INSURABLE INTEREST
Why must there be an insurable interest?
a. Concept of insurable interest in general
Section 10. Every person has an insurable interest in the life and
health:
(a) Of himself, of his spouse and of his children;
(b) Of any person on whom he depends wholly in part for education
or support, or in whom he has a pecuniary interest;
(c) Of any person under a legal obligation to him for the payment of
money, or respecting property or services, Of which death or illness
might delay or prevent the performance; and
(d) Of any person upon whose life any estate or interest vested in him
depends.
What is insurable interest?
Insurable interest is one the most basic of all requirements in
insurance. In general, a person is deemed to have insurable interest
in the subject matter insured where he ha a relation or connection
with or concern in it that he will derive pecuniary 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.
B. Reason for the requirement of insurable interest
It is essential for validity and enforceability of the contract or policy.
A policy issued to a person without interest in the subject matter is a
mere wager policy or contract.
When is there insurable interest in life insurance?
In life insurance, Insurable interest exists where there is reasonable
ground founded on the relations of the parties whether pecuniary,
contractual or by blood or affinity, and to expect some benefit or
advantage from the continuance of the life of the insured.
Problem:
A takes an insurance policy on his life and names his friend X as
beneficiary, and another insurance on the life of Y in consideration of
“love and affection” with A as a beneficiary. Which of the two
insurances, if any, is valid and which, if any, is void?
The Insurance taken on A on his life is VALID, because the beneficiary
need not have an insurable interest in the life of the insured. It must
be the one insuring who has an insurable interest in the life of the
person he is insuring, and of course, it goes without saying that one
has an insurable interest in his own life and health.
C. Insurable Interest in life insurance
Section 10. Every person has an insurable interest in the life and
health:
"(a) Of himself, of his spouse and of his children;
"(b) Of any person on whom he depends wholly or in part for
education or support, or in whom he has a pecuniary interest;
"(c) Of any person under a legal obligation to him for the
payment of money, or respecting property or services, of
which death or illness might delay or prevent the
performance; and
"(d) Of any person upon whose life any estate or interest
vested in him depends.
"Section 11. The insured shall have the right to change the beneficiary
he designated in the policy, unless he has expressly waived this right
in said policy. Notwithstanding the foregoing, in the event the insured
does not change the beneficiary during his lifetime, the designation
shall be deemed irrevocable.
"Section 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 such
a case, the share forfeited shall pass on to the other beneficiaries,
unless otherwise disqualified. In the absence of other beneficiaries,
the proceeds shall be paid in accordance with the policy contract. If
the policy contract is silent, the proceeds shall be paid to the estate of
the insured.
D. Insurable interest in property insurance
"Section 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.
"Section 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.
"Section 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.
"Section 16. A mere contingent or expectant interest in any thing, not
founded on an actual right to the thing, nor upon any valid contract
for it, is not insurable.
"Section 17. The measure of an insurable interest in property is the
extent to which the insured might be damnified by loss or injury
thereof.
"Section 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.
1. Kinds of insurable interest in property
Gaisano Cagayan vs. Insurance company of North America
Same; Same; Insurance; Insurable Interest; Kinds; An
insurable interest in property may consist in the
following.—Section 13 of our Insurance Code defines
insurable interest as “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.” Parenthetically, under
Section 14 of the same Code, an insurable interest in
property may consist in: (a) an existing interest; (b) an
inchoate interest founded on existing interest; or (c) an
expectancy, coupled with an existing interest in that out of
which the expectancy arises.
Same; Same; Same; Same; Anyone has an insurable
interest in property who derives a benefit from its
existence or would suffer loss from its destruction.—An
insurable interest in property does not necessarily imply a
property interest in, or a lien upon, or possession of, the
subject matter of the insurance, and neither the title nor a
beneficial interest is requisite to the existence of such an
interest, it is sufficient that the insured is so situated with
reference to the property that he would be liable to loss
should it be injured or destroyed by the peril against which
it is insured. Anyone has an insurable interest in property
who derives a benefit from its existence or would suffer
loss from its destruction. Indeed, a vendor or seller retains
an insurable interest in the property sold so long as he has
any interest therein, in other words, so long as he would
suffer by its destruction, as where he has a vendor’s lien.
