2023 BAR REVIEW COMMERCIAL LAW

Handout No. 46
INSURANCE LAW

Contract of Insurance

A “contract of insurance” is an agreement whereby one undertakes for a consideration to

indemnify another against loss, damage or liability arising from an unknown or contingent event.
Sec. 2, IC

Distinguishing characteristics of insurance

An insurance contract exists where the following elements concur:

1. The insured has an insurable interest;

2. The insured is subject to a risk of loss by the happening of the designated peril;
3. The insurer assumes the risk;
4. Such assumption of risk is part of a general scheme to distribute actual losses among a
large group of persons bearing a similar risk; and
5. In consideration of the insurer’s promise, the insured pays a premium. Philamcare Health
Systems, Inc. vs. Court of Appeals, 379 SCRA 356, G.R. No. 125678, 18 March 2002

Microinsurance

Microinsurance is an insurance intended to cover low-income households or individuals that

would allow them to recover indemnity for illness, injury, or death.

Co-insurance

Co-insurance is type of insurance in which the insured pays a share of the payment made against
a claim.

No-Fault Indemnity Claim

The no-fault indemnity clause of the Compulsory Motor Vehicle Liability Insurance allows the
victim of a vehicular incident to recover indemnity from the insurer of the relevant insurer
without the necessity of showing fault. Claim may be made against one motor vehicle only. In the

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case of an occupant of a vehicle, claim, shall lie against the insurer of the vehicle in which the
occupant is riding, mounting or dismounting from. In any other case, claim shall lie against the
insurer of the directly offending vehicle. In all cases, the right of the party paying the claim to
recover against the owner of the vehicle responsible for the accident shall be maintained. Sec.
391, IC

Mortgage Redemption Insurance

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. Paramount Life & General Insurance Corporation vs. Castro, 790 SCRA
363, G.R. No. 195728, G.R. No. 211329 April 19, 2016

Double Insurance

Double insurance exists where the same person is insured by several insurers separately in
respect to the same subject and interest. The requisites in order for double insurance to arise are
as follows: the person insured is the same; two or more insurers insuring separately; there is
identity of subject matter; there is identity of interest insured; and there is identity of the risk or
peril insured against. Malayan Insurance Co., Inc. vs. Philippines First Insurance Co., Inc. and
Reputable Forwarder Services, G.R. No. 184300, July 11, 2012

While one provision appears to state that the insurance coverage of the clients of Assured
already became effective upon contracting a loan with the Assured, another appears to require
the Insurer to approve the insurance contract before the same can become effective.

It must be remembered that an insurance contract is a contract of adhesion which must be

construed liberally in favor of the insured and strictly against the insurer in order to safeguard
the latter’s interest. Thus, the vague contractual provision must be construed in favor of the
insured and in favor of the effectivity of the insurance contract. The seemingly conflicting

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provisions must be harmonized to mean that upon a party’s purchase of a memorial lot on
installment from the Assured, an insurance contract covering the lot purchaser is created and the
same is effective, valid, and binding until terminated by the Insurer by disapproving the insurance
application. The second sentence is in the nature of a resolutory condition which would lead to
the cessation of the insurance contract. Moreover, the mere inaction of the insurer on the
insurance application must not work to prejudice the insured; it cannot be interpreted as a
termination of the insurance contract. The termination of the insurance contract by the insurer
must be explicit and unambiguous. Eternal Gardens Memorial Park vs. Philamlife, G.R. No.
166245, 9 April 2008

Basis of insurable interest in life and health insurance

Every person has an insurable interest in the life and health:

1. of himself, of his spouse and of his children;

2. of any person on whom he depends wholly or in part for education or support, or in whom
he has a pecuniary interest;
3. of any person under a legal obligation to him for the payment of money, respecting
property or service, of which death or illness might delay or prevent the performance;
and
4. of any person upon whose life any estate or interest vested in him depends. Sec. 10, IC

The Court disagrees with the finding of the RTC that Milestone lacked insurable interest over
the machine and equipment both at the time the Policy took effect on August 1, 2009 and at
the time of the loss in July 2010. Asgard cannot take an inconsistent position that Milestone
had no more insurable interest under the Policy when in the Appellant's Brief, it admitted that
both Asgard and Milestone took out the insurance policy on August 1, 2009 effective until
August 1, 2010. Under the condition We cited above, it is very clear that Milestone has insurable
interest on the property at the time of the loss and damage on July 15, 2010.

Section 13 of the Insurance Code defines insurable interest as "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." Parenthetically, under Section 14
of the same Code, an insurable interest in property may consist in: (a) an existing interest, like
that of an owner or lienholder; (b) an inchoate interest founded on existing interest, like that of
a stockholder in corporate property; or (c) an expectancy, coupled with an existing interest in
that out of which the expectancy arises, like that of a shipper of goods in the profits he expects

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to make from the sale thereof. UCPB General Insurance Co., Inc. v. Asgard Corrugated Box
Manufacturing Corp., G.R. No. 244407, January 26, 2021

An insurable interest in property does not necessarily imply a property interest in, or a lien
upon, or possession of, the subject matter of the insurance, and neither the title nor a beneficial
interest is requisite to the existence of such an interest.

It is sufficient that the insured is so situated with reference to the property that he would be
liable to loss should it be injured or destroyed by the peril against which it is insured. Anyone has
an insurable interest in property who derives a benefit from its existence or would suffer loss
from its destruction. UCPB General Insurance Co., Inc. v. Asgard Corrugated Box Manufacturing
Corp., G.R. No. 244407, January 26, 2021

Insurable interest in property is not limited to property ownership in the subject matter of the
insurance.

Where the interest of the insured in, or his relation to, the property is such that he will be
benefitted by its continued existence, or will suffer a direct pecuniary loss by its destruction, his
contract of insurance will be upheld, although he has no legal or equitable title. A husband would
thus have an insurable interest in the paraphernal property of his wife since the fruits thereof
belong the conjugal partnership and may be used for the support of the family.

As in this case, when Milestone removed its parts and machines, Milestone still had an actual and
real interest in the preservation of the corrugating machines while the TMA is not effectively
terminated and non¬-preservation will render Milestone liable for breach of contract as no
corrugated carton boxes would be manufactured under the TMA (Toll Manufacturing
Agreement). UCPB General Insurance Co., Inc. v. Asgard Corrugated Box Manufacturing Corp.,
G.R. No. 244407, January 26, 2021

As a rule, a change of insurable interest without a corresponding transfer of the policy,

suspends the insurance; Exceptions

The exceptions are:

1. A change in 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. Sec. 21, IC

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2. A change of interest in one or more several distinct things, separately insured by one
policy, does not avoid the insurance as to the others. Sec. 22, IC
3. 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. Sec. 23, IC
4. 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. Sec. 24, IC
5. 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. Sec. 57, IC

Test of Materiality of Information

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 the communication is due, in forming his estimate
of the disadvantages of the proposed contract, or in making his inquiries. Sec. 31, IC

It can also be said that with the transfer of the location of the subject properties, without notice
and without Malayan’s consent, after the renewal of the policy, PAP clearly committed
concealment, misrepresentation and a breach of a material warranty.

Section 26 of the Insurance Code provides:

Section 26. A neglect to communicate that which a party knows and ought to communicate, is
called a concealment.

Under Section 27 of the Insurance Code, “a concealment entitles the injured party to rescind a
contract of insurance.”

Moreover, under Section 168 of the Insurance Code, the insurer is entitled to rescind the
insurance contract in case of an alteration in the use or condition of the thing insured. Section
168 of the Insurance Code provides, as follows:

Section 68. An alteration in the use or condition of a thing insured from that to which it is
limited by the policy made without the consent of the insurer, by means within the control of the
insured, and increasing the risks, entitles an insurer to rescind a contract of fire insurance.

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Accordingly, an insurer can exercise its right to rescind an insurance contract when the following
conditions are present, to wit:

1) the policy limits the use or condition of the thing insured;

2) there is an alteration in said use or condition;

3) the alteration is without the consent of the insurer;

4) the alteration is made by means within the insured’s control; and

5) the alteration increases the risk of loss

In the case at bench, all these circumstances are present. It was clearly established that the
renewal policy stipulated that the insured properties were located at the Sanyo factory; that PAP
removed the properties without the consent of Malayan; and that the alteration of the location
increased the risk of loss. Malayan Insurance Company, Inc. vs. PAP Co., Ltd. (Phil. Branch), 703
SCRA 314, G.R. No. 200784 August 7, 2013

Rescission due to concealment

Citing Section 27 of the Insurance Code, however, Insular Life asserts that in cases of rescission
due to concealment, i.e., when a party "neglect[s] to communicate that which [he or she] knows
and ought to communicate," proof of fraudulent intent is not necessary. Section 27 reads: Section
27. A concealment whether intentional or unintentional entitles the injured party to rescind a
contract of insurance. (Emphasis supplied)

The statutory text is unequivocal. Insular Life correctly notes that proof of fraudulent intent is
unnecessary for the rescission of an insurance contract on account of concealment.

This is neither because intent to defraud is intrinsically irrelevant in concealment, nor because
concealment has nothing to do with fraud. To the contrary, it is because in insurance contracts,
concealing material facts is inherently fraudulent: "if a material fact is actually known to the
[insured], its concealment must of itself necessarily be a fraud." When one knows a material fact
and conceals it, "it is difficult to see how the inference of a fraudulent intent or intentional
concealment can be avoided." Thus, a concealment, regardless of actual intent to defraud, "is
equivalent to a false representation." The Insular Assurance Co., Ltd. vs. The Heirs of Jose H.
Alvarez, G.R. No. 207526, October 03, 2018

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Section 26 defines concealment as "[a] neglect to communicate that which a party knows and
ought to communicate." However, Alvarez did not withhold information on or neglect to state
his age. He made an actual declaration and assertion about it.

What this case involves, instead, is an allegedly false representation. Section 44 of the Insurance
Code states, "A representation is to be deemed false when the facts fail to correspond with its
assertions or stipulations." If indeed Alvarez mis declared his age such that his assertion fails to
correspond with his factual age, he made a false representation, not a concealment. The Insular
Assurance Co., Ltd. vs. The Heirs of Jose H. Alvarez, G.R. No. 207526, October 03, 2018

Not being similarly qualified as rescission under Section 27, rescission under Section 45 remains
subject to the basic precept of fraud having to be proven by clear and convincing evidence. In
this respect, Ng Gan Zee's and similar cases' pronouncements on the need for proof of
fraudulent intent in cases of misrepresentation are logically sound, albeit the specific reference
to Argente as ultimate authority is misplaced.

The absence of the requirement of intention definitely increases the onus on the insured.
Between the insured and the insurer, it is true that the latter may have more resources to
evaluate risks. Insurance companies are imbued with public trust in the sense that they have the
obligation to ensure that they will be able to provide succor to those that enter into contracts
with them by being both frugal and, at the same time, diligent in their assessment of the risk
which they take with every insurance contract. However, even with their tremendous resources,
a material fact concealed by the insured cannot simply be considered by the insurance company.
The insurance company may have huge resources, but the law does not require it to be
omniscient.

On the other hand, when the insured makes a representation, it is incumbent on them to assure
themselves that a representation on a material fact is not false; and if it is false, that it is not a
fraudulent misrepresentation of a material fact. This returns the burden to insurance companies,
which, in general, have more resources than the insured to check the veracity of the insured's
beliefs as to a statement of fact. Consciousness in defraