The following are parties to an insurance contract: performed by the mortgagee therein named,
1. Insurer – person who undertakes to indemnify with the same effect as if it had been
another by a contract of insurance performed by the mortgagor.
2. Insured – a person to be indemnified
3. Beneficiary – a person who receives a benefit or
advantage

Q: What are the rules on insuring a mortgaged

Sec. 7. Anyone except a public enemy may be
property?
insured.

A: GEN’L RULE: Anyone may insure the property for

Q: What is a public enemy? an insurance amount not exceeding the value of the
property.

A: Public enemy is a nation at war with the Philippines

and also every citizen or subject of such nation. EXCEPTIONS: When a property is mortgaged, the
mortgagor and the mortgagee may take out separate
policies on the property subject to the following rules:

Case #10: 1. The mortgagor (still the owner of the property)

may insure the property up to its value
Cia de Seguros vs. Christern, Huenfield & Co.
2. The mortgagee (not the owner, property is just
used as security for the payment of debt) may
insure the property only up to the extent of his
- Loss incurred during the time when the insured credit.
became a public enemy shall not be compensated
under the CI.

Reference: The Insurance Code and Financial Rehabilitation and Insolvency Act by Hernando B. Perez
Made by: Juan Paolo R. Datinguinoo, UB College of Law Page 5 of 12
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Q: What is a “mortgage redemption” Insurance and A. Insurance secured by the Mortgagor, loss
what are its effects? payable to mortgagee

A: A mortgage redemption insurance is a kind of life GEN’L RULE:

insurance procured by the mortgagor with the
mortgagee as the beneficiary up to the exten of the 1. The mortgagor is still the party in interest to
mortgage indebtedness. the insurance contract and he is one with the
right to recover from the insurer in case of
loss.

In case the mortgagor-insured dies, the 2. In case of death by the mortgagor, his heirs
proceeds of the insurance will be applied to the assumes right to the CI.
payment of the mortgage debt to the mortgagee,
thereby relieving the heirs of the mortgagor of the 3. BUT the mortgagee has a lien on the amount
burden of paying the debt. to be recovered by virtue of the debt of the
mortgagor.

EXCEPTION:
Case #11
1. If the mortgagee has decided to foreclose on
Great Pacific Life Assurance Corp. vs. CA the mortgage, then his interest/lien on the
amount recoverable by the mortgagor shall be
extinguished. (The foreclosure shall be the
one to settle the debt)
- Where the mortgagor pays the insurance premium
under group life policy, making the loss payable to the
mortgagee, the insurance is still on the interest of the
mortgagor who continues to be a party to the contract. B. Insurance secured by the mortgagee for
Such kind ogf policy insurance upon life or health MAY the extent of his credit W/O reference to the
PASS by transfer, will or succession to any person right of the mortgagor
whether he has an insurable interest or not, and such
person may recover whatever the insured might have
recovered.
1. The mortgagee may collect from the insurer
upon the occurrence of the loss to the extent
of his credit.
Q: What are the rules that govern insurance on
mortgaged properties? 2. The mortgagor may not collect from the
insurer the balance of the insurance proceeds
after payment to the mortgagee his benefits up
to the extent of his credit. (EXCEPTION:
A: The rules applicable depend on who insured the When permitted by the policy to do so)
mortgaged property:
3. The insurer becomes subrogated to the rights
of the mortgagee and may go after the
mortgagor for the collection of the amount it
paid to the mortgagee.

