1. Enumerate and discuss the principles of insurance.

There are six (6) major principles of insurance, to wit:

a. Indemnity

b. Contribution

c. Utmost Good Faith

d. Subrogation

e. Proximate Cause

f. Insurable Interest

I. INDEMNITY

The purpose of the insurance contract is to restore the insured to the same financial condition he was
in at the time of the loss. This principle is more applicable in property insurance than life insurance. In
property insurance, the total sum insured serves as a cap to the potential liability of the insurer and
not the amount of liability itself in case of a loss. The amount of the indemnity is subject to evaluation
by the insurer in order to determine the actual extent of loss of the insured.

1. Optimus insured his property against fire for Php 4,000,000.00. The property was totally burned
and the value of the house was determined to be Php 3,500,000.00 only.

How much will be the indemnification of Optimus? It is Php 3,500,000.00 or Php 4,000,000.00?

The insurer is liable to pay Optimus for Php 3,500,000.00 only since it is the actual loss he suffered
from the fire incident. The total sum insured is only the maximum limit of liability to assumed by the
insurer. It is not a statement of the amount to be paid in case of a loss.

On account of the over-insurance, Optimus can demand reimbursement of the excess premium he
paid to his insurer.

If Optimus insists that he should be paid Php 4,000,000.00 which is the total sum insured, will you allow
it if you are the claims manager?

No. To act favorably on his request will be in violation of the principle of indemnity. Under the said
principle, the indemnification shall be limited to the actual loss suffered by the insured - no more, no
less.

II. CONTRIBUTION

The principle of contribution follows the concept of indemnity and it applies in double insurance.
According to this principle, in case of a loss, all the co-insurers shall share in the loss in proportion to
their participation in the risk.

The purpose of this principle is to prevent the insured from recovering more than the full amount of
his loss where two (2) or more policies exist over the subject matter of insurance.

2. Frodo insured his Php 2,000,000.00 property against fire for Php 2,000,000.00 each with
Mabagal and Mabilis Insurance Company, respectively. The property was partially burned and the value
of the loss was determined to be Php 1,200,000.00.

If you were Frodo’s insurance consultant, what will be your advice to him?

Frodo may file a claim against either one or both insurers, provided his aggregate claim will not
exceed Php1,200,000.00. Thus, he can do any of the following:

a. File a claim against either insurer for the full amount of loss.

b. File two simultaneous claims against the insurers based on their pro-rata share amounting to Php
600,000.00 each.

He cannot collect Php 1,200,000.00 against each insurer at the same time since it will violate the
principle of indemnity. The liability of either insurer should not exceed its proportionate share in the
loss. In order to determine each insurer’s share in the loss, the computation shall be as follows:

Mabagal
____________________

Mabagal + Mabilis multiply by the amount of loss = Mabagal’s share

Php 2,000,000.00 x Php 1,200,000.00 = Php 600,000.00

Php 4,000,000.00

III. SUBROGATION
Subrogation is another principle that closely related with the principle of indemnity. Consequently,
the amount that the insurer can recover against the offending party is limited to the amount it has
actually paid to its insured.

It is the legal effect of the payment of claim by the insurer. Upon payment of the claim, the insurer
assumes all the legal rights and remedies available to the insured against any and all parties liable for
the loss.

According to the New Civil Code, the cause of the loss or injury must be a risk covered by the policy to
entitle the insurer to subrogation.[1]

3. Discuss the principle of subrogation.

It is the legal effect of the payment of claim by the insurer. Consequently, -

a. There is no need for a written assignment of rights in order to enforce one’s right of subrogation.
However, the Supreme Court stated that the signing of a Loss and Subrogation Receipt was a valid
pre-condition before the insurer could be compelled to turn over the whole amount of the insurance
to the insured.[2]

b. The insurer can only recover from the offending party up to the amount it had paid to the insured.

c. The insured can no longer recover from the offending party what was paid to him by the insured.
However, the insured can still recover for the deficiency if the actual damages were more than what
the insurer paid.[3]

4. Enumerate cases when there is no right of subrogation?

They are as follows:

a. When the insurer pay the insured for a loss not covered by the policy.[4]

b. The insurer by his own act releases the wrongdoer.[5]

c. In case of life insurance.

d. Recovery of loss in excess of the limits provided by the policy.

