An Outline of the Insurance Code

Republic Act No. 10607 (Amending Presidential Decree 612)

C. Insurable Interest

vi. When insurable interest must exist

- 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.

v. Effect of change of interest

- 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.

- 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.

- 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.

- 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.

vi. Assignment of insurance policies

San Miguel Brewer vs. Law Union and Rock Insurance Co., 40:6

- INSURANCE; INSURABLE INTEREST; EXTENT OF RECOVERY BY

MORTGAGEE.·A brewery company, as mortgagee of real property, procured a
policy of insurance to be written thereon payable to itself, in case of loss. The
insurer was notified that the brewery was merely a mortgagee, but no
information was asked or given as to the personality of the owner. Held: That
 the brewery company had an insurable interest but could recover on the
policy only to the extent of the credit secured by the mortgage.

- SALE OF INSURED PROPERTY; SUSPENSION OF INSURANCE.·A

purchaser of insured property who does not take the precaution. to obtain a
transfer of the policy of insurance cannot, in case of loss, recover upon such
contract, as the transfer of the property has the effect of suspending the
insurance until the purchaser becomes owner of the policy as well as of the
property insured.

- MlSTAKE OF PARTIES IN EXPRESSION OF INTENTION;

REFORMATION.·If during the negotiations leading up to the writing of a policy
of insurance the contracting parties agree that the insurance shall be so
written as to protect not only the interest of the applicant for the policy, as
mortgagee, but also the residuary interest of the owner, and the policy is, by
inadvertence, ignorance, or mistake, so written as to protect only the interest
of the applicant, the court has the power to reform the contract and give
effect to it in the sense in which the parties intended to be bound.

- CERTAINTY OF PROOF REQUIRED.·In order to justify the

reformation of a contract of insurance on the ground of failure of the
contract to express the intention of the contracting parties, the proof must
be of the most satisfactory character, and it must be made clearly to appear
that the minds of the contracting parties did actually meet in agreement and
that there was some mutual mistake in the expression of their purpose.

Central Surety & Insurance Co. vs. Silva, (CA) O.G. No. 2, Jan. 31, 1958,
p.376:

- the mere delivery of an insurance policy or the assignment of the receipts

thereunder cannot be construed as payment in just the same way that
delivery of other mercantile and negotiable instruments do not constitute
payment until the proceeds are realized in accordance with Article 1249 of
the Civil Code. The reason is that an insurance policy is but an evidence of a
right to claim indemnification for loss occasioned by the risk insured against.

vii. Correct estimation of risk

- The correct estimation of the risk which enables the insurer to decide
whether he is willing to assume it, and if so, at what rate or premium
viii. Delimitation of the risk

- The precise delimitation of the risk which determines the extent of the
contingent duty to pay undertaken by the insurer

ix. Control of the risk

- Such control of the risk after it is assumed as will enable the insurer to
guard against the increase of the risk because of change in conditions

x. Concealment

Musgni vs. West Coast Life Insurance Company, 61:804

- CONTRACTS OF INSURANCE; STATEMENT OF FALSE

CONSIDERATION.·The question raised for our determination is whether the
two answers given by the insured in his applications are false, and if they
were the cause, or one of the causes, which induced the def endant to issue
the policies. On the first point, the f acts set out leave no room for doubt. The
insured knew that he had suffered from a number of ailments, including
incipient pulmonary tuberculosis, before subscribing the applications, yet he
concealed them and omitted the hospital where he was confined as well as
the name of the lady physician who treated him. That this concealment and
the false statements constituted fraud, is likewise clear, because the
defendant by reason thereof accepted the risk which it would otherwise have
flatly refused.

- NULLITY ; APPLICABILITY OF CIVIL LAW.·When not otherwise specially

provided for by the Insurance Law, the contract of life insurance is governed
by the general rules of the civil law regarding contracts. Article 1261 of the
Civil Code provides that there is no contract unless there should be, in
addition to consent and a definite object, a consideration for the obligation
established. And article 1276 provides that the statement of a false
consideration shall render the contract void.