Reference: The Insurance Code and Financial Rehabilitation and Insolvency Act by Hernando B. Perez
Made by: Juan Paolo R. Datinguinoo, UB College of Law Page 6 of 12
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4. The mortgagee, after receiving payment from

the insurer, may no longer collect from the Q: What constitutes insurable interest in life?
mortgagor. (The payment by the insurer
constitutes extinguishment of the liability of the A: It must be for the continuance or preservation of life
mortgagor to the mortgagee with respect to and not for its destruction which is against law, morals
the mortgagee but not the liability of the and public customs.
mortgagor to the insurer.)
Q: When should insurable interest exist?
5. The mortgagor is not released from his liability
from his debt by the insurer’s payment to the A: It depends on the subject matter of the insurance:
mortgagee. He may no longer pay the
mortgagee but he should pay the insurer. Subject Matter When Insurable Interest
must exist
Life Insurance Effectivity of the policy
ONLY (reason: Life
Insurance is NOT a
Sec. 9. If an insurer assents to the transfer of contract of indemnity)
an insurance from a mortgagor to a Property Insurance Effectivity of the policy
mortgagee, and, at the time of his assent, AND Life Insurance taken AND at the occurrence of
imposes further obligation on the assignee, by the creditor on the life the loss
making a new contract with him, the act of the of the debtor
mortgagor cannot affect the rights of said
assignee. Q: Who are the persons who are obliged to support each
other as contemplated in Sec. 10 par B (insurable
interest from receiving support)?

Sec. 10. Every person has an insurable A: Sec 10, par B states that every person has insurable
interest in the life and health: interest in the life and health of any person on whom he
depends wholly or in part for education or support, or in
(a) Of himself, of his spouse and of his
whom he has a pecuniary interest. These persons are
children; the persons who are required by law to support each
(b) Of any person on whom he depends other:
wholly or in part for education or 1. The spouse;
support, or in whom he has a 2. Legitimate ascendants and descendants;
pecuniary interest; 3. Parents and acknowledged natural children and
the legitimate of illegitimate descendants of the
(c) Of any person under a legal latter;
obligation to him for the payment of 4. Parents and natural children by legal fiction and
money, or respecting property or the legitimate and the illegitimate descendants
services, of which death or illness of the latter;
might delay or prevent the 5. Parents and illegitimate children who are not
performance; and natural; and
6. Brothers and sisters.
(d) Of any person upon whose life any
estate or interest vested in him Q: What are the limits in Sec 10, par C (insurable
depends. interest in debtor’s life)?

Q: What is insurable interest? A: The following limits must be observed:

1. The creditor’s insurable interest must only be to
A: Insurable interest is the interest of a person to the the extent of the indebtedness of the debtor.
person or thing insured such that he will derive 2. The amount insured must not be grossly
pecuniary benefit or advantage from its preservation or disproportionate to the amount of debt. (ie 750 is
will suffer pecuniary loss or damage from its destruction, the debt but the insurance amount is 500,000).
termination or injury by the happening of the event
insured against.