IV. UTMOST GOOD FAITH

An insurance contract is one of perfect good faith not for the insured alone, but equally so for the
insurer; in fact, it is more so for the latter, since its dominant bargaining position carries with it a
stricter responsibility.[6]

It refers to duty of both the insurer and insured to exercise honesty in dealing with each other. Both
parties are obligated to declare all facts that are considered material to the contract of insurance. The
application of the concept of utmost good is applied and discussed in the section dealing concealment
and misrepresentation.

5. How is materiality determined?

It is to be determined not by the event, but solely by the probable and 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. [7]

6. Cite examples of facts/circumstances which are deemed material.

The following facts/circumstances were deemed to be material which was the basis for denial of
claim:

a. That the insured is suffering from:

1. Incipient pulmonary tuberculosis[8]

2. Cerebral congestion and Bells Palsy[9]

3. Cardiovascular disease[10]

4. Acute Bronchitis[11]

b. That he has been treated or hospitalized from some ailment like pneumonia, diabetes or
syphilis[12]

c. That he was hospitalized for two (2) weeks prior to his application for insurance.[13]

7. Marine insurance was secured upon goods on board a ship which departed from Madagascar to
Manila, without any disclosure to the insurer of the fact that the ship had been reported at Lloyd’s of
London as seen at sea, deep in water and leaky. This report turned out to be wrong because the ship was
at no time during the voyage leaky or in trouble, but was lost thru another insured risk. The insurer
refuses to pay the insured, claiming concealment. The insured counters that the fact not disclosed was
erroneous and did not increase the risk and therefore immaterial. Decide the dispute with reasons. (1979
Bar Examination)

The insured may not recover under the marine insurance. While the report was erroneous, it
nonetheless was lost through another risk. This is material because it could influence the decision of
the underwriter in deciding whether to provide insurance cover or otherwise.

8. “A” applied for a non-medical life insurance. The insured did not inform the insurer that one week
prior to his application, he was examined and confined at St. Luke’s Hospital where he was diagnosed for
lung cancer. The insured soon thereafter died in a plane crash. Is the insurer liable considering the fact
concealed had no bearing with the cause of death of the insured? Why? (2001 Bar Examination)

No. The concealed fact is material to the approval and issuance of the insurance policy. The insured
need not die of the disease he failed to disclose to the insurer.

9. Simba insured his vessel with Hakuna Matata Insurance Company effective September 21, 2001.
Three days after, it was discovered that the vessel had sunk a week before the effectivity of the policy.

Can Simba recover against his marine insurance with Hakuna Matata Insurance Company?

Yes. Under a marine insurance, past unknown event can be covered, thus, coverage may be have for a
vessel which had already sunk. The presumption is Simba acted in good faith when he sought cover
for his vessel. The burden of proving otherwise lies on the part of the insurer.

V. INSURABLE INTEREST

10. Define insurable interest. (1965 Bar Examination)

The legal relationship of the insured with the subject matter of insurance whereby the former stands
to benefit from the preservation of the latter or be prejudiced by the loss thereof.

Consequently, no contract of insurance on property shall be enforceable except for the benefit of
some person having insurable interest in the property insured.[14]

Also, the following stipulations shall be void:

a. for the payment of loss whether the person insured has or has not any interest in the property
insured;

b. that the policy shall be received as proof of such interest; and

c. every policy executed by way of gaming or wagering.[15]

Notes:
a. 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 wager policy is obviously
contrary to public interest.[16]

b. Insurable interest over the thing insured minimize, if not eliminate, the temptation to destroy it in
order gain from the proceeds of the policy.

c. A policy issued to a person without insurable interest in the subject matter is a mere wager policy
having nothing in common with insurance except name and form and is void and unenforceable on
grounds of public policy.[17]

d. A carrier or depositary 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. [18]

11. What is the purpose of the law in requiring that the insured must have an insurable interest in the
life of the person insured?

The purpose of the law in requiring the existence of insurable interest in the life of the insured is to
eliminate the temptation to destroy the life of the insured on account of his life insurance.