In this case, the insurable interest of IMC and LSPI pertain
to the unpaid accounts appearing in their Books of
Account 45 days after the time of the loss covered by the
policies.
2. Insurable interest in case of mortagaged property
"Section 8. Unless the policy otherwise provides, where a
mortgagor of property effects insurance in his own name
providing that the loss shall be payable to the mortgagee,
or assigns a policy of insurance to a mortgagee, the
insurance is deemed to be upon the interest of the
mortgagor, who does not cease to be a party to the
original contract, and any act of his, prior to the loss,
which would otherwise avoid the insurance, will have the
same effect, although the property is in the hands of the
mortgagee, but any act which, under the contract of
insurance, is to be performed by the mortgagor, may be
performed by the mortgagee therein named, with the
same effect as if it had been performed by the mortgagor.
"Section 9. If an insurer assents to the transfer of an
insurance from a mortgagor to a mortgagee, and, at the
time of his assent, imposes further obligations on the
assignee, making a new contract with him, the acts of the
mortgagor cannot affect the rights of said assignee.
a. Standard or union mortagage clause
b. Open mortgage or loss payable clause
Geagonia vs. CA
Same; Same; Separate insurances covering different insurable
interests may be obtained by the mortgagor and the mortgagee.—As
to a mortgaged property, the mortgagor and the mortgagee have
each an independent insurable interest therein and both interests
may be covered by one policy, or each may take out a separate policy
covering his interest, either at the same or at separate times. The
mortgagor's insurable interest covers the full value of the mortgaged subject matter of intervention is rendered moot and academic.
property, even though the mortgage debt is equivalent to the full Respondent Sebastian must, however, yield to the preferential right
value of the property. The mortgagee's insurable interest is to the of RCBC over the MICO insurance policies. It is basic and fundamental
that the first mortgagee has superior rights over junior mortgagees or
extent of the debt, since the property is relied upon as security
attaching creditors.
thereof, and in insuring he is not insuring the property but his interest
or lien thereon. His insurable interest is prima facie the value
mortgaged and extends only to the amount of the debt, not
exceeding the value of the mortgaged property. Thus, separate 3. Separate insurable interest of mortagagor and mortgagee
insurances covering different insurable interests may be obtained by
the mortgagor and the mortgagee. "Section 53. The insurance proceeds shall be applied
exclusively to the proper interest of the person in whose
name or for whose benefit it is made unless otherwise
RCBC vs. CA specified in the policy.
Civil Law; Insurance Law; Mortgages; It is settled that a mort-gagor
and a mortgagee have separate and distinct insurable interests in the Section 95. A double insurance exists where the same
same mortgaged property, such that each one of them may insure person is insured by several insurers separately in respect
the same property for his own sole benefit; The intentions of the to the same subject and interest.
parties as shown by their contemporaneous acts, must be given due
consideration in order to better serve the interest of justice and 4. When must insurable interest in property exist
equity.—It is settled that a mortgagor and a mortgagee have separate
"Section 19. An interest in property insured must exist
and distinct insurable interests in the same mortgaged property, such
that each one of them may insure the same property for his own sole when the insurance takes effect, and when the loss occurs,
benefit. There is no question that GOYU could insure the mortgaged but need not exist in the meantime; and interest in the life
property for its own exclusive benefit. In the present case, although it or health of a person insured must exist when the
appears that GOYU obtained the subject insurance policies naming insurance takes effect, but need not exist thereafter or
itself as the sole payee, the intentions of the parties as shown by their when the loss occurs.
contemporaneous acts, must be given due consideration in order to
better serve the interest of justice and equity.
5. Insurable interest of beneficiary in property, life insurance
Same; Same; Same; It is basic and fundamental that the first
mortgagee has superior rights over junior mortgagees or attaching
creditors.—Anent the right of RCBC to intervene in Civil Case No.