Reference: The Insurance Code and Financial Rehabilitation and Insolvency Act by Hernando B. Perez
Made by: Juan Paolo R. Datinguinoo, UB College of Law Page 7 of 12
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SEC. 11. The insured shall have the right to 2. Irrevocable – the beneficiary may not be
change the beneficiary he designated in the changed without his consent. Also, no other
policy, unless he has expressly waived this beneficiary may be added in the policy without
right in said policy. Notwithstanding the his permission.
Note: WHERE CONSENT IN BEHALF OF
foregoing, in the event the insured does not
MINORS MAY BE MADE:
change the beneficiary during his lifetime, the - When a minor was designated as
designation shall be deemed irrevocable. beneficiary and the interest of the minor in
the policy DOES NOT EXCEED P500,000,
Q: What is a beneficiary? his consent to the change of beneficiary may
be given by (IN EXACT ORDER):
A: A beneficiary is the person for whose benefit the o Judicial guardian
policy is issued and to whom the loss is payable. o Father
o Mother
Q: What are the rules applicable to naming a o Grandparent
beneficiary in a LI and a property insurance? o Eldest brother or sister (at least
18yo)
Life Insurance Property Insurance o Any relative of the minor who has
Beneficiary may be any Beneficiary must have
actual custody of the minor
one at the election of the insurable interest in the
- When the amount EXCEEDS P500,000, the
insured. Beneficiary may property both at the time of
adult should be court appointed first.
or may not have insurable effectivity of the policy
interest in the life insured. AND the occurrence of the
loss.
Case #12
PhilAm Life Insurance Co. vs. Pineda
Q: Who are not allowed to be beneficiaries in a life
insurance? - It is only with consent of all the beneficiaries that any
change or amendment in the policy concerning
A: Persons not allowed to receive donations are also not irrevocable beneficiaries may be made.
allowed to receive benefits in a contract of insurance. - Consent given by minors shall not be deemed effective
They are the following: as they cannot validly give their consent to the change of
1. Those made BETWEEN persons who are guilty beneficiaries.
of adultery or concubinage at the time of the
donation; Q: What rules shall apply when the beneficiary
Note: predeceases the insured?
a. Not including adulterous children
b. Conviction not required; may be proven by A: It depends on what kind of beneficiary:
preponderant evidence 1. REVOCABLE – the right to the proceeds of the
2. Those made BETWEEN persons found guilty of policy becomes payable to the estate of the
the same criminal offense, in consideration insured.
thereof; and 2. IRREVOCABLE – the beneficiary having vested
3. Those made to a public officer or his wife, right thereon, the legal representatives of the
descendants and ascendants, by reason of his beneficiary shall be entitled to the proceeds of
office. the insurance and not the estate of the insured.
Q: What are the kinds of beneficiaries?
“SEC. 12. The interest of a beneficiary in a life
A: There are two: insurance policy shall be forfeited when the
1. Revocable – the beneficiary may be changed beneficiary is the principal, accomplice, or
EXCEPTION: accessory in willfully bringing about the death of the
a. When stated in the policy that the right to insured. In such a case, the share forfeited shall
change beneficiary is waived pass on to the other beneficiaries, unless otherwise
b. When the insured did not change the disqualified. In the absence of other beneficiaries,
beneficiary during his lifetime, the the proceeds shall be paid in accordance with the
beneficiary shall be deemed irrevocable

Reference: The Insurance Code and Financial Rehabilitation and Insolvency Act by Hernando B. Perez
Made by: Juan Paolo R. Datinguinoo, UB College of Law Page 8 of 12
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policy contract. If the policy contract is silent, the SEC. 16. A mere contingent or expectant interest in
proceeds shall be paid to the estate of the insured. any thing, not founded on an actual right to the
thing, nor upon any valid contract for it, is not
Q: How shall forfeiture operate in case the beneficiary is insurable.
proven to be a principal, accomplice or accessory in the
killing of the insured?
Q: Distinguish insurable interest in LI and Property
A: The following rules on forfeiture shall apply: Insurance.
1. It shall pass on to other beneficiaries if there are
any, or unless disqualified as well. A:
2. If not, the proceeds shall be paid in accordance Life Insurance Property Insurance
to the stipulation in the policy. Not based on pecuniary Based on pecuniary
3. If the policy is silent, then it shall be paid to the interest as it may be (monetary) interest
estate of the insured. consanguinity or affinity
Interest must exist at the Interest must exist BOTH
Note:
time of the effectivity of the at the effectivity of the
Where the killing is unintentional or not
policy policy and the occurrence
felonious, the beneficiary will not be denied recovery
of the loss
by reason of his causing the death of the insured.
Insurable interest has no Insurable interest is limited
limit on the amount of to the actual value of the
insurable interest UNLESS damage the insured may
SEC. 13. Every interest in property, whether real or it is an insurance taken by suffer
personal, or any relation thereto, or liability in the creditor on the life of its
respect thereof, of such nature that a contemplated debtor
peril might directly damnify the insured, is an Beneficiary may not have Beneficiary needs to have
insurable interest. insurable interest on the insurable interest on the
life or health insured property insured
EXCEPT party is
prohibited to receive
donations
SEC. 14. An insurable interest in property may
consist in:
SEC. 17. The measure of an insurable interest in
(a) An existing interest; property is the extent to which the insured might be
damnified by loss or injury thereof.
(b) An inchoate interest founded on an
existing interest; or

(c) An expectancy, coupled with an existing SEC. 18. No contract or policy of insurance on
interest in that out of which the expectancy property shall be enforceable except for the benefit
arises. of some person having an insurable interest in the
property insured.

