Concept of insurable interest in general
A person has an insurable interest in the subject matter if he is so connected, so situated, so circumstanced, so related, that by the preservation of the property he shall derive pecuniary benefit, and by its destruction he shall suffer pecuniary loss, damage or prejudice.
A policy issued to a person without the requisite insurable interest in the subject matter is a mere wager policy or contract, hence it is VOID.
Insurable interest in life insurance
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 part for education or support, or in whom he has a pecuniary interest;
A risk of actual monetary loss is essential, it is not necessary that the expectation of pecuniary benefits have legal basis.
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.
When it should exist: Insurable interest in the life of another need exist only at the time of perfection of the contract and need not exist thereafter or when the loss occurs
Amount: No limit in the amount the insured can insure his life except in a creditor-debtor relationship where the creditor insures the life of his debtor, (the limit of insurable interest is equal to the amount of the debt)
When insurance taken by the creditor on the life of the debtor for the benefit of the creditor: An insuring creditor could only recover such amounts as remain unpaid at the time of the death of the debtor. If the whole debt has already been paid, recovery on the policy by the creditor is no longer possible. Neither can the debtor recover for he is not a privy to the contract of insurance taken.
When insurance taken by debtor n his life for the benefit of the creditor: If at the time of the death of the debtor the whole debt has already been paid, the creditor can no longer recover on the policy because the principle of indemnity applies. Where the debtor in good faith insures his life for the benefit of the creditor, full payment of the debt does not invalidate the policy, in suh case, the proceeds shall go to the estate of the debtor.
When the debt becomes legally unenforceable, by reason of being barred b the statute of limitations or of a debtor’s discharge of insolvency, it does not cut off the insurable interest of the creditor.Reason: the moral or equitable obligation of
a debtor to pay his debt is not destroyed by the discharge which affects only the legal obligation to pay.
Consent of a person whose life is insured is not essential to the validity of the insurance taken by another, as long as the insured has a legal insurable interest at the inception of the policy, the insurance contract is VALID.
Insurable interest in property insurance
Every interest in property whether real or personal, or any relation thereto, or liability in respect thereof, of such nature that the contemplated peril might directly damnify the insured (Sec. 13), which may consist in:
a. an existing interest
An existing interest may be legal title or equitable title.
b. any inchoate interest founded on an existing interest; or
A stockholder has an inchoate interest in the property of the corporation of which he is the stockholder which is founded on an existing interest arising from his ownership of shares in the corporation. c. an expectancy coupled with an existing
interest in that out of which the expectancy arises.
The measure of insurable interest in property is the extent to which the insured might be damnified by loss or injury thereof.
When it should exist: When the insurance takes effect and when the loss occurs, but need not exist in the meantime
Amount: The measure of insurable interest in property is the extent to which the insured might be damnified by loss or injury thereof (Section 17)Reason: this is because a contract of
property insurance that gives the insured more than the indemnity of his actual loss suffered by reason of the designated perils is a wagering policy contrary to public policy, hence, VOID. INSURABLE INTER EST IN LIFE INSURABLE INTEREST IN PROPERTY
Must exist only at the time the policy takes effect and need not exist at the time of loss
Must exist at time the policy takes effect and when the loss occurs
Insurable interest unlimited except in life insurance effected by creditor on life of debtor
Insurable interest limited to actual value of interest in property insured The expectation of benefit to be derived from the continued existence of life need not have any legal basis whatever. A reasonable probability is sufficient without more. An expectation of a benefit to be derived from the continued existence of the property insured must have a legal basis.
The beneficiary need not have an insurable interest over the life of the insured if the insured himself secured the policy. However, if the life insurance was obtained by the beneficiary, the latter must have an insurable interest over the life of the insured.
The beneficiary
must have
insurable interest over the thing insured.
Insurable interest in case of a carrier or depository
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 (Section 15)Reason: the loss of the thing by the carrier
or depositor may cause liability against them to the extent of its value.
Insurable interest in case of mortgaged property
The mortgagor and the mortgagee each have an insurable interest in the property mortgaged and this interest is separate and distinct from each other. Therefore, insurance taken by one in his name and in his favor alone, does not inure to the benefit of the other.
a. Mortgagor: as the owner, has an insurable interest to the extent of its value, even though the mortgage debt equals such value.
