INSURABLE INTEREST

GILBERT R. HUFANA
Professor, Law 139 Insurance Law
 INSURABLE INTEREST

• A person is deemed to have insurable interest in the

subject matter insured where he has a relation or
connection with or concern in it that he will derive
pecuniary benefit or advantage from its
preservation and will suffer pecuniary loss or
damage from its destruction, termination or injury
by the happening of the event insured against.
• It is essential for the validity and enforceability of the
contract or policy.
• A policy issued to a person without interest in the
subject matter is a mere wager policy or contract.
 INSURABLE INTEREST
IN LIFE INSURANCE

• Insurable interest exist where there is reasonable

ground, founded on the relations of the parties,
either pecuniary or contractual or by blood or
affinity, to expect some benefit or advantage from
the continuance of the life of the insured.
• Sec 10 of the IC enumerates the persons in whose
life and health the insured has an insurable interest.
 INSURABLE INTEREST
IN LIFE INSURANCE
SEC 10, IC

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.
 INSURABLE INTEREST
IN PROPERTY INSURANCE
SEC 13, IC

• 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.
• Anyone has insurable interest in property who
derives benefit from its existence or would suffer
loss from its destruction whether he has or has not
title in, or lien upon or possession of the property.
(Filipino Merchants Insurance Co. v. CA, 179 SCRA
638)
 INSURABLE INTEREST
IN PROPERTY INSURANCE
SEC 14, IC

• 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.
 AN EXISTING INTEREST
EXAMPLES

• An existing interest, like that of an owner, a mortgagee or

a lessee
• In a contract to sell under which the vendor retains
ownership until the payment of the price, his interest is
an existing
• A building contractor has an insurable interest in the
building before payment of the construction price.
(Lampano v. Jose, 30 Phil 538)
• The right to receive rentals out of property belonging to
another constitutes sufficient insurable interest to
support an insurance on a property. (Trader Ins. & Surety
Co. v. Golangco, 95 Phil 826)
 AN INCHOATE INTEREST FOUNDED
ON AN EXITING INTEREST

• Like that of a stockholder of a corporation, he has an

interest in the property of the corporation.
• A partner has an insurable interest in the property
belonging to the partnership.
• The vendee/consignee of goods in transit under an invoice
has an insurable interest in said goods. (Filipino Merchants
Insurance Co. v. CA, 179 SCRA 638)
• Even if the insured has no title to the property if it can be
shown that he will or may be benefited by its continued
existence or suffer direct pecuniary loss from its
destruction, then insurable interest exists. (Harvardian
Colleges v. Country Bankers Ins. Corp. (1986) 1 CARA 1)
 AN EXPECTANCY COUPLED WITH
AN EXITING INTEREST

• Like that of the owner of a vessel who has insurable

interest in the expected freightage.
• Farmers’ expectancy of harvest from their crops
actually planted - insurance against losses arising
from natural calamities, plant diseases and pest
infestations
 CONTINGENT OR EXPECTANT INTEREST
SEC 16, IC

“A mere contingent or expectant interest in anything, not

founded on actual right to the thing, nor upon any valid
contract for it, is not insurable.”
• A policy on a mere contingent (chance) or expectant
interest is void.
• Examples:
• A son has no insurable interest in the property of his parents.
All he has is an expectation that when his parents dies, he will
inherit the property.
• A person designated as beneficiary in a will has no insurable
interest in a designated property before the testator’s death.
 INSURABLE INTEREST OF
DEPOSITORY/CARRIER
SEC 15, IC

• A carrier of depository has insurable interest:

• In a thing held by him as such
• Only to the extent of his liability but not to exceed the
value thereof
• Example of carrier: owner of a vessel
• Example of depository:
• A person engaged in the dyeing, bleaching, washing &
pressing of clothes
• A warehouse engaged in the business of receiving
commodities for storage
 INSURABLE INTEREST OF THE
MORTGAGOR & MORTGAGEE

• MORTGAGOR - as owner, he has an insurable interest

to the extent of the value of the property, even if the
mortgage debt is equal to such value. The reason is
that the loss or destruction of the property insured
will NOT extinguish the mortgage debt.

• MORTGAGEE - has an insurable interest in the

mortgaged property to the extent of the debt secured,
such interest continues until the mortgage debt is
extinguished.
 INSURANCE TAKEN BY
MORTGAGOR & MORTGAGEE
SEC 8, IC

• The mortgagor and the mortgagee have each an

insurable interest in the property mortgaged, and
this interest is separate and distinct from the other.
• Insurance taken by one in his own name only and in
his favor alone does not inure to the benefit of the
other
• In case both of them take out separate insurance
policies on the same property, or one policy covering
their respective interests, the same is not open to the
objection that there is double insurance.
 EXTENT OF INSURABLE INTEREST OF THE
MORTGAGOR & THE MORTGAGEE

• The mortgagor may insure the property to its full

value while the mortgagee can insure it only to the
extent of the debt secured.
• Separate insurances covering different insurable
interests may be obtained by the mortgagor and the
mortgagee.
• On recovery, the mortgagor cannot recover upon
the insurance beyond the full amount of the loss,
and the mortgagee cannot recover in excess of the
credit at the time of the loss.
 INSURANCE TAKEN BY MORTGAGOR

• A mortgagor may take an insurance payable:

• To himself; OR
• To the mortgagee
• If 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
• If payable to the mortgagee, the following are the
legal effects:
• Insurance is still deemed to be upon the interest of
the mortgagor
 INSURANCE TAKEN BY MORTGAGOR

• Mortgagor does not cease to be a party to the contract

• Any act of the mortgagor, 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.
• Any act which under the contract of insurance is to be
performed by the mortgagor, may be performed by the
mortgagee;
• In case of loss, the mortgagee is entitled to the proceeds to
the extent of his credit; and
• Upon recovery by the mortgagee to the extent of his credit,
the debt is extinguished.
 INSURANCE TAKEN BY MORTGAGEE

• Upon the destruction of the property, then the

mortgagee is entitled to receive the proceeds equal to
the amount of the mortgage credit.
• If proceeds are more than the amount of credit,
mortgagor has no right to collect balance.
• If proceeds are less than the total amount of credit,
mortgagee may still recover from mortgagor the
deficiency.
• Such payment operates to discharge the debt. The
insurer is subrogated to the rights of the mortgagee
against the mortgagor to the extent of the amount paid.
 MEASURE OF INSURABLE INTEREST
IN PROPERTY
SEC 17, IC

• The measure of an insurable interest in property is

the extent to which the insured might be damnified
by loss or injury of the property insured.

• Example:
A insured his building with a market value of 100K
for 200K against fire. The building was totally
destroyed by fire. The insurer will only be liable to
pay 100K.
 NO INSURABLE INTEREST = CONTRACT OF
INSURANCE UNENFORCEABLE
SEC 18, IC

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.
• However, where the insurer erroneously issued a
policy to cover a property not owned by the insured
although the intention was to cover his merchandise
in the building is enforceable.
• Where the insurer erroneously placed Lim Cuan Sy
instead of Lim Cuan Sy & Co., the policy is still valid.
(Lim Cuan Sy v. Northern Assurance Co., 55 Phil 248)
 WHEN MUST INSURABLE INTEREST
EXIST?
SEC 19, IC

• In case of life insurance, at the time the insurance

takes effect, but need exist thereafter or when the
loss occurs.

• In case of property insurance, at the time the

insurance takes effect AND at the time of the loss,
but it need not exist in the meantime.
 DISTINCTION

Insurable Interest in Life Insurable Interest in Property

Unlimited except one taken by Limited to the actual value of
the creditor on the life of the the interest on the property
debtor
Must exist at the time the Must exist at the time the
insurance takes effect insurance takes effect & at the
time of loss
expectancy of benefit may be Expectancy must be coupled
sufficient if there is no legal with an existing legal basis
basis
 CHANGE OF INTEREST
SEC 20, IC

• GR: Mere transfer of the 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.
• “Change of interest” means absolute transfer of the
property insured such as the conveyance of the
property insured by means of an absolute deed of sale
• Rationale: to provide against changes which might
supply a motive to destroy the property, or might
lessen the interest of the insurer in protecting and
guarding it.
 EXCEPTIONS TO THE GR

The exceptions, where a change of interest does NOT

suspend the insurance contract are the ff:
1. Life, health and accident insurance (Sec. 20, IC)
2. Change of interest in the thing insured occurs after the
injury which results in a loss (Sec. 21, IC)
3. Change of interest in one or more of several things
separately insured by one policy (Sec. 22, IC)
4. Change of interest by will or succession on the death of
the insured (Sec. 23, IC)
5. Transfer of interest by one of several partners, joint
owners or owners in common who are jointly insured, to
the other (Sec. 24, IC)
 VOID STIPULATIONS IN A
CONTRACT OF INSURANCE
SEC 25, IC

• Every stipulation in a policy of insurance for the

payment of loss whether the person insured has or
has not any interest in the property insured is void;
• That the policy shall be received as proof of such
interest is void; and
• Every policy executed by way of gaming or wagering
is void.