1073, before the Zamboanga Regional Trial Court, since it has been
determined that RCBC has the right to the insurance proceeds, the
 6. Effect of change of interest in the thing insured
"Section 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 interest in the thing and
the interest in the insurance are vested in the same person.
"Section 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.
"Section 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.
"Section 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.
"Section 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.
"Section 57. A policy may be 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.
"Section 58. 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.
Art. 1306. The contracting parties may establish such stipulations,
clauses, terms and conditions as they may deem convenient,
provided they are not contrary to law, morals, good customs, public
order, or public policy.
7. Assignee in life, property insurance
"Section 184. A policy of insurance upon life or health may
pass by transfer, will or succession to any person, whether
he has an insurable interest or not, and such person may
recover upon it whatever the insured might have
recovered.
"Section 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.
Spouses Cha vs. CA
Contracts; Stipulations contained in a contract cannot be contrary to
law, morals, good customs, public order or public policy.—The core
issue to be resolved in this case is whether or not the aforequoted
paragraph 18 of the lease contract entered into between CKS and the
Cha spouses is valid insofar as it provides that any fire insurance
policy obtained by the lessee (Cha spouses) over their merchandise
inside the leased premises is deemed assigned or transferred to the
lessor (CKS) if said policy is obtained without the prior written
consent of the latter. It is, of course, basic in the law on contracts that
the stipulations contained in a contract cannot be contrary to law,
morals, good customs, public order or public policy.
Same; Insurance; 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.—Sec. 18 of the Insurance
Code provides: “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 non-life
insurance policy such as the fire insurance policy taken by
petitionerspouses over their merchandise is primarily a contract of
indemnity. Insurable interest in the property insured must exist at the
time the insurance takes effect and at the time the loss occurs. The
basis of such requirement of insurable interest in property insured is
based on sound public policy: to prevent a person from taking out an
insurance policy on property upon which he has no insurable interest
and collecting the proceeds of said policy in case of loss of the
property. In such a case, the contract of insurance is a mere wager
which is void under Section 25 of the Insurance Code.
Same; Same; Leases; The lessor cannot be validly a beneficiary of a
fire insurance policy taken by a lessee over his merchandise, and the
provision in the lease contract providing for such automatic
assignment is void for being contrary to law and/or public policy—the
insurer cannot be compelled to pay the proceeds of the policy to a
person who has no insurable interest in the property insured.—
Therefore, respondent CKS cannot, under the Insurance Code—a
special law—be validly a beneficiary of the fire insurance policy taken
by the petitioner-spouses over their merchandise. This insurable
interest over said merchandise remains with the insured, the Cha
spouses. The automatic assignment of the policy to CKS under the
provision of the lease contract previously quoted is void for being
contrary to law and/or public policy. The proceeds of the fire
insurance policy thus rightfully belong to the spouses Nilo Cha and
Stella Uy-Cha (herein co-petitioners.) The insurer (United) cannot be
compelled to pay the proceeds of the fire insurance policy to a person
(CKS) who has no insurable interest in the property insured.
CASE DIGEST
GAISANO CAGAYAN VS INSURANCE COMPANY OF NORTH AMERICA
Lessons Applicable: Existing Interest (Insurance)
Laws Applicable: Article 1504,Article 1263, Article 2207 of the Civil
Code, Section 13 of Insurance Code
FACTS:
Intercapitol Marketing Corporation (IMC) is the maker of Wrangler
Blue Jeans. while Levi Strauss (Phils.) Inc. (LSPI) is the local distributor
of products bearing trademarks owned by Levi Strauss & Co
IMC and LSPI separately obtained from Insurance Company of
North America fire insurance policies for their book debt
endorsements related to their ready-made clothing materials which
have been sold or delivered to various customers and dealers of the
Insured anywhere in the Philippines which are unpaid 45 days after
the time of the loss
February 25, 1991: Gaisano Superstore Complex in Cagayan de Oro
City, owned by Gaisano Cagayan, Inc., containing the ready-made
clothing materials sold and delivered by IMC and LSPI was consumed
by fire.
