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Lecture Outline
Judge Nelita Jesusa Bacaling
College of Law
University of San Agustin
Iloilo City
Lecture 3
SY 2019-2020
2. What may be insured? (Note: Although the title says “What May Be Insured”
under Title 1, the Section that follows, Section 3, does not talk about what may
be insured, in the sense that we will not get a list of things that may be subject of
insurance contract. Note that Section 3 talks about what may be insured
against).
The consent of the spouse is not necessary for the validity of an insurance
policy taken out by a married person on his/her life or that of his/her children.
All rights, title and interest in the policy of insurance taken out by an
original owner on the life or health of the person insured shall automatically vest
in the latter upon the death of the original owner, unless otherwise provided for in
the policy.
2.1 What is being insured is a subject matter. The person who takes out
an insurance has a financial interest over the preservation of the said
subject matter. He/she will suffer financial loss or damage if the
subject matter of the insurance policy is lost or damaged.
2.2 What is being insured against is an event. It is usually contingent or
unknown, whether past or future, but its occurrence would damage,
destroy or diminish the subject matter
2.3 Example: The subject matter of a Fire Insurance contract is the
house owned by B. The peril insured against is Fire. The person who
has insurable interest over the house is the owner B.
2.4 Neither does Sec. 4 tells us what may be insured. Instead it tells us
what may not be insured even if the owner suffers loss or damage
upon the happening of a future event, thus:
Sec.4. The preceding section does not authorize an insurance for or
against the drawing or any lottery, or for or against any chance or
ticket in a lottery drawing a prize.
5.5 What may be insured then? As far as the subject matter is
concerned, anything which is within the commerce of man may be
the subject matter of a contract of insurance, taking into account
the rules on insurable interest, and the general provisions of the civil
code that the agreement must not be contrary to law, public order,
public policy, public morals etc.
Sec. 10. Every person has an insurable interest in the life and health:
d) Of any person whose life any estate or interest vested in him depends.
3.1 This section talks about Insurable Interest in LIFE and/or HEALTH of persons. The
section enumerates those persons upon whom another person may insure. The list is
exclusive thus no other person, no matter how intimate the relationship is with the one
insuring him/her, may be allowed to insure his life or health, other than those enumerated
by the law.
3.2.1 Insurance over one’s own life – Every person has an understandable
unlimited insurable interest over his very own life.
3.2.2 Insurable interest over wife and children – this is an exception to the
concept that insurable interest is present because the loss of the thing insured will cause
some pecuniary damage to the one who took out the insurance or the beneficiary. In
this case, the loss goes beyond pecuniary benefit because of the familial relations existing
between the one who took out the policy and the person insured.
-note however that this familial relation is exclusive to the person’s wife and
children.
3.2.3 Insurance taken over the life of someone on whom he depends wholly or
in part for his education or support, or in whom he has a pecuniary interest.
- One can insure the life of a person who gives him financial support for his
education and sustenance. That is because he will suffer a loss once such person,
his benefactor suffers ailment, injury or will die.
3.2.4 Of any person under a legal obligation to him for the payment of money, or
respecting property services, of which death and illness might delay or prevent
the performance;
- large corporations insure the lives of their top personnel because they have
insurable interest over the lives of these personnel who hold sensitive information
regarding company.
- The same is true with chefs, accountants and even lawyers. Their employers will
suffer pecuniary loss in case of their death or disability.
-lenders also insure the lives of their borrowers for the same reason
3.2.5. Of any person whose life any estate or interest vested in him depends.
a) An existing interest;
b) An inchoate interest founded on an existing interest;
c) An expectancy, coupled with an existing interest in that out of which
the expectancy arises.
Thus, even if they are not owners, they have insurable interest:
a. Lessee
b. Depositary
c. Usufructuary
d. Borrower in commodatum
1.3.3 Expectancy
-must be founded on an existing interest
Examples: - Insurance taken over pregnant animals or cattle
- Insurance taken over projected crops
1.4.1 This section defines the roles of mortgagors and mortgagees and
their relative insurable interest over a property. The law recognizes the fact that
both parties hold separate and distinct insurable interests over the same property
subject matter of the mortgage.
1.4.2 An insurance policy taken by either one in his name alone, will
not benefit the other. The mortgagor has insurable interest over the property to
the extent of the value of the property, because he owns the property, while the
mortgagee has insurable interest only up to the extent of the debt, or the balance
thereof if partially paid.
1.4.3 Section 8 says that the mortgagor, even if he assigns the insurance
that he took over the mortgage property that he owns under his name, and the
assignment is in favor of a mortgagee, he never ceases to be a party to the
insurance contract. Thus, even in instances when the property is in the possession
of the mortgagee, any act of the mortgagor which will have an effect as to annul
the contract will apply and the insurer may use such acts of the mortgagor to
refuse any claim in case of loss or damage to the property. However, any act
which is supposed to be performed by the mortgagor, may be performed by the
mortgagee with the same effect as if it has been performed by the mortgagor
such as the payment of premium, observance of the terms and conditions and
compliance with prohibitions.
Note that the provision says, all these rules are followed by the clear
provision of the law, unless the contrary or a different agreement is stipulated by
the parties.
May the Mortgagee take out an insurance over the same property subject
of the mortgage under his own name?
(In Sec. 8, we talked about insurance policies that were ASSIGNED in favor
of the mortgagee or who is made a beneficiary of the policy to the extent of his
credit).
What happens to the mortgage debt in case the mortgagee was paid
by the Insurance Company to the extent of his debt?
- The mortgagee WRITES OFF the debt of the mortgagor,
and the Insurance company who paid the mortgagee is
subrogated in the former’s right to go after the debt of the
debtor/mortgagor.
-
“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.
“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 interest in the thing and
the interest in the insurance are vested in the same person.
“SEC. 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.
“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.
“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.
“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.
“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.
“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.
“SEC. 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.