12. When may there be insurable interest in the life of another. (1966 Bar Examination)

A person may have insurable in the life another in the following situations:

a. Of any person on whom he depends wholly or in part for education or support, or in whom he has
a pecuniary interest;

b. 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

c. Of any person upon whose life any estate or interest vested in him depends.[19]

13. Define insurable interest in life. (1966 Bar Examination)

An insurable interest in life may be the in the following forms:

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.[20]

14. In what cases has corporation an insurable interest in the lives of its officers? (1965 Bar
Examination)

A corporation may have insurable interest in the lives of its officers when the death or illness of said
officers would materially and injuriously affect the corporation.

15. What does insurable interest in property consist of? Explain your answer. (1953 and 1967 Bar
Examination)

Under Section 14, an insurable interest in property may consist of the following:

a. An existing interest. An example of which includes ownership over a property

b. An inchoate interest founded on an existing interest. Examples of which includes the

stockholder’s interest in the property of the corporation and partner’s interest in the partnership’s
property.

c. An expectancy coupled with an existing interest in that of which the expectancy arises. An
example of which a farmer’s interest future crops to be grown on the land he owned.

16. Give an example of insurable inchoate right in the property? (1955 Bar Examination)

The following are examples of insurable inchoate right in the property:

a. Contractor’s interest in the completed building for unpaid construction cost;

b. Lessor’s interest in the improvement made by the lessee;

c. Naked owner’s interest over property which another person has beneficial title.[21]

17. How is insurable interest measured?

It depends on the type of insurance, thus:

In Property Insurance, the measure of insurable interest in a property is the extent to which the
insured may be damnified by loss or injury thereof. [22]

In Life Insurance, insurable interest cannot be measured on account of the fact that the value of one’s
life cannot be estimated or even valued for that matter. According to some financial planners, the rule
of thumb is determining the maximum total sum insured is 5 times of the annual salary of the
insurance applicant. The rationale behind this is that it is assumed that a family of the decedent will
take at least five (5) years to adjust to the financial loss brought about by the death of breadwinner.

However, in the case of creditor-debtor relationship where the creditor insures the life of the debtor,
the limit of insurable interest by the creditor is equal to the amount of debt.

18. Megatron is the lessee of Decepticon Corporation (Decepticon). Under the lease agreement,
Megatron cannot insure the properties stored in the leased property without first obtaining the consent
of Decepticon. If consent is not obtained, the policy is deemed assigned and transferred to the lessor for
its own benefit. Megatron insured the merchandize in the leased property without obtaining the consent
of the lessor. A fire broke out which destroyed the merchandize stored.

Is the lessor entitled to the proceeds of the policy?

No. Decepticon is not entitled to the proceeds of insurance. It has no insurable interest over the
merchandize insured because it is owned by Megatron. The automatic assignment of the policy is void
for being contrary to law and public policy.[23]

19. Distinguish insurable interest in property insurance from insurable interest in life insurance. (2002
Bar Examinations)

The differences are as follows:

a. As to the existence thereof. In the former, it must exist both at the inception of the policy and at
the time of the loss, whereas, in the latter, it need not exist at the time of the loss.

b. As to the extent thereof. In the former, it is limited by the actual value of interest in the property,
whereas, in the latter, there is no limit, except the one taken by creditor on the life of the debtor.

20. John took out a life insurance on the life of his wife Marsha. Two months after the decree of
annulment of their marriage became final, she died.

Can John recover under the life insurance?

Yes. At the time he took out the life insurance, he still has insurable interest over the life of his wife.
The subsequent annulment of their marriage will not effect his right to recover under the policy.

In life insurance, what is required is that insurable interest must exist at the inception of the policy
but need not exist when the loss occurs.

21. What is the legal effect of the change in insurable interest after the loss?

The change in insurable interest after the loss will not affect the insurer’s liability. Upon the
happening of the loss, the liability of the insurer becomes fixed. [24]

The answer would have been different if the change occurred before the loss. In the case, the claim
will be denied on account of the insured’s lack of insurable interest.

22. What is the legal effect of the death of insured?

The death of the insured will not affect the liability of the insurer to pay. The interest in the insurance
shall automatically pass on to the insurer’s heirs.