February 4, 1992: Insurance Company of North America filed a
complaint for damages against Gaisano Cagayan, Inc. alleges that IMC
and LSPI filed their claims under their respective fire insurance
policies which it paid thus it was subrogated to their rights
Gaisano Cagayan, Inc: not be held liable because it was destroyed
due to fortuities event or force majeure
RTC: IMC and LSPI retained ownership of the delivered goods until
fully paid, it must bear the loss (res perit domino)
CA: Reversed - sales invoices is an exception under Article 1504 (1)
of the Civil Code to res perit domino
ISSUE: W/N Insurance Company of North America can claim against
Gaisano Cagayan for the debt that was isnured
HELD: YES. petition is partly GRANTED. order to pay P535,613 is
DELETED

insurance policy is clear that the subject of the insurance is the
book debts and NOT goods sold and delivered to the customers and
dealers of the insured
ART. 1504. Unless otherwise agreed, the goods remain at the
seller's risk until the ownership therein is transferred to the buyer,
but when the ownership therein is transferred to the buyer the goods
are at the buyer's risk whether actual delivery has been made or not,
except that:
(1) Where delivery of the goods has been made to the buyer or to a
bailee for the buyer, in pursuance of the contract and the ownership
in the goods has been retained by the seller merely to secure
performance by the buyer of his obligations under the contract, the
goods are at the buyer's risk from the time of such delivery;
IMC and LSPI did not lose complete interest over the goods. They
have an insurable interest until full payment of the value of the
delivered goods. Unlike the civil law concept of res 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 insured has substantial economic
interest in the property
Section 13 of our Insurance Code defines insurable interest as
"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."
Parenthetically, under Section 14 of the same Code, an insurable
interest in property may consist in: (a) an existing interest; (b) an
inchoate interest founded on existing interest; or (c) an expectancy,
coupled with an existing interest in that out of which the expectancy
arises.
Anyone has an insurable interest in property who derives a benefit
from its existence or would suffer loss from its destruction.
it is sufficient that the insured is so situated with reference to the
property that he would be liable to loss should it be injured or
destroyed by the peril against which it is insured
an insurable interest in property does not necessarily imply a
property interest in, or a lien upon, or possession of, the subject
matter of the insurance, and neither the title nor a beneficial
interest is requisite to the existence of such an interest
insurance in this case is not for loss of goods by fire but for
petitioner's accounts with IMC and LSPI that remained unpaid 45 days
after the fire - obligation is pecuniary in nature
obligor should be held exempt from liability when the loss occurs
thru a fortuitous event only holds true when the obligation consists in
the delivery of a determinate thing and there is no stipulation holding
him liable even in case of fortuitous event
Article 1263 of the Civil Code in an obligation to deliver a generic
thing, the loss or destruction of anything of the same kind does not
extinguish the obligation (Genus nunquan perit)
The subrogation receipt, by itself, is sufficient to establish not only
the relationship of respondent as insurer and IMC as the insured, but
also the amount paid to settle the insurance claim
Art. 2207. If the plaintiff's property has been insured, and he has
received indemnity from the insurance company for the injury or loss
arising out of the wrong or breach of contract complained of, the
insurance company shall be subrogated to the rights of the insured
against the wrongdoer or the person who has violated the contract.
As to LSPI, no subrogation receipt was offered in evidence.
Failure to substantiate the claim of subrogation is fatal to
petitioner's case for recovery of the amount of P535,613

GEAGONIA VS. CA
Facts:
Geagonia, owner of a store, obtained from Country Bankers fire
insurance policy for P100,000.00. The 1 year policy and covered
thestock trading of dry goods.
The policy noted the requirement that
"3. The insured shall give notice to the Company of any insurance or
insurances already effected, or which may subsequently be effected,
covering any of the property or properties consisting of stocks in
trade, goods in process and/or inventories only hereby insured, and
unless notice be given and the particulars of such insurance or
insurances be stated therein or endorsed in this policy pursuant to
Section 50 of the Insurance Code, by or on behalf of the Company
before the occurrence of any loss or damage, all benefits under this
policy shall be deemed forfeited, provided however, that this
condition shall not apply when the total insurance or insurances in
force at the time of the loss or damage is not more than
P200,000.00."
