Insurance Law (Title 3 - Insurable Interest)
Is it necessary that the interest is such that the event insured against would necessarily subject the injured to loss?
No, it is sufficient that injury might do so and pecuniary injury would be a natural consequence
Who has an insurable interest in an equitable title?
Purchaser - before the delivery of the property Mortgagee - property mortgaged
What does an insurable interest in property consist of? (Sec. 14 - EIE)
An EXISTING interest; An INCHOATE interest founded on an existing interest; or An EXPECTANCY, coupled with an existing interest in that out of which the expectancy arises.
Who has an insurable interest in a legal title?
Trustee - in the case of the seller or property not yet (person given control or powers of administration of property in trust) Mortgagor - in the property mortgaged (one who borrows money from a lender to purchase a home or real estate) Lessor - in the property leased (grants a lease to someone) Lessee and sublessee Assignee of the property - for the benefit of the creditors
What is Section of 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: LOSS OF THE THING may cause liability to the carrier or depository to the extent of its value
What is an existing interest?
It is an interest in a property may be a legal title or equitable title.
What is the effect of absence of insurable interest in property insured?
-An insurance taken out by a person on property in which he has no insurable interest is VOID. -Where the insurance is invalidated on the ground that no insurable interest exists, the premium is ordinarily returned to the insured unless he is in pari delicto with the insurer. (see Arts. 1411, 1412, Civil Code)
What are the exceptions to the rule in change of interest? LASWTFE
1 ) In life, health, and accident insurance (Sec. 20) 2) A change of interest in the thing insured after the occurence of an injury which results in a loss (Sec. 21) 3) A change of interest in one or more of several things, separately insured by one policy (Sec. 22) 4) A change of interest by will or succession on the death of the insured (Sec. 23) 5) A transfer of interest by one of several partners, joint owners, or owners in common, who are jointly insured, to the others (Sec. 24) 6) When a policy is 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 (Sec. 57) 7) When there is an express prohibition against alienation in the policy, in case of alienation, the contract of insurance is not merely suspende but is avoided (Art. 1306 Civil Code, see Sec. 24)
Why is wagering or gaming policies void?
1) It is a mere bet upon a future event - on the ground of public policy, such policies have the tendency to create a desire for the event, and furnishing strong temptation to the party interested to bring about if possible the event insured against. 2) Non-existence of loss from occurrence of event - Wagers suffer no loss from the occurrence of the contingent event. But they even profit from it.
What is an equitable title?
A title derived through a valid contract or relation, and based on recognized equitable principles; the right in the party, to whom it belongs, to have the legal title transferred to him. (e.g., mortgaged property)
What happens to the change of interest in a thing insured after loss? (Sec. 21)
After a loss has happened, the liability of the insurer becomes fixed. The insured has a right to assign his claim against the insurer as freely as any other money claim. This right is absolute and cannot be delimited by agreement. (see Secs. 83, 173)
Can an expectation of loss or benefit be considered as insurable interest?
As a general rule, expectation of benefit to be derived from continued existence of property MUST HAVE A BASIS OF LEGAL RIGHT even without title, either legal or equitable, to the property insured.
Distinguish insurable interest in life and property
As to extent Life - Unlimited (Save in life insurance effected by creditor on life of debtor) Property - Limited to the actual value of the interest thereon. As to time Life - It is enough that insurable interest exist at the time the policy takes effect and need not to exist at the time of the loss. Property - It is necessary that insurable interest must exist when the insurance takes effect and when the loss occurs, but need not to exist in the meantime. As to expectation of benefits to be derived Life - The expectation of benefit to be derived from the continued existence of life need not to have any legal basis. A reasonable probability is sufficient without more. The benefit need not be pecuniary. Property - The expectation of benefit to be derived from the continued existence of property insured has a basis of legal right.
What is the rule if the property of testator still alive?
Before death of testator: Beneficiary in a will has NO INSURABLE INTEREST in the property designated. His expectation has no legal basis since the will has no legal basis since the will has no legal effect before the death of the testator. Before death of testator: He waived this right in the policy then BENEFICIARY WILL HAVE INSURABLE INTEREST.
What is the rule if the contract of property insurance gives more than indemnity against his actual loss?
Contract of insurance is one of indemnity. MEASURE: Any contract property insurance that gives to the insured MORE THAN INDEMNITY against his actual loss = (in the nature of a wagering policy) CONTRARY TO PUBLIC POLICY & VOID PURPOSE: To indemnify a person against actual loss, and not to wager on the happening of the event
What are the measure of indemnity in insurance contracts?
