A.
Definition and Purpose
1. Definition of an Insurance Contract:
Sec. 2 (1) A contract of insurance is an agreement whereby one undertakes for a consideration to
indemnify another against loss, damage or liability arising from an unknown or contingent event.
A contract of suretyship shall be deemed to be an insurance contract, within the meaning of this Code,
only if made by a surety who or which, as such, is doing an insurance business as hereafter provided.
Criticism: Doesnt cover life insurance which is a contract upon condition rather than to
indemnify (loss of life is beyond pecuniary value).
Better definition: A contract of insurance is an agreement by which one party (insurer) for a
consideration (premium) paid by the other party (insured), promises to pay money or its
equivalent or to do some act valuable to the latter (or his nominee), upon the happening of a
loss, damage, liability, or disability arising from an unknown or contingent event.
2. May not be waived
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.
1. A policy issued to a person without interest in the subject matter of the contact is considered a
mere wager policy/contract - VOID
Wager policy a pretended insurance where the insured has no interest in the thing insured and
can sustain no loss by the happening of the misfortunes insured against.
Requirement cannot be waived by the parties.
Exception: In cases mentioned in Sec. 181 regarding life insurance.
2. WON insurable interest exists does not depend on the contract of insurance or the stipulations
therein.
Defense of absence of insurable interest is available to the insurer alone, being the party who
has a legitimate interest in raising the defense.
3. Wagering and gaming policies void on the ground of public policy.
They have a tendency to create a desire for the event, and furnish strong temptation to the
party interested to bring about if possible the event insured against.
Wagers suffer no loss from the occurrence of the contingent event. On the contrary, they profit
from it.
B. Insurable interest in life/health
Sec. 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 art 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.
Insurable interest it is that interest which the law requires the owner of an insurance policy to have in
the person or thing insured.
Pecuniary A person has insurable interest if he will derive pecuniary or financial benefit from
its preservation and will suffer pecuniary loss or damage from its destruction, termination or
injury by the happening of the event insured against.
Exception: Life insurance. To have an insurable interest in the life of a person, the expectation of
benefit from the continued life need not necessarily be of pecuniary nature.
Existence of insurable interest is a requirement. Otherwise, contract of insurance will be void for
being a wager or gamble.
Requirement as:
1. A deterrence to the insured: wager policy contrary to public interest.
2. A measure of limit of recovery: insurable interest will be the measure of the upper limit of the
provable loss. The insurance should not provide the insured with the means of making a net profit from
the happening of the event insured against.
Two classes of life policies:
1. Insurance upon ones self upon his own life, for the benefit of himself, or his estate, or for the
benefit of a third person who may be designated as beneficiary (not necessary that the beneficiary
designated has any interest in the life of insured)
a. Insurance taken out by insured on his life for the benefit of another
Insurable interest required as evidence of good faith.
Mere fact that a man on his own motion insures his life for the benefit of another sufficient
evidence of good faith.
b. Insurance regarded as wager policy when it has been taken out by the insured on his life at the
behest of a third person who is named as beneficiary.
Evidence of a wagering policy:
1. That the original proposal to take out insurance was that of the beneficiary;
2. That premiums are paid by the beneficiary; and
3. That the beneficiary has no interest, economic or emotional, in the continued life of the insured.
2. Insurance upon life of another
a. Insurance for benefit of insured
A person cannot lawfully procure insurance for his own benefit on the life of another in whose
life he has no insurable interest. Insurable interest must be a pecuniary one.
Policy of the law requires that the insured shall have an interest to preserve the life insured in
spite of the insurance, rather than destroy it because of the insurance.
b. Insurance for benefit of a third party
When the owner of the policy insures the life of another and designates a third party as
beneficiary, both the owner and the beneficiary must have an insurable interest in the life of the
third party.
To have an insurable interest in the life of another:
Must be one of those mentioned in Sec. 10 i.e. interest is pecuniary or founded upon the close
relationship between the parties. Mere fact that two persons are engaged to be married does
not give rise to an insurable interest.
Insurable interest by reason of blood relationship (under FC, Art. 195):
1. Spouses
2. Legitimate ascendants and descendants
3. Parents and their legitimate children and the legitimate or illegitimate children of the latter;
4. Parents and their illegitimate children and the legitimate or illegitimate children of the latter;
5. Legitimate brothers and sisters, whether of the full or half-blood.
6. Brothers and sisters not legitimately related, only when the need for the support of the brother
or sister, being of age, is due to cause imputable to the claimants fault or negligence.
Insurable interest by pecuniary benefit:
A risk of actual monetary loss from ones death. The expectation, however, need not have legal basis
whatever; it is sufficient that it be actual.
Insurable interest under a legal obligation:
1. Related by contract or commercial relation employer to employee, corporation to its manager,
partner to his co-partner, partnership to each partner, and surety to its principal.
2. Risk that performance of obligation might be delayed or prevented in the instances mentioned
above, it must appear that the death or illness of the insured person who is under a legal obligation,
might delay or prevent its performance.
Insurable interest of creditor in the life of his debtor:
A creditor may insure his debtors life for the purpose of protecting his debt but only to the
extent of the amount of the debt and the cost of carrying the insurance on the debtors life. An
amount excessively disproportionate might justify the conclusion that the policy is merely a
wagering or speculative one.
Insurance does not inure to the benefit of the debtor unless contrary is expressly stipulated.
Where a debtor in good faith insures his life for the benefit of the creditor, full payment of the
debt does not invalidate the policy, in such case, the proceeds should go to the estate of the
debtor.
Insurable interest in life of person upon which an estate or interest depends:
One may insure the life of a person where the continuation of the estate or interest vested in him who
takes the insurance depends upon the life insured.
CONSENT OF THE PERSON INSURED IS NOT ESSENTIAL TO THE VALIDITY OF THE POLICY.
C. Insurable interest in property
1. Definition
Sec. 13 Every insurable 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.
1. in the property itself (ownership)
2. any relation thereto (trustee or a commission agent)
3. liability in respect thereof (carrier or depository of goods)
Occurrence of loss may be uncertain it is sufficient that the even insured against might subject
the insured to loss and that pecuniary injury would be the natural consequence.
Title or right to possession is not essential.
Legal expectation of loss or benefit Expectation of benefit to be derived from the continued
existence of property must have a basis of legal right, although the person insured has no title,
either legal or equitable, to the property insured.
Mere factual expectation of loss does not constitute an insurable interest.
2. Enforceability when no insurable interest
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.
Insurance taken out by a person on property in which he has no insurable interest is void.
3. In what it may consist of
Sec. 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 n that out of which the expectancy arises.
4. Of expectancy
Sec. 16 A mere contingent or expectant interest in anything, not founded on an actual right to the
thing, nor upon any valid contract for it, is not insurable.
Property that is expected to be inherited cannot be insured since interest is merely an
expectancy of inheriting.
An unsecured creditor cannot insure the property of his debtor who is still alive.
Beneficiary has no insurable interest in a property designated while testator is still alive.
5. Measure of insurable interest in property
Sec. 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.
Reason: the loss of the thing may cause liability to the carrier or depository to the extent of its value.
Sec. 17 The measure of an insurable interest in property is the extent to which the insured might
be damnified by loss or injury thereof.
Any contract of property insurance that gives to the insured more than indemnity against his actual loss
that may be suffered by the happening of the event insured against is in the nature of a wagering policy
which is void.
6. When should insurable interest exist
Sec. 19 An interest in property insured must exist when the insurance takes effect, and when the loss
occurs, but 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.
Insurable interest in property must exist on:
1. Execution of the contract of insurance
2. Occurrence of the risk insured against
Insurable interest in life must exist on:
1. Procurement of the policy, even of it has ceased to exist at the time of the insureds death\
Need not exist in the meantime
Alienation of insured property will not defeat a recovery if the insured has subsequently reacquired the
property and possesses and insurable interest at the time of loss.
INSURABLE INTEREST IN LIFE INSURABLE INTEREST IN PROPERTY
Unlimited (except in life insurance effected by
creditor on life of debtor)
Limited to the actual value of interest thereon
Sufficient that insurable interest exists at the time
the policy takes effect; need not exist at the time
of the loss
Necessary that insurable interest exists at the time
when insurance takes effect and when the loss
occurs, but need not exist in the meantime
Expectation of benefit to be derived from the
continued existence of life need not have any legal
basis whatever.
Reasonable probability sufficient.
Expectation of benefit to be derived from the
continued existence of the property must have a
legal basis.
If such legal basis exists, an expected benefit,
however remote, constitutes an insurable interest.