The petitioners’ stocks were destroyed by fire. He then filed a claim
which was subsequently denied because the petitioner’s stocks were
covered by two other fire insurance policies for Php 200,000 issued
by PFIC. The basis of the private respondent's denial was the
petitioner's alleged violation of Condition 3 of the policy.
Geagonia then filed a complaint against the private respondent in the
Insurance Commission for the recovery of P100,000.00 under fire
insurance policy and damages. He claimed that he knew the existence
of the other two policies. But, he said that he had no knowledge of
the provision in the private respondent's policy requiring him to
inform it of the prior policies and this requirement was not
mentioned to him by the private respondent's agent.
The Insurance Commission found that the petitioner did not violate
Condition 3 as he had no knowledge of the existence of the two fire
insurance policies obtained from the PFIC; that it was Cebu Tesing
Textiles w/c procured the PFIC policies w/o informing him or securing
his consent; and that Cebu Tesing Textile, as his creditor, had
insurable interest on the stocks.
The Insurance Commission then ordered the respondent company to
pay complainant the sum of P100,000.00 with interest and attorney’s
fees.
CA reversed the decision of the Insurance Commission because it
found that the petitioner knew of the existence of the two other
policies issued by the PFIC.
Issues:
1. WON the petitioner had not disclosed the two insurance policies
when he obtained the fire insurance and thereby violated Condition 3
of the policy.
2. WON he is prohibited from recovering
Held: Yes. No. Petition Granted
Ratio:
1. The court agreed with the CA that the petitioner knew of the prior
policies issued by the PFIC. His letter of 18 January 1991 to the private
respondent conclusively proves this knowledge. His testimony to the
contrary before the Insurance Commissioner and which the latter
relied upon cannot prevail over a written admission made ante litem
motam. It was, indeed, incredible that he did not know about the
prior policies since these policies were not new or original.
2. Stated differently, provisions, conditions or exceptions in policies
which tend to work a forfeiture of insurance policies should be
construed most strictly against those for whose benefits they are
inserted, and most favorably toward those against whom they are
intended to operate.
With these principles in mind, Condition 3 of the subject policy is not
totally free from ambiguity and must be meticulously analyzed. Such
analysis leads us to conclude that (a) the prohibition applies only to
double insurance, and (b) the nullity of the policy shall only be to the
extent exceeding P200,000.00 of the total policies obtained.
Furthermore, by stating within Condition 3 itself that such condition
shall not apply if the total insurance in force at the time of loss does
not exceed P200,000.00, the private respondent was amenable to
assume a co-insurer's liability up to a loss not exceeding P200,000.00.
What it had in mind was to discourage over-insurance. Indeed, the
rationale behind the incorporation of "other insurance" clause in fire
policies is to prevent over-insurance and thus avert the perpetration
of fraud. When a property owner obtains insurance policies from two
or more insurers in a total amount that exceeds the property's value,
the insured may have an inducement to destroy the property for the
purpose of collecting the insurance. The public as well as the insurer
is interested in preventing a situation in which a fire would be
profitable to the insured.
RCBC VS CA
> GOYU applied for credit facilities and accommodations with RCBC.
After due evaluation, a credit facility in the amount of P30 million was
initially granted. Upon GOYU's application increased GOYU's credit
facility to P50 million, then to P90 million, and finally to P117 million
> As security for its credit facilities with RCBC, GOYU executed two
REM and two CM in favor of RCBC, which were registered with the
Registry of Deeds at. Under each of these four mortgage contracts,
GOYU committed itself to insure the mortgaged property with an
insurance company approved by RCBC, and subsequently, to endorse
and deliver the insurance policies to RCBC.
> GOYU obtained in its name a total of 10 insurance policies from
MICO. In February 1992, Alchester Insurance Agency, Inc., the
insurance agent where GOYU obtained the Malayan insurance
policies, issued nine endorsements in favor of RCBC seemingly upon
instructions of GOYU
> On April 27, 1992, one of GOYU's factory buildings in Valenzuela
was gutted by fire. Consequently, GOYU submitted its claim for
indemnity.
