Insurance 101

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 Prime 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 Prime? It is Php 3,500,000.00 or Php
4,000,000.00?
The insurer is liable to pay Optimus Prime 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 Prime can demand reimbursement of

the excess premium he paid to his insurer.
If Optimus Prime 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 Shire and Rivendale 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 Frodos 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 insurers share in the
loss, the computation shall be as follows:

Shire
Shire +Rivendale

multiply by the amount of loss = Shires 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 ones
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 Lloyds 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.
Lukes 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.

13.

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

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 stockholders interest in the property of the corporation and partners
interest in the partnerships property.
c. An expectancy coupled with an existing interest in that of which the expectancy
arises. An example of which a farmers 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.

Contractors interest in the completed building for unpaid construction cost;

b.

Lessors interest in the improvement made by the lessee;

c. Naked owners 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 ones 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 insurers 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 insureds 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 insurers 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 fathers 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 fathers 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 latters 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
Batmans 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 As 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 latters interest is based upon his ownership
over the property.
b. The extent of insurable interest of the formers insurable interest is the value of
the property mortgage, whereas, the latters 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 Glenns house for Php 10,000,000.00 which is
equivalent to the value of the latters indebtedness to the former. Six (6) months later, a
fire occurred which burned Glenns 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
Glenns 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
mortgagors property, whereas, the Glenns 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 mortgagors indebtedness since the insurer is subrogated to the
mortgagees 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 As 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 sheriffs
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, As
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. Bs 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 oneyear 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 Xs 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 Xs 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 Ys 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.[31]

Citations:
[1] Article 2207 of the New Civil Code
[2] Rizal Surety & Insurance Company vs. CA, 261 SCRA 69
[3] Aquino, Timoteo and Sundiang, Jose, Reviewer on Commercial Law. 2003 Edition, 52.
[4] Sveriges Angfartygs Assurans Forening vs Qua Chee Gan, 21 SCRA 12 [1959]
[5] Pan Malayan Insurance Co. vs. Court of Appeals, 184 SCRA 54 [1990]
[6] Fieldmens Insurance Co., Inc. vs. Vda. De Songco, 25 SCRA 70 [1968]
[7] Insurance Code of the Philippines, Section 31
[8] Musngi vs. West Coast Life Ins. Co, 61 Phil. 864 [1939]
[9] Argente vs. West Coast Life Ins. Co,51 Phil. 725 [1928]
[10] St. Ferdinand Memorial Park, Inc. vs. Great Pacific Life Assurance Corp., I.C. Case
Nov. 20 [ 1977]
[11] Canilang vs. Court of Appeals, 42 SCAD 455, 223 SCRA 443 [1993]
[12] De Leon vs. Crown Life Ins. Co., C.A. L-44842 [1993]
[13] Sunlife Assurance Co. of Canada, 64 SCAD 24, 245 SCRA 268 [1995]
[14] Insurance Code of the Philippines, Section 18.

[15] Insurance Code of the Philippines, Section 25.

[16] De Leon, Hector. The Insurance Code of the Philippines Annotated. 2002 Edition: 87
[17] C.J. 1110 citing Hamburg-Bremen P. Ins. Co. vs. Lewis, 4 App. 66
[18] Insurance Code of the Philippines, Section 15.
[19] Insurance Code of the Philippines, Section 10.
[20] Insurance Code of the Philippines, Section
[21] Miravite, Jorge. Bar Review Materials in Commercial Law. 11th Edition, 135.
[22] Insurance Code of the Philippines, Section 17.
[23] Spouses Nilo Cha vs. Court of Appeals, SCRA [August 18, 1997]
[24] Insurance Code of the Philippines, Section 21
[25] Filipino Merchants Insurance Co. vs. Court of Appeals, G.R. 85144 [November 28,
1989]
[26] RCBC vs. Court of Appeals, 298 SCRA 292 [1998]
[27] Rodriguez, Rufus. The Insurance Code of the Philippine Annotated Cite Edition. 27.
[28] Rodriguez, Rufus. The Insurance Code of the Philippines Annotated. 30.
[29] Insurance Code of the Philippines, Section 33.
[30] Insurance Code of the Philippines, Section 86.
[31] Insurance Code of the Philippines, Section 87.