23. A piece of machinery was shipped to Mr. Pablo on the basis of C&F, Manila. Mr. Pablo insured the
said machinery with Talaga Merchants Insurance Corp. (TAMIC) for loss or damage during the voyage.
The vessel sank en route to Manila. Mr. Pablo then filed a claim with TAMIC which was denied for the
reason that prior to delivery, Mr. Pablo had no insurable interest. Decide the case. (1991 Examination)

The reasoning of the insured is untenable. The purchase of goods under a perfected contract of sale
already vests equitable interest on the property in favor of the buyer pending the delivery.[25]

24. On February 3, 1987, while Jose Palacio was in the hospital preparatory to a heart surgery, he called
his only son, Boy Palacio, and showed the latter a will naming his son as the sole heir to all the father’s
estate including the family mansion in Forbes Park. The following day, Boy Palacio took out a fire
insurance on the Forbes Park mansion. One week later, the father died. After the father’s death, Boy
Palacio moved his wife and his children to the family mansion which he inherited. On March 30, 1987, a
fire occurred razing the mansion to the ground. Boy Palacio then proceeded to collect on the fire
insurance he took earlier on the house.

Should the insurance company pay? (1987 Examination)

No. In property insurance, the insured is required to have insurable interest over the property at the
inception of the policy and at the time of the loss. At the time the policy was issued, the owner of the
mansion is his father Palacio.
Also, the insurable interest must be an existing. Unfortunately for Boy Palacio, the fact that he was
the expected sole heir of the property does not give rise to an existing interest over the mansion prior
to the death of his father Palacio.

25. JQ, owner of the condominium unit, insured the same against fire with XYZ Insurance Co., and made
the loss payable to his brother, MLQ. In case of loss by fire of the said condominium unit, who may
recover on the fire insurance policy? State the reason(s) for your answer. (2001 Bar Examination)

JQ is the one entitled to receive the proceeds of insurance being the owner thereof. MLQ despite
being the designated as the payee in case loss cannot be entitled to receive the premium since he has
no insurable interest over the condominium unit.

26. Is it necessary for the beneficiary to have an insurable interest in the life of the insured (1949 Bar
Examination)?

It depends.

If the policy is secured by the insured on his own life, the designated beneficiaries need not have an
insurable interest in the life of the insured.

If the policy is secured by a third person on the life of the insured and said third person designates
himself as the beneficiary, the third person must have insurable interest on the life of the insured as
at the inception of the policy.

27. Juan takes an insurance policy on the life of his friend Luis, becoming himself as the beneficiary. Is
the policy valid? (1946 Bar Examination)

Yes. However, the designation of Juan as beneficiary is not valid. Juan does not have an insurable
interest in the life of Luis. Mere friendship is not enough to create insurable interest on the life of
another person.

28. Batman secured a loan from Superman in the amount of Php 1,000,000.00. To guarantee payment
of the loan in case something happens to Batman, Superman bought an insurance on the life of the
Batman equal to the amount of the latter’s loan. Six (6) months later, Batman died. Prior to that, Batman
was able to pay-off the eighty percent (80%) of his loan already.

How much can Superman collect from the insurer?

Superman can collect only up to Php 200,000.00. His insurable interest over Batman’s life was reduced
to 20% on account of the payments made by Batman prior to his death. Accordingly, the payment by
the insurer shall be reduced in proportion to his reduced insurable interest.
29. A obtains a fire insurance on his house and as a generous gesture names his neighbor as his
beneficiary. If A’s house is destroyed by fire, can B successfully claim against the policy? (1997 Bar
Examination)

No. B has no insurable interest over the house of A. In fire 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.

Unlike life insurance, fire insurance does not have a provision for beneficiary designation unlike life
insurance. A could have just assigned his rights under policy in favor of B after the loss.

V.1 INSURABLE INTEREST ON A Mortgaged Property

30. Who may insure a mortgaged property?

Both the mortgagor and mortgage may insure the mortgage property as their interest may appear. It
is a settled that a mortgagor and mortgagee have a separate and distinct insurable interest in the
same mortgaged property.[26]

31. Differentiate the interest of a mortgagee and the mortgagor.

Both the mortgagee and the mortgagor have each as separate and distinct insurable interest in the
mortgaged property. They may procure separate policies with the same or different insurance
companies.[27]

a. The basis of insurable interest of the former is the loan by the debtor which is supported by its
property, whereas, the latter’s interest is based upon his ownership over the property.

b. The extent of insurable interest of the former’s insurable interest is the value of the property
mortgage, whereas, the latter’s extent of insurable interest is the extent of debt secured.

32. Glenn secured a loan from Jaypee in the amount of Php 10,000,000.00. As a guarantee for the loan,
Glenn mortgaged his house for worth the same amount to Jaypee. On the other hand, Jaypee insured
Glenn’s house for Php 10,000,000.00 which is equivalent to the value of the latter’s indebtedness to the
former. Six (6) months later, a fire occurred which burned Glenn’s house to the ground. Prior to that,
Glenn was able to pay-off the fifty (50%) of the loan already.

How much can Jaypee collect from the insurer?

Jaypee can collect Php 5,000,000.00 from the insurer. His insurable interest over Glenn’s mortgaged
property was reduced to 50% on account of the payments made by Glenn during the lifetime of the
policy. Accordingly, the payment by the insurer shall be reduced proportionately.

33. Is it possible for both Jaypee and Glenn insure the same property without violating the principle of
indemnity?

Yes. The basis of insurable interest of the Jaypee is the loan which is secured by the mortgagor’s
property, whereas, the Glenn’s interest is based upon his ownership over the property.

34. What are rules in case the insurance is taken by the mortgagor?

The rules are as follows:

a. A mortgagor may take an insurance payable either to: (1) himself, or (2) the mortgagee.

b. If the mortgagor takes an insurance for his own benefit, only he can recover from the insurer but
the mortgagee has a lien on the proceeds by virtue of the mortgage.

c. Where the mortgagor takes an insurance payable to the mortgagee or where the mortgagor
assigns the policy taken by him to the mortgagee, the legal effects are:

1. The insurance is still deemed to be upon the interest of the mortgagor.

2. The mortgagor does cease to be a party to the insurance contract.

3. Any act prior to the loss which would otherwise render the insurance null and void still renders it
null and void although the property is in the hands of the mortgagee and the proceeds are payable to
the mortgagee.

4. In case of loss, the mortgagee is entitled to the proceeds to the extent of his credit. The remaining
balance shall accrue in favor of the mortgagor.

5. Upon recovery by the mortgagee to the extent of his credit, the debt is extinguished and the
mortgagor is released from his indebtedness.[28]

35. What are the rules in case the insurance is taken by the mortgagee?

The rules are as follows:

a. The mortgagee is entitled to the proceeds of the policy in case of a loss to the extent of his credit.

b. If the proceeds are more than the total amount of this credit, the mortgagor has no right to collect
the balance.

c. If the proceeds are equal to the amount of the credit, the mortgagee can no longer recover the
mortgagor’s indebtedness since the insurer is subrogated to the mortgagee’s rights.

d. If the proceeds are less that the total amount of credit, the mortgagee can still recover from the
mortgagor for deficiency.

e. Upon payment, the insurer is subrogated to the rights of the mortgagee against the mortgagor to
the extent of the amount paid. The insurer can therefore collect the debt of the mortgagor to the
mortgagee. [29]

36. “A” owns a house valued at Php 50,000.00 which he had insured against fire for Php 100,000.00.
He obtained a loan from “B” in the amount of Php 100,000.00, and to secure payment thereof, he
executed a deed of mortgage on the house, but without assigning the insurance policy to the latter. For
“A”’s failure to pay the loan on maturity, “B” initiated a foreclosure proceedings and in the ensuing
public sale, the house was sold by the sheriff to “B” as highest bidder. Immediately upon issuance of the
sheriff’s certificate of sale in his favor, “B” insured the house against fire for Php 120,000.00 with another
insurance company. In order to redeem the house, “A” borrowed Php 100,000.00 from “C” and, as a
security device, he assigned the insurance policy of Php 100,000.00 to “C”. However, before “A” could
pay “B” his obligation of Php 100,000.00, the house was accidentally and totally burned.

Does “A”, “B” or “C” have any insurable interest in the house, if so, how much? May “A”, “B” or “C”
recover under the policies? If so, how much? (1982 Bar Examination)

Insofar as “A” is concerned, he has an insurable interest in the property as the owner thereof. At the
time of the loss, it was still within the redemption period, thus, the title has yet to be consolidated
under the name of the “B.” However, “A”’s insurable interest over the property is up to the actual
value of house which is Php 50,000.00. Since he is over-insured, he can seek reimbursement for the
excess premium paid to the insurer.