Argente vs. West Coast Life Insurance Company, 51:275

- INSURANCE; CONCEALMENT AS GROUND FOR RESCISSION OF

CONTRACT OF INSURANCE; SECTION 25 OF THE INSURANCE ACT APPLIED
AND CONSTRUED.·One ground for the rescission of a contract of insurance
under the Insurance Act is "a concealment/' which in section 25 is defined as
"A neglect to communicate that which a party knows and ought to
communicate." Applied to the facts, it is held that the concealment was
material and sufficient to avoid the policy. It can fairly be assumed that had
the true facts been disclosed by the assured, the insurance would never have
been granted.

- The basis of the rule vitiating the contract in cases of concealment is

that it misleads or deceives the insurer into accepting the risk, or accepting it
at the rate of premium agreed upon. The insurer, relying upon the belief that
the assured will disclose every material f act within his actual or presumed
knowledge, is misled into a belief that the circumstance withheld does not
exist, and he is thereby induced to estimate the risk upon a false basis that it
does not exist. The principal question, therefore, must be, Was the assurer
misled or deceived into entering a contract obligation or in fixing the
premium of insurance by a withholding of material information or facts
within the assured's knowledge or presumed knowledge?

- SECTION 47 OF THE INSURANCE ACT APPLIED AND CONSTRUED.·Section

47 of the Insurance Act providing "Whenever a right to rescind a contract of
insurance is given to the insurer by any provision of this chapter, such right
must be exercised previous to the commencement of an action on the
contract" was derived from section 2583 of the California Civil Code, but in
contrast thereto, makes use of the imperative "must" instead of the
permissive "may."

- A failure to exercise the right of rescission cannot prejudice any defense

to the action which the concealment may furnish

- Where any of the material representations are false, the insurer's

tender of the premium and notice that the policy is canceled, before the
commencement of suit thereon, operate to rescind the contract of insurance,
and are a sufficient compliance with the law.

De Leon vs. Crown Life Ins. Co., C.A. GR 44842

- there was concealment where applicant did not disclose he had

pneumonia, diabetesor syphilis which avoided the insurance policy although
the cause of death was totally unconnected to the material fact
misrepresented.
Insular Life Ass. Vs. Pineda, CA GR 43967:

- in the absence of evidence of the uninsurability of a person afflicted

with chronic cough,concealment thereof is no ground for annulment of the
policy.

Yu Pang Cheng vs. CA, GR No. L-12465, May 29, 1959

- INSURANCE; WORDS AND PHRASES; "CONCEALMENT."·"A neglect to

communicate that which a party knows and ought to communicate is called
concealment." (Section 25, Act No. 2427.)

- CONCEALMENT AS GROUND FOR RESCESSION OF CONTRACT.·Whether

intentional or unintentional the concealment entitles the insurer to rescind
the contract of insurance. (Section 26 of Act No. 2427.)

- DUTY OF INSURED TO COMMUNICATE ALL FACTS TO INSURER.·The

insurance law requires the insured to communicate to the insurer all facts
within his knowledge which are material to the contract and which the other
party has not the means of ascertaining (Section 27), and the materiality 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
(Section 30 of Act 2427.)

Saturnino vs. Philamlife, 7 SCRA 316

- Insurance; Non-medical insurance; Medical history material to

insurability of applicant.·In non-medical insurance, the waiver of medical
examination renders even more material the information required of the
applicant concerning previous condition of health and diseases suffered, for
such information necessarily constitutes an important factor which the
insurer takes into consideration in deciding whether to issue the policy or
not.

- Concealment of previous operation.·The concealment of the fact of the

operation itself is fraudulent, as there could not have been any mistake about
it, no matter what the ailment.

- Concealment, whether intentional or unintentional; Ground for

rescission.·In this jurisdiction, a concealment, whether intentional or
unintentional, entitles the insurer to rescind the contract of insurance,
concealment being defined as „negligence to communicate that which a
 party knows and ought to communicate‰ (Sections 24 and 26, Act No.
2427).

xi. Duty to Disclose

- A neglect to communicate that which a party knows and ought to

communicate, is called a concealment.

- A concealment whether intentional or unintentional entitles the injured

party to rescind a contract of insurance

- Each party to a contract of insurance must communicate to the other, in

good faith, all facts within his knowledge which are material to the contract and
as to which he makes no warranty, and which the other has not the means of
ascertaining

- 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.