Insurance Case Digests

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Great Pacific Life vs. CA
316 SCRA 677 (1999)

o

INSURANCE LAW: Parties in Insurance Contract

FACTS:
Great Pacific Life Assurance Corporation (Grepalife) executed a contract of group life insurance with Development Bank of
the Philippines (DBP) wherein Grepalife agreed to insure the lives of eligible housing loan mortgagors of DBP.
One such loan mortgagor is Dr. Wilfredo Leuterio. In an application form, Dr. Leuterio answered questions concerning his
test, attesting among others that he does not have any heart conditions and that he is in good health to the best of his
knowledge.
However, after about a year, Dr. Leuterio died due to “massive cerebral hemorrhage.” When DBP submitted a death claim
to Grepalife, the latter denied the claim, alleging that Dr. Leuterio did not disclose he had been suffering from hypertension,
which caused his death. Allegedly, such non-disclosure constituted concealment that justified the denial of the claim.
Hence, the widow of the late Dr. Leuterio filed a complaint against Grepalife for “Specific Performance with Damages.” Both
the trial court and the Court of Appeals found in favor of the widow and ordered Grepalife to pay DBP.
ISSUE:

o

Whether the CA erred in holding Grepalife liable to DBP as beneficiary in a group life insurance contract from a
complaint filed by the widow of the decedent/mortgagor

HELD:
The rationale of a group of insurance policy of mortgagors, otherwise known as the “mortgage redemption insurance,” is a
device for the protection of both the mortgagee and the mortgagor. On the part of the mortgagee, it has to enter into such
form of contract so that in the event of the unexpected demise of the mortgagor during the subsistence of the mortgage
contract, the proceeds from such insurance will be applied to the payment of the mortgage debt, thereby relieving the heirs
of the mortgagor from paying the obligation. In a similar vein, ample protection is given to the mortgagor under such a
concept so that in the event of death, the mortgage obligation will be extinguished by the application of the insurance
proceeds to the mortgage indebtedness. In this type of policy insurance, the mortgagee is simply an appointee of the
insurance fund. Such loss-payable clause does not make the mortgagee a party to the contract.
The insured, being the person with whom the contract was made, is primarily the proper person to bring suit thereon.
Subject to some exceptions, insured may thus sue, although the policy is taken wholly or in part for the benefit of another
person, such as a mortgagee.
And since a policy of insurance upon life or health may pass by transfer, will or succession to any person, whether he has
an insurable interest or not, and such person may recover it whatever the insured might have recovered, the widow of the
decedent Dr. Leuterio may file the suit against the insurer, Grepalife.

RCBC v. CA - Insurance Proceeds

289 SCRA 292 (1998)
Facts:
> GOYU applied for credit facilities and accommodations with RCBC. After due evaluation, a credit facility in
the amount of P30 million was initially granted. Upon GOYU's application increased GOYU's credit facility to
P50 million, then to P90 million, and finally to P117 million
> As security for its credit facilities with RCBC, GOYU executed two REM and two CM in favor of RCBC, which
were registered with the Registry of Deeds at. Under each of these four mortgage contracts, GOYU committed
itself to insure the mortgaged property with an insurance company approved by RCBC, and subsequently, to
endorse and deliver the insurance policies to RCBC.
> GOYU obtained in its name a total of 10 insurance policies from MICO. In February 1992, Alchester
Insurance Agency, Inc., the insurance agent where GOYU obtained the Malayan insurance policies, issued nine
endorsements in favor of RCBC seemingly upon instructions of GOYU
> On April 27, 1992, one of GOYU's factory buildings in Valenzuela was gutted by fire. Consequently, GOYU
submitted its claim for indemnity.
> MICO denied the claim on the ground that the insurance policies were either attached pursuant to writs of
attachments/garnishments issued by various courts or that the insurance proceeds were also claimed by other
creditors of GOYU alleging better rights to the proceeds than the insured.
> GOYU filed a complaint for specific performance and damages. RCBC, one of GOYU's creditors, also filed
with MICO its formal claim over the proceeds of the insurance policies, but said claims were also denied for the
same reasons that AGCO denied GOYU's claims.
> However, because the endorsements do not bear the signature of any officer of GOYU, the trial court, as well
as the Court of Appeals, concluded that the endorsements are defective and held that RCBC has no right over
the insurance proceeds.

Issue:
Whether or not RCBC has a right over the insurance proceeds.

Held:
RCBC has a right over the insurance proceeds.
It is settled that a mortgagor and a mortgagee have separate and distinct insurable interests in the same
mortgaged property, such that each one of them may insure the same property for his own sole benefit. There
is no question that GOYU could insure the mortgaged property for its own exclusive benefit. In the present
case, although it appears that GOYU obtained the subject insurance policies naming itself as the sole payee,
the intentions of the parties as shown by their contemporaneous acts, must be given due consideration in order
to better serve the interest of justice and equity.