Contracts of marine or fire insurance - Amount of insurance is limited by the value of the interest to be protected - Based on valuation of the property - Principle of indemnity cannot be invoked by the insurer who agreed to repair or replace the thing insured with a new one Liability insurance contracts - Contracts of indemnity against liability and not against loss Life insurance contracts - Not a contract of indemnity - There is no fixed payable value for the life of a person - Life insurance is more of an investment that indemnification protection against loss. Personal accident insurance contracts - Not a contract of indemnity - BUT if it is a contract made by another person the amount recoverable can be determined by the loss sustained if the person insured gets into an accident Health insurance contracts - Not a contract of indemnity - EXCEPT those that cover medical expenses are considered to be contracts of indemnity Health care agreements - Primarily a contract of indemnity - Payment should be made to the party who incurred the expenses - Health Maintenance Organization (HMO) is in the nature of a non-life insurance which is primarily a contract of indemnity.
Can the doctrine of estoppel be invoked in the absence of an insurable interest in property insured?
Doctrine of Waiver or Estoppel - This doctrine cannot be invoked since the public has an interest in the matter independent of the consent or concurrence of the parties.
What is an insurable interest in property?
Every interest in property. Whether real or personal, or any relation thereto, or liability in respect thereof, such nature that a contemplated peril might directly damnify the insured.
Is a mere contingent or expectant interest insurable?
GENERAL RULE: Mere hope or expectancy of benefit which may be frustrated by the happening of some event uncoupled with any present legal right WILL NOT SUPPORT A CONTRACT OF INSURANCE
What is the general rule of Section 19 and is there an exception?
GR: Applicable only to insurance on property and not to life insurance EXCEPT that on the life of the debtor.
What is the rule in the property of debtor in relation to Section 16? What is the exception?
General or unsecured creditor cannot insure specific property of his debtor who is alive. An unsecured creditor may insure the property of a deceased debtor since all personal liability ceases with the death of the debtor. An unsecured creditor has an insurable interest in the life of his debtor to the extent of the amount of the debt.
What is the effect of change of interest where several things are separately insured by one policy?
If the things are "separately insured in one policy" the contract is divisible and the violation of a condition which avoids the policy with respect to one or more of the things does not affect the others. If the things are insured under one policy for a gross sum and for an entire premium, the contract is indivisible so that a change of interest in one or more of the things will also avoid the insurance as to the others.
When must an insurable interest exist in life insurance?
Insurable interest in Life Insurance must exist: At the time the policy is procured or took effect, even if it has ceased to exist at the time of the insured's death. 1) Life insurance is an investment 2) If a debtor whose life was insured by a creditor. Subsequently pays the debt, the insurance remains in force provided, the former creditor continues to pay the premiums. The policy would remain in force for the full year for which the premium was paid.
When must an insurable interest exist in liability insurance?
Insurable interest in liability Insurance must exist: When the liability of the insured to a third party attaches (See Sec 172). A party's potential liability to others provides the interest in securing liability insurance to protect himself from said liability.
When must an insurable interest exist in property?
Insurable interest in property must exist at two distinct times: 1) On the date of execution of the contract of insurance 2) On the date of the occurrence of the risk insured against. Otherwise, the policy is VOID. Reason: Property insurance is indemnity insurance.
What is a legal title?
Interest that is actual and material, direct and immediate, and not simply contingent or expectant; it must be in the matter in litigation and of such direct and immediate character that the intervenor will either gain or lose by the direct legal operation and effect of the judgment.
What is an inchoate interest?
It is only partly in existence and must be founded on an existing interest. Example is a stockholder His insurable interest is limited to the extend of the value of his interest or to his share in the distribution of the corporate assets upon dissolution. However the value of his stocks will be affected if company is damaged. He does not own or have actual title in the assets of the corporation.
Why is there an object of rule against alienation?
It is to provide against changes which might supply a motive to destroy the property, or might lessen the interest of the insured in protecting and guarding it
Does insurable interest need to exist during the intervening period? Why?
It is well settled that in the absence of special provision in the policy to the contrary, the alienation of insured property will not defeat a recovery if the insured subsequently reacquired the property and possess an insurable interest at the time of loss. - It is sufficient that insurable interest exist at the time the risk attaches. The obvious purpose of the provision is to prevent the issue of wagering policies.