SEC. 15. A carrier or depository of any kind has an

insurable interest in a thing held by him as such, to Case #13
the extent of his liability but not to exceed the value Cha vs CA
thereof.
- In property insurance, insurable interest should exist
both at the effectivity of the policy and at the occurrence
of the loss.

Reference: The Insurance Code and Financial Rehabilitation and Insolvency Act by Hernando B. Perez
Made by: Juan Paolo R. Datinguinoo, UB College of Law Page 9 of 12
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SEC. 20. Except in the cases specified in the next Change of interest in the thing insured
four sections, and in the cases of life, accident, and accompanied by change of interest in the policy shall
health insurance, a change of interest in any part of SUSPEND the policy to an equivalent extent UNLESS
a thing insured unaccompanied by a corresponding the interest in the thing and the interest in the policy
becomes vested to one person only. (Reason: Insurance
change of interest in the insurance, suspends the
policy is a PERSONAL contract.)
insurance to an equivalent extent, until the interest
in the thing and the interest in the insurance are Q: What happens when an insurance policy is
vested in the same person. suspended?

A: When a loss occurs during a time when the policy is

suspended, the insured or beneficiary shall not be able
SEC. 21. A change of interest in a thing insured, to recover from the insured.
after the occurrence of an injury which results in a
Q: What are the rules applicable when the property
loss, does not affect the right of the insured to insured is transferred by alienation from one person
indemnity for the loss. to another?

A: GEN’L RULE: A transfer, assignment or alienation og

the property insured does not transfer any right with
SEC. 22. A change of interest in one or more of respect to the insurance.
several distinct things, separately insured by one
EXCEPTIONS:
policy, does not avoid the insurance as to the 1. When the insured makes an express
others. assignment of the interest of the property and
policy WITH the insurer’s consent;
2. Where by express stipulation of the parties, the
policy is made to run with the subject-matter, or
SEC. 23. A change of interest, by will or the contract is so framed as to attach the risk
succession, on the death of the insured, does not inseparably to the property, as where the
insurance is on account of the “owners” of the
avoid an insurance; and his interest in the
property
insurance passes to the person taking his interest 3. A change of interest by will or succession, on the
in the thing insured. death of the insured passes the interest in the
insurance to the person taking his interest in ths
thing insured;
4. Transfer of interest by one of several partners,
SEC. 24. A transfer of interest by one of several joint owners, or owners in common who are
partners, joint owners, or owners in common, who jointly insured, to the others.
are jointly insured, to the others, does not avoid an Note: Transfer or alienation of property made under
insurance even though it has been agreed that the these exceptions shall not suspend the contract of
insurance shall cease upon an alienation of the insurance.
thing insured.
Q: How may a suspended contract of insurance be
revived?
Q: What is change in interest and what are its
effects? A: It may be revived under any of the following:
1. Assignment of the policy to the transferee;
A: The change of interest in insurance law means an 2. Reacquisition of the property by the original
absolute transfer of the insured’s entire interest in the owner
property insured to one not previously interested or
insured. Q: What are the instances when the policy is NOT
suspended despite transfer of interest in the thing