It is to be noted that 9 endorsement documents were prepared by Alchester in favor of RCBC. The Court is in a
quandary how Alchester could arrive at the idea of endorsing any specific insurance policy in favor of any
particular beneficiary or payee other than the insured had not such named payee or beneficiary been

specifically disclosed by the insured itself. It is also significant that GOYU voluntarily and purposely took the
insurance policies from MICO, a sister company of RCBC, and not just from any other insurance company.
Alchester would not have found out that the subject pieces of property were mortgaged to RCBC had not such
information been voluntarily disclosed by GOYU itself. Had it not been for GOYU, Alchester would not have
known of GOYU's intention of obtaining insurance coverage in compliance with its undertaking in the mortgage
contracts with RCBC, and verify, Alchester would not have endorsed the policies to RCBC had it not been so
directed by GOYU.

On equitable principles, particularly on the ground of estoppel, the Court is constrained to rule in favor of
mortgagor RCBC. RCBC, in good faith, relied upon the endorsement documents sent to it as this was only
pursuant to the stipulation in the mortgage contracts. We find such reliance to be justified under the
circumstances of the case. GOYU failed to seasonably repudiate the authority of the person or persons who
prepared such endorsements. Over and above this, GOYU continued, in the meantime, to enjoy the benefits of
the credit facilities extended to it by RCBC. After the occurrence of the loss insured against, it was too late for
GOYU to disown the endorsements for any imagined or contrived lack of authority of Alchester to prepare and
issue said endorsements. If there had not been actually an implied ratification of said endorsements by virtue of
GOYU's inaction in this case, GOYU is at the very least estopped from assailing their operative effects.

To permit GOYU to capitalize on its non-confirmation of these endorsements while it continued to enjoy the
benefits of the credit facilities of RCBC which believed in good faith that there was due endorsement pursuant
to their mortgage contracts, is to countenance grave contravention of public policy, fair dealing, good faith, and
justice. Such an unjust situation, the Court cannot sanction. Under the peculiar circumstances obtaining in this
case, the Court is bound to recognize RCBC's right to the proceeds of the insurance policies if not for the actual
endorsement of the policies, at least on the basis of the equitable principle of estoppel.

GOYU cannot seek relief under Section 53 of the Insurance Code which provides that the proceeds of
insurance shall exclusively apply to the interest of the person in whose name or for whose benefit it is made.
The peculiarity of the circumstances obtaining in the instant case presents a justification to take exception to
the strict application of said provision, it having been sufficiently established that it was the intention of the
parties to designate RCBC as the party for whose benefit the insurance policies were taken out. Consider thus
the following:
1.
It is undisputed that the insured pieces of property were the subject of mortgage contracts entered into
between RCBC and GOYU in consideration of and for securing GOYU's credit facilities from RCBC. The
mortgage contracts contained common provisions whereby GOYU, as mortgagor, undertook to have the
mortgaged property properly covered against any loss by an insurance company acceptable to RCBC.
2.
GOYU voluntarily procured insurance policies to cover the mortgaged property from MICO, no less than
a sister company of RCBC and definitely an acceptable insurance company to RCBC.
3.
Endorsement documents were prepared by MICO's underwriter, Alchester Insurance Agency, Inc., and
copies thereof were sent to GOYU, MICO and RCBC. GOYU did not assail, until of late, the validity of said
endorsements.
4.
GOYU continued until the occurrence of the fire, to enjoy the benefits of the credit facilities extended by
RCBC which was conditioned upon the endorsement of the insurance policies to be taken by GOYU to cover
the mortgaged properties.

This Court can not over stress the fact that upon receiving its copies of the endorsement documents prepared
by Alchester, GOYU, despite the absence written conformity thereto, obviously considered said endorsement to
be sufficient compliance with its obligation under the mortgage contracts since RCBC accordingly continued to
extend the benefits of its credit facilities and GOYU continued to benefit therefrom. Just as plain too is the
intention of the parties to constitute RCBC as the beneficiary of the various insurance policies obtained by
GOYU. The intention of the parties will have to be given full force and effect in this particular case. The
insurance proceeds may, therefore, be exclusively applied to RCBC, which under the factual circumstances of
the case, is truly the person or entity for whose benefit the policies were clearly intended.
Cebu Shipyard vs. William Lines
306 SCRA 762 GR. NO.132607
May5, 1999
PURISIMA, J.
FACTS:
Petitioner CSEW is engaged in the business of dry-docking and repairing of marine vessels.
William Lines insured its vessel to respondent Prudential for Php 45 million for hull and machinery.
The
hull policy included an “Addition Perils” clause containing loss or damage to the vessel through
the
negligence of, among others, ship repairman. William Lines brought its vessel to CSEW for repair
but it
caught fire and sank, resulting to its total loss. William Lines sued CSEW alleging that the fire that
broke
out was caused by CSEW’s negligence and lack of care. Prudential was impleaded as co-plaintiff,
after it
paid William Lines, Prudential was subrograted to the claim of Php 45 million.
ISSUE:
WON, Prudential is entitled to be subrogated to the rights of William Lines.
HELD:
YES. Pursuant to Article 2207 of the New Civil Code, when Prudential, after due verification of
the merit of the insurance claim of William Lines, paid the latter the amount covered by its policy,
it was
subrogated to the rights of the latter to recover the insured loss from the liable party, CSEW.

