III.

Insurable Interest

A. Concept of Insurable Interest in General

There must be a reasonable ground, founded upon the relations of the parties to each other, either
pecuniary or of blood or affinity, to expect some benefit or advantage from the continuance of the life
of the insured. Otherwise, the contract is merely a wager, by which the party taking the policy directly
interested in the early death of the assured. Such policies have the tendency to create a desire for the
event. They are therefore, independently of any statute on the subject, condemned, as being against
public policy. In short: an insurable interest is, in the point of view of the insured, the
raison d’etre of the continued existence of persons or things subject of insurance.

B. Reason for the requirement of Insurable Interest

 Public policy requires an insurable interest to prevent wagering under the guise of insurance, and to
reduce to a safe level the temptation to destroy the insured property.

 Lack of insurable interest is a defense created for the benefit of society, not for the benefit of
insurance company.

 The presence of insurable interest reduces moral hazard

 Insurable interest helps in measuring loss of the insured.

General Rule
If the insured has no insurable interest over the life or property he insures, the insurance contract is
considered unenforceable.

C. Insurable Interest in Life Insurance (Sec. 10,11, 12. RA 10607)

"TITLE 3
"INSURABLE INTEREST

"Section 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 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.

"Section 11. The insured shall have the right to change the beneficiary he designated in the policy, unless
he has expressly waived this right in said policy. Notwithstanding the foregoing, in the event the insured
does not change the beneficiary during his lifetime, the designation shall be deemed irrevocable.

"Section 12. The interest of a beneficiary in a life insurance policy shall be forfeited when the beneficiary
is the principal, accomplice, or accessory in willfully bringing about the death of the insured. In such a
case, the share forfeited shall pass on to the other beneficiaries, unless otherwise disqualified. In the
absence of other beneficiaries, the proceeds shall be paid in accordance with the policy contract. If the
policy contract is silent, the proceeds shall be paid to the estate of the insured.
D. Insurable Interest in property Insurance (Sec. 13-18, RA 10607)

"Section 13. Every 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.

"Section 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 in that out of which the expectancy arises.

"Section 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.

"Section 16. A mere contingent or expectant interest in any thing, not founded on an actual right to the
thing, nor upon any valid contract for it, is not insurable.

"Section 17. The measure of an insurable interest in property is the extent to which the insured might be
damnified by loss or injury thereof.

"Section 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.

1. Kinds of Insurable Interest in Property

Read: Gaisano Cagayan Inc. vs. Insurance Company of North America

(GR No. __47839, June 8, 2006)
2. Insurable Interest in case of mortgaged property (Sec. 8-9, RA 10607)

"Section 8. Unless the policy otherwise provides, where a mortgagor of property effects insurance in
his own name providing that the loss shall be payable to the mortgagee, or assigns a policy of
insurance to a mortgagee, the insurance is deemed to be upon the interest of the mortgagor, who
does not cease to be a party to the original contract, and any act of his, prior to the loss, which would
otherwise avoid the insurance, will have the same effect, although the property is in the hands of the
mortgagee, but any act which, under the contract of insurance, is to be performed by the mortgagor,
may be performed by the mortgagee therein named, with the same effect as if it had been performed
by the mortgagor.
"Section 9. If an insurer assents to the transfer of an insurance from a mortgagor to a mortgagee,
and, at the time of his assent, imposes further obligations on the assignee, making a new contract
with him, the acts of the mortgagor cannot affect the rights of said assignee.

a. standard or union mortgage clause

These clauses create collateral; independent contracts between the insurer and mortgagee, and
provide that the rights of the mortgagee shall not be defeated by the acts or defaults of the
mortgagor. Under clauses of this class, we have the general rule that the mortgagee’s rights
remain unaffected by any default or breach of condition by the mortgagor to which the
mortgagee is not a party.

b. open mortgage or loss payable clause

These clauses merely designate the mortgagee as payee, to the extent of his interest, of such
sum as may become payable under the provisions and conditions of the policy. Under such
clause, the mortgagee is made merely a beneficiary under the contract, recognized as such by
the insurer, but not made a party to the contract itself. Any default on the part of the
mortgagor, by which the terms of the policy defeat his rights, will also defeat all rights of the
mortgagee under the contract, even though the latter may not have been in any fault.

Read: Geagonia vs. CA, Feb. 6, 1995

RCBC vs. CA, 289 SCRA 292
3. Separate insurable interest of mortgagor and mortgagee (Sec. 53 and 95, RA
10607)

"Section 53. The insurance proceeds shall be applied exclusively to the proper interest of the person
in whose name or for whose benefit it is made unless otherwise specified in the policy.

"Section 95. A double insurance exists where the same person is insured by several insurers
separately in respect to the same subject and interest.

4. When must insurable interest in property exist (Sec. 19, RA 10607)

 "Section 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.

5. Insurable Interest of Beneficiary in property, life insurance

6. Effect of change of interest in the thing insured (Sec. 20-24, 57-58, RA 10607;
Art. 1306, NCC)

"Section 20. Except in the cases specified in the next four sections, and in the cases of life,
accident, and health insurance, a change of interest in any part of a thing insured unaccompanied
by a corresponding change of interest in the insurance, suspends the insurance to an equivalent
extent, until the interest in the thing and the interest in the insurance are vested in the same
person.

"Section 21. A change of interest in a thing insured, after the occurrence of an injury which results
in a loss, does not affect the right of the insured to indemnity for the loss.

"Section 22. A change of interest in one or more of several distinct things, separately insured by
one policy, does not avoid the insurance as to the others.

"Section 23. A change of interest, by will or succession, on the death of the insured, does not
avoid an insurance; and his interest in the insurance passes to the person taking his interest in the
thing insured.

"Section 24. A transfer of interest by one of several partners, joint owners, or owners in common,
who are jointly insured, to the others, does not avoid an insurance even though it has been agreed
that the insurance shall cease upon an alienation of the thing insured.

"Section 57. A policy may be 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.

"Section 58. The mere transfer of a thing insured does not transfer the policy, but suspends it until
the same person becomes the owner of both the policy and the thing insured.

Art. 1306. The contracting parties may establish such stipulations, clauses, terms and conditions
as they may deem convenient, provided they are not contrary to law, morals, good customs,
public order, or public policy. (1255a)
7. Assignee in life, property insurance (Sec. 184, Sec. 18, RA 10607)

"Section 184. 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 upon it
whatever the insured might have recovered.

"Section 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.

Read: Spouses Cha vs. CA, Aug. 18, 1997

Cases under this topic: Spouses Cha vs. CA (Aug. 18, 1997); Geagonia vs. CA (Feb. 6, 1995);
RCBC vs. CA (289 SCRA 292); Gaisano Cagayan, Inc. vs. Insurance Company of North America,
GR No. 147839 (June 8, 2006).