Reason: the loss or destruction of the property insured will not extinguish the mortgage debt
b. Mortgagee: his interest is only up to the extent of the debt. Such interest continues until the mortgage debt is extinguished. Reason: property relied on as mortgaged is only a security. In insuring the property, he is not insuring the property itself but only his interest or lien thereon.
In case if an insurance taken by the mortgagee alone and for his benefit, the mortgagee, after recovery from the insurer, is not allowed to retain his claim against the mortgagor, but it passes by subrogation to the insurer to the extent of the insurance money paid. (Palileo v. Caltex, 97 PHIL 919)
The lessor cannot be validly a beneficiary of a fire insurance policy, taken by a lessee over his merchandise, and the provision in the lease contract providing for such automatic assignment is void for beingcontrary to law and public policy. (Cha v.
CA, 227 SCRA 690) STANDARD OR UNION MORTGAGE CLAUSE OPEN OR LOSS PAYABLE MORTGAGE CLAUSE the subsequent acts of the mortgagor cannot affect the rights of the assignee
the mortgagor does not cease to be a party to the contract. Thus, the acts of the mortgagor affect the mortgagee (Secs. 8 and 9)
Effects of Loss Payable Clause:
1. the contract is deemed to be upon the interest of the mortgagor; hence, he does not cease to be a party to the contract; 2. any act of the mortgagor prior to the loss which would otherwise avoid the insurance affects the mortgagee even is the property is in the hands of the mortgagee.
3. any act, which under the contract of insurance is to be performed by the mortgagor, may be performed by the mortgagee with the same effect
4. in case of loss, the mortgagee is entitled to the proceeds t the extent of his credit 5. upon recovery of the mortgagee to the extent of his credit, his debt is extinguished The rule on subrogation by the insurer to the right of the mortgagee does not apply in this case.
Reason: premium payment has been paid
by the mortgagor and not by the mortgagee.
Mortgage Redemption Insurance - a life
insurance taken pursuant to a group mortgage redemption scheme by the lender of money on the life of a mortgagor, who mortgages the house constructed to the extent of the mortgage indebtedness, such that if the mortgagor dies, the proceeds of his life insurance will be used to pay for his indebtedness and the deceased’s heirs will thereby be relieved from paying the unpaid balance of the loan. (Great Pacific Life
Assurance Corp. v. CA, 316 SCRA 677) Transfer of Interest
1. Life Insurance - It can be transferred even
without the consent of the insurer except when there is a stipulation requiring the consent of the insurer before the transfer.
Reason: the policy does not represent a personal agreement between the insured and the insurer.
Is the consent of the beneficiary necessary to the assignment of a life insurance policy?
It depends.
If the designation of the beneficiary is
irrevocable, the beneficiary’s consent if essential
because of his vested right.
If the designation is revocable, the policy may be assigned without such consent because the beneficiary only has a mere expectancy to the proceeds.
2. Property Insurance - It cannot be transferred
without the consent of the insurer.
Reason: the insurer approved the policy based on the personal qualifications and the insurable interest of the insured.
3. Casualty Insurance - It cannot be transferred
without the consent of the insurer
Effect of change in interest in the thing insured
General Rule: suspends the insurance until the interests in the thing and the interest in the insurance are vested in the same person. (Sec. 20)
Exceptions:
a. In life, health and accident insurance;
b. Change in interest in the thing insured after
occurrence of an injury which results in a loss; Reason: after the loss has happened, the liability of the insurer becomes fixed. Therefore, the insured has the right to assign his claim against the insurer as any other money claim.
c. Change in interest in one or more of several
distinct things separately insured by one policy; Reason: contract is divisible
d. Change of interest, by will or succession, on
the death of the insured;
Reason: upon death, the contract f insurance passes automatically to the heir, legatee or
devisee of the insured.
e. Transfer of interest by one of several partners,
joint owners, or owners in common, who are jointly insured, to others;
Reason: no new party is brought to the insurance contract. It is alienation to a stranger that will avoid the policy.
f. 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
g. When there is an express prohibition against
alienation in the policy, in case of alienation, the contract of insurance is not merely suspended but avoided.
IV. POLICY OF INSURANCE