Sunlife Assurance v. Court of Appeals
245 SCRA 268 (1995)

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INSURANCE LAW: Concealment

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Disclosure of material facts is required

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Good faith is not a defense in determining the materiality of the information to be disclosed

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Waiver of medical examination by insured is not a defense

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Cause of death is immaterial in case of concealment

FACTS:
Bacani procured a life insurance contract for himself from Sunlife Assurance. Specifically, the policy included a double
indemnity in case of accidental death, designating his mother as beneficiary.
Later, Bacani died in a plane crash and so the mother filed a claim. After investigation, Sunlife rejected the claim on ground
of non-disclosure of material facts. They said that Bacani did not mention that two weeks prior to his insurance application
he was examined and confined at the Lung Center of the Philippines, where he was diagnosed for renal failure.
The trial court ruled that the facts concealed by the insured were made in good faith and under the belief that they need
not be disclosed. Also, it held that the health history of the insured was immaterial since the insurance policy was “nonmedical.”
The CA affirmed, stating that the cause of death was unrelated to the facts concealed by the insured.
ISSUE:

o

Whether or not the concealment made by Bacani warranted the rejection of the insurance claim

HELD:
The Supreme Court reversed the decision of the CA and ruled that rescission of the insurance contract was proper.
Disclosure of Material Facts required
Under sec. 26 of the Insurance Code, a party to a contract of insurance is required to 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 no means of ascertaining.
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 communication is due, in forming his estimate of the disadvantages of the proposed contract or in making
his inquiries. (The Insurance Code, sec. 31)
The information which the insured failed to disclose was material and relevant to the approval and issuance of the
insurance policy. The matters concealed would have definitely affected petitioner’s action on his application, either by
approving it with the corresponding adjustment for a higher premium or rejecting the same. Moreover, a disclosure may
have warranted a medical examination of the insured by the petitioner in order for it to reasonably assess the risk involved
in accepting the application.
Good Faith not a defense
Materiality of the information withheld does not depend on the state of mind of the insured. Neither does it depend on the
actual or physical events which ensue.

Thus, “good faith” is no defense in concealment.
Waiver of Medical Examination not a defense
The waiver of the medical examination of the insured does not mean that material facts need not be disclosed. In fact, it
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.
Cause of Death
It is well settled that the insured need not die of the disease he had failed to disclose to the insurer. It is sufficient that his
non-disclosure misled the insurer in forming his estimates of the risks of the proposed insurance policy or in making
inquiries.

Harvardian Colleges v. Country Bankers Insurance Corp.

1 CARA 2
Facts:
> Harvardian is a family corporation, the stockholders of which are Ildefonso Yap, Virginia King Yap and their
children.
> Prior to Aug. 9, 1979, an agent of Country Bankers proposed to Harvardian to insure its school building.
Although at first reluctant, Harvardian agreed.
> Country Banks sent an inspector to inspect the school building and agreed to insure the same for P500,000
for which Harvardian paid an annual premium of P2,500.
> On Aug. 9, 1979, Country Bankers issued to Harvardian a fire insurance policy. On March 12, 1980, (39
days before I was born… hehehehe )during the effectivity of said insurance policy, the insured property was
totally burned rendering it a total loss.
> A claim was made by plaintiff upon defendant but defendant denied it contending that plaintiff had no
insurable interest over the building constructed on the piece of land in the name of the late Ildefonso Yap as
owner.
> It was contended that both the lot and the building were owned by Ildefonso Yap and NOT by the Harvardian
Colleges.

Issue:
Whether or not Harvardian colleges has a right to the proceeds.

Held:
Harvardian has a right to the proceeds.

Regardless of the nature of the title of the insured or even if he did not have title to the property insured, the
contract of fire insurance should still be upheld if his interest in or his relation to the property is such that he will
be benefited in its continued existence or suffer a direct pecuniary loss from its destruction or injury. The test in
determining insurable interest in property is whether one will derive pecuniary benefit or advantage from its
preservation, or will suffer pecuniary loss or damage from its destruction, termination or injury by the happening
of the event insured against.

Here Harvardian was not only in possession of the building but was in fact using the same for several years
with the knowledge and consent of Ildefonso Yap. It is reasonably fair to assume that had the building not been
burned, Harvardian would have been allowed the continued use of the same as the site of its operation as an
educational institution. Harvardian therefore would have been directly benefited by the preservation of the
property, and certainly suffered a pecuniary loss by its being burned.

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