Reference: The Insurance Code and Financial Rehabilitation and Insolvency Act by Hernando B. Perez
Made by: Juan Paolo R. Datinguinoo, UB College of Law Page 10 of 12
 REVIEWER IN COMMERCIAL LAW
INSURANCE LAW

insured without corresponding transfer of the A: GEN’L RULE: Bad faith must exist at the time of the
insurance? after the application for insurance but before the
effectivity of the policy.
A: These are the following:
1. When there is a prohibition against alienation of
property without the consent of the insurer
(Policy not suspended but AVOIDED) EXCEPTIONS:
2. In case of life, accident or health insurance;
3. A change of interest in the thing insured AFTER
the occurrence of the loss; 1. Where the policy provides if the application is
4. A change of interest in one or more distinct approved and policy is issued, it shall be in force
things separately insured; from the date of application;
5. A change of interest by will or succession;
6. A transfer of interest by one of several partners, 2. Where the change occurs after the
joint owners or owners in common; and consummation of the insurance orally although
7. When the policy is so framed that it will inure to the formal policy has not been issued yet.
the benefit of the owner of the property.

SEC. 25. Every stipulation in a policy of

insurance for the payment of loss whether the SEC. 27. A concealment whether intentional or
person insured has or has not any interest in unintentional entitles the injured party to
the property insured, or that the policy shall be rescind a contract of insurance.
received as proof of such interest, and every
policy executed by way of gaming or wagering,
is void.
Q: What does it entitle the innocent party when one party
is guilty of concealment?
SEC. 26. A neglect to communicate that which a
party knows and ought to communicate, is
called a concealment.
A: The innocent party may rescind the contract on the
ground of concealment, regardless of intentional or
unintentional.
Q: What is concealment?

Case #14
A: Concealment presupposes knowledge of the fact
concealed on the part of the party charged with Great Pacific Life Assurance Co. vs CA
concealment. Such party alleging concealment must
prove that such concealment is done with knowledge or
bad faith.
- The contract of insurance is one of perfect good faith,
absolute and perfect candor or openness and honesty. A
party guilty of concealment entitles the other for
Q: When must knowledge or bad faith exist to rescission.
constitute concealment?

SEC. 28. Each party to a contract of insurance

must communicate to the other, in good faith,

Reference: The Insurance Code and Financial Rehabilitation and Insolvency Act by Hernando B. Perez
Made by: Juan Paolo R. Datinguinoo, UB College of Law Page 11 of 12
 REVIEWER IN COMMERCIAL LAW
INSURANCE LAW

all facts within his knowledge which are SEC. 30. Neither party to a contract of
material to the contract and as to which he insurance is bound to communicate information
makes no warranty, and which the other has not of the matters following, except in answer to the
the means of ascertaining. inquiries of the other:

(a) Those which the other knows;

Q: What facts should be communicated to the other (b) Those which, in the exercise of
party under Sec. 28? ordinary care, the other ought to know,
and of which the former has no reason to
suppose him ignorant;

A: The facts must have the following requisites: (c) Those of which the other waives
communication;
1. Must be within the party’s knowledge;
(d) Those which prove or tend to prove
2. Must be material to the contract; the existence of a risk excluded by a
warranty, and which are not otherwise
3. The other party has not the means of material; and
ascertaining such fact;
(e) Those which relate to a risk excepted
4. The party makes no warranties of such fact.
from the policy and which are not
otherwise material.
SEC. 29. An intentional and fraudulent
omission, on the part of one insured, to
communicate information of matters proving or
tending to prove the falsity of a warranty,
entitles the insurer to rescind.
SEC. 31. Materiality is to be determined not by
the event, but solely by the probable and
Q: What are the rules regarding warranties?
reasonable influence of the facts upon the party
to whom the communication is due, in forming
his estimate of the disadvantages of the
proposed contract, or in making his inquiries.
A: GEN’L RULE: Matters covered by a warranty need
not be revealed.

SEC. 32. Each party to a contract of insurance

is bound to know all the general causes which
EXCEPTION: Facts which prove or tend to prove the are open to his inquiry, equally with that of the
falsity of a warranty (there must be attending bad faith) other, and which may affect the political or
material perils contemplated; and all general
usages of trade.

Reference: The Insurance Code and Financial Rehabilitation and Insolvency Act by Hernando B. Perez
Made by: Juan Paolo R. Datinguinoo, UB College of Law Page 12 of 12