Insofar as “B” is concerned, he has an inchoate insurable interest in the property on account of the
foreclosure of the property in his favor. “B”’s insurable interest over the property amounts to Php
50,000.00 which is the actual value of house.

Insofar as C is concerned, he cannot recover under the policy since the assignment was made without
the prior consent of the insurer.

37. A owns a house worth P500,000. He insured it against fire for P250,000.00 for the period from
January 1, 1977 to January 1, 1978. At the instance of B, who is a judgment creditor of A, the said house
was levied upon by the sheriff and sold at a public auction on March 15, 1997.It was adjudicated to B
for P150,000 at the auction sale. B insured the house against fire for P150,000 for the period from March
16, 1977 to March 16, 1978. The house was accidentally burned on April 1, 1977.

May A recover under his policy? Give reasons.

May A recover under his policy? Give reasons. (1947 and 1974 Bar Examination)

Yes to both.

Insofar as A is concerned, he can recover since he is the owner of the property. While his property was
already sold at a public auction, the loss occurred within the one-year redemption period.

Insofar as B is concerned, he can also recover since he has an inchoate right over an existing right as
the auction buyer of the property. The extent of his insurable interest is equal to the amount he paid
at the auction.

38. “X” insured his house for Php 8,000.00 on September 1, 1972. The house is worth Php 20,000.00.
On said date “X” obtained a loan from “Y” and the latter insured the said house for Php 5,000.00 because
the total loan was without security. On September 10, 1978, “X” sold the house to “Y” without
transferring his policy to “Y.” On September 27, 1972, the house was totally burned by fire of accidental
origin. Can “X” and “Y” recover on their respective policies? Explain fully. (1972 Bar Examination)

Insofar as “X”’s policy, both “X” and “Y” cannot recover thereunder.

“X” cannot recover because he is no longer the owner of the property at the time of the loss, thus, he
lacks insurable interest.

“Y” cannot recover because “X’s” policy was not endorsed under his name. While he has insurable
interest by virtue of being the new owner thereof, he cannot claim against the policy of “X” for not
being a party thereto. He has no legal personality to file a claim against the policy.

Insofar as “Y”’s policy, “Y” cannot recover thereunder.

VI. PROXIMATE CAUSE

39. Define proximate cause.

Is efficient and dominant cause of the loss in a chain of continuous event, unbroken by any new
independent cause. Simply put, it is the ultimate cause of the loss. Under this principle, an insurance
contract will respond to a claim unless the peril covered is the proximate cause of the loss.

40. A marine insurance policy on a cargo states that “the insurer shall be liable for losses incident to
perils of the sea.” During the voyage, seawater entered the compartment where the cargo was stored
due to the defective drainpipe of the ship. The insured filed an action on the policy for recovery of the
damages caused to the cargo. May the insured recover damages? (1998 Bar Examination)

No. Perils of the sea refer to losses attributable to the unusual or extraordinary action of wind or
wave or to other extraordinary causes connected with navigation. Clearly, the defective drainpipe is
not a peril of the sea. It was incidental to ordinary usage of the ship. The proximate cause of the loss
not being a peril of the sea, the claim should be denied.

41. An insurance company issued a marine insurance policy covering a shipment by sea from
Mindoro to Batangas of 1,000 pieces of Mindoro garden stones “against total loss only”. The stones were
loaded in two lighters, the first with 600 pieces and the second with 400 pieces. Because of the rough
seas, damage was caused to the second lighter resulting loss of 325 out of the 400 pieces. The owner of
the shipment filed claims against the insurance company on the ground of constructive total loss as more
than three-fourths of the value of the stones had been lost in one of the lighters. (1992 Bar Examination)

Is the insurance company liable under its policy?

No. The insurance company is not liable to pay since its policy covers “total loss” claims only. The
contention of the insured regarding the existence of a constructive total loss is misplaced. While the
stones were loaded in two separate lighters, the subject matter did not become two (2) separate risks.
There is no constructive total loss since only 32.5% of the stones were lost.

42. What is/are the exceptions to the principle of proximate cause?

Under this principle, an insurance contract will not respond to a claim unless the peril covered is the
proximate cause of the loss. The exceptions are as follows:

a. If the proximate cause of the loss in an excluded peril under the policy.[30]

b. Loss by willful act or through the connivance of the insured