> MICO denied the claim on the ground that the insurance policies
were either attached pursuant to writs of attachments/garnishments
issued by various courts or that the insurance proceeds were also
claimed by other creditors of GOYU alleging better rights to the
proceeds than the insured.
> GOYU filed a complaint for specific performance and
damages. RCBC, one of GOYU's creditors, also filed with MICO its
formal claim over the proceeds of the insurance policies, but said
claims were also denied for the same reasons that AGCO denied
GOYU's claims.
> However, because the endorsements do not bear the signature of
any officer of GOYU, the trial court, as well as the Court of Appeals,
concluded that the endorsements are defective and held that RCBC
has no right over the insurance proceeds.
Issue:
Whether or not RCBC has a right over the insurance proceeds.
Held:
RCBC has a right over the insurance proceeds.
It is settled that a mortgagor and a mortgagee have separate and
distinct insurable interests in the same mortgaged property, such that
each one of them may insure the same property for his own sole
benefit. There is no question that GOYU could insure the mortgaged
property for its own exclusive benefit. In the present case, although it
appears that GOYU obtained the subject insurance policies naming
itself as the sole payee, the intentions of the parties as shown by their
contemporaneous acts, must be given due consideration in order to
better serve the interest of justice and equity.
It is to be noted that 9 endorsement documents were prepared by
Alchester in favor of RCBC. The Court is in a quandary how Alchester
could arrive at the idea of endorsing any specific insurance policy in
favor of any particular beneficiary or payee other than the insured
had not such named payee or beneficiary been specifically disclosed
by the insured itself. It is also significant that GOYU voluntarily and
purposely took the insurance policies from MICO, a sister company of
RCBC, and not just from any other insurance company. Alchester
would not have found out that the subject pieces of property were
mortgaged to RCBC had not such information been voluntarily
disclosed by GOYU itself. Had it not been for GOYU, Alchester would
not have known of GOYU's intention of obtaining insurance coverage
in compliance with its undertaking in the mortgage contracts with
RCBC, and verify, Alchester would not have endorsed the policies to
RCBC had it not been so directed by GOYU.
On equitable principles, particularly on the ground of estoppel, the
Court is constrained to rule in favor of mortgagor RCBC. RCBC, in good
faith, relied upon the endorsement documents sent to it as this was
only pursuant to the stipulation in the mortgage contracts. We find
such reliance to be justified under the circumstances of the case.
GOYU failed to seasonably repudiate the authority of the person or
persons who prepared such endorsements. Over and above this,
GOYU continued, in the meantime, to enjoy the benefits of the credit
facilities extended to it by RCBC. After the occurrence of the loss
insured against, it was too late for GOYU to disown the endorsements
for any imagined or contrived lack of authority of Alchester to
prepare and issue said endorsements. If there had not been actually
an implied ratification of said endorsements by virtue of GOYU's
inaction in this case, GOYU is at the very least estopped from assailing
their operative effects.
To permit GOYU to capitalize on its non-confirmation of these
endorsements while it continued to enjoy the benefits of the credit
facilities of RCBC which believed in good faith that there was due
endorsement pursuant to their mortgage contracts, is to countenance
grave contravention of public policy, fair dealing, good faith, and
justice. Such an unjust situation, the Court cannot sanction. Under the
peculiar circumstances obtaining in this case, the Court is bound to
recognize RCBC's right to the proceeds of the insurance policies if not
for the actual endorsement of the policies, at least on the basis of the
equitable principle of estoppel.
GOYU cannot seek relief under Section 53 of the Insurance Code
which provides that the proceeds of insurance shall exclusively apply
to the interest of the person in whose name or for whose benefit it is
made. The peculiarity of the circumstances obtaining in the instant
case presents a justification to take exception to the strict application
of said provision, it having been sufficiently established that it was the
intention of the parties to designate RCBC as the party for whose
benefit the insurance policies were taken out. Consider thus the
following:
1. It is undisputed that the insured pieces of property were the
subject of mortgage contracts entered into between RCBC and GOYU
in consideration of and for securing GOYU's credit facilities from
RCBC. The mortgage contracts contained common provisions
whereby GOYU, as mortgagor, undertook to have the mortgaged
property properly covered against any loss by an insurance company
acceptable to RCBC.