What is an expectancy?
Mere expectancy, not enough Must be coupled with an existing interest in that out of which such expectancy arises Example: A farmer may insure future crops, if they are to be grown on his land or the land of another provided that the crops belong to him. An owner of a business can insure against a contingency which may cause loss of profits resulting from cessation or interruption of his business. Any binding contract giving rights which will be injuriously affected by the destruction of any designated property
What is mere factual expectation of loss? Does it equate to an insurable interest?
Mere factual expectation of loss is such expectation not arising from any legal right or duty in connection with the property, DOESN'T CONSTITUTE AN INSURABLE INTEREST. Example: Gas and hotel example pg. 117
What is the effect in general of change of interest? (Section 20)
Mere transfer of the thing insured does not transfer the policy but suspends it. The purchaser cannot recover in case of loss if he does not obtain a transfer of the policy insurance, neither can the insured, as he has sold the property and lost interest in it. Note: The contract is not rendered void but it is merely suspended by a change of interest. (take further note that this section refers to change in interest in the thing insured before loss has occurred.
Can a father or son insure the property which is expected to be inherited?
No, a father cannot insure his sons property nor can a son insure his father's property that he expects to inherit from his father as his interest in merely an expectancy of inheriting
Is it essential that the person must have a title or right to possess over the property in order to raise his insurable interest?
No, it is not essential. If HE WILL SUFFER LOSS as damage or destruction with respect to the property then he has an insurable interest. Unlike the Civil Law concept of jus 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 the insured has substantial economic interest in the property.
When must an insurable interest exist? (Section 19)
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.
What is Section 17 of Insurance Law?
SECTION 17. WThe measure of an insurable interest in property is the extent to which the insured might be damnified by loss or injury thereof
What are the provisions which cover the change of interest?
Sections 20, 21, 22, 23, and 24. It means absolute transfer of the property insured such as the conveyance of the property by means of an absolute deed of sale.
What are the stipulations prohibited in an insurance policy as provided under Section 25?
Stipulations prohibited: 1) Stipulation for the payment of loss whether the person insured has or has not any interest in the subject matter of the insurance and 2) that the policy shall be received as proof of insurable interest -- the insurer can always show lack of insurable interest after the issuance of a policy of insurance. 3) Wagering or gaming policies are void.
What else are the absolute right of the insured after loss in a change of interest? (Sec. 21)
The insured has also the absolute right to transfer the thing insured after the occurrence of the loss. Such change of interest does not affect his right to indemnity for the loss.
what is effect of transfer of interest by one of the several partners?
Transfer of interest to the others who are jointly insured will not avoid the insurance. RF: Each partner is interested in the whole property and the hazard is not increased because a purchasing partner has acquired a greater interest from a co-partner. XPN: where the policy contains the condition "that in case of any sale or transfer, or change of title of any property insured by this company, or any undivided interest therein, such insurance will be void and cease. Transfer to a stranger will avoid the policy. A sale by a partner of his interest to a stranger ends the contract of insurance as to him but does not affect the insurance as to the others.
What is the effect of change of interest by death of insured?
Under Section 23, the insurance on property passes automatically, on the death of the insured, to the heir, legatee or devisee who acquired interest in the thing insured. The rights to the succession are transmitted from the moment of the death of the decedent (Art.777, Civil Code).
How is divisibility of a contract determined?
Whether a contract is entire or severable is a question of intention to be determined by the language employed by the parties.
Can the life of parents/children/spouses be insured?
Yes, Family Code, Art. 195 Parents and children, and spouses can insure the life of each other. Since under the law, they are under mutual obligation to support each other, a life policy is held to be means of fulfilling that obligation or a means of saving the party entitled to support from being the subject of public charity.
Can an insurable interest be quantified?
Yes, an insurable interest can be quantified. Example: X Insured his property valued at 100,000 for 120,000. X Suffered a total loss. The amount of the insurance (P120,000) is not the amount payable in the event of loss but rather represents the maximum limit of the recovery of the insured. Note: Anything that reduces or diminishes the loss reduces the amount which the insurer is bound to pay.
Who has an insurable interest in property?
anyone has insurable interest in property who derives a benefit from its existence or would suffer loss from its destruction
What is factual expectation?
strong expectation of an occurrence resulting in a monetary interest that may or may not give rise to an insurable interest. **However, as provided for in the book it does not give rise to an insurable interest.