2. GOYU voluntarily procured insurance policies to cover the
mortgaged property from MICO, no less than a sister company of
RCBC and definitely an acceptable insurance company to RCBC.
3. Endorsement documents were prepared by MICO's
underwriter, Alchester Insurance Agency, Inc., and copies thereof
were sent to GOYU, MICO and RCBC. GOYU did not assail, until of
late, the validity of said endorsements.
4. GOYU continued until the occurrence of the fire, to enjoy the
benefits of the credit facilities extended by RCBC which was
conditioned upon the endorsement of the insurance policies to be
taken by GOYU to cover the mortgaged properties.
This Court can not over stress the fact that upon receiving its copies
of the endorsement documents prepared by Alchester, GOYU, despite
the absence written conformity thereto, obviously considered said
endorsement to be sufficient compliance with its obligation under the
mortgage contracts since RCBC accordingly continued to extend the
benefits of its credit facilities and GOYU continued to benefit
therefrom. Just as plain too is the intention of the parties to
constitute RCBC as the beneficiary of the various insurance policies
obtained by GOYU. The intention of the parties will have to be given
full force and effect in this particular case. The insurance proceeds
may, therefore, be exclusively applied to RCBC, which under the
factual circumstances of the case, is truly the person or entity for
whose benefit the policies were clearly intended.
SPOUSES CHA VS CA
Lessons Applicable: Effect of Lack of Insurable Interest (Insurance)
Laws Applicable: Sec. 17, Sec. 18, Sec. 25 of the Insurance Code
FACTS:
 Spouses Nilo Cha and Stella Uy-Cha and CKS Development
Corporation entered a 1 year lease contract with a stipulation
not to insure against fire the chattels, merchandise, textiles,
goods and effects placed at any stall or store or space in the
leased premises without first obtaining the written consent
and approval of the lessor. But it insured against loss by fire
their merchandise inside the leased premises for P500,000
with the United Insurance Co., Inc. without the written
consent of CKS
 On the day the lease contract was to expire, fire broke out
inside the leased premises and CKS learning that the spouses
procured an insurance wrote to United to have the proceeds
be paid directly to them. But United refused so CKS filed
against Spouses Cha and United.
 RTC: United to pay CKS the amount of P335,063.11 and
Spouses Cha to pay P50,000 as exemplary damages, P20,000
as attorney’s fees and costs of suit
 CA: deleted exemplary damages and attorney’s fees
ISSUE: W/N the CKS has insurable interest because the spouses Cha
violated the stipulation
HELD: NO. CA set aside. Awarding the proceeds to spouses Cha.
 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 non-life insurance policy such as the fire insurance policy
taken by petitioner-spouses over their merchandise is
primarily a contract of indemnity. Insurable interest in the
 property insured must exist a t the time the insurance takes
effect and at the time the loss occurs. The basis of such
requirement of insurable interest in property insured is based
on sound public policy: to prevent a person from taking out an
insurance policy on property upon which he has no insurable
interest and collecting the proceeds of said policy in case of
loss of the property. In such a case, the contract of insurance
is a mere wager which is void under Section 25 of the
Insurance Code.
 SECTION 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
 Section 17. The measure of an insurable interest in property is
the extent to which the insured might be damnified by loss of
injury thereof
 The automatic assignment of the policy to CKS under the
provision of the lease contract previously quoted is void for
being contrary to law and/or public policy. The proceeds of
the fire insurance policy thus rightfully belong to the
spouses. The liability of the Cha spouses to CKS for violating
their lease contract in that Cha spouses obtained a fire
insurance policy over their own merchandise, without the
consent of CKS, is a separate and distinct issue which we do
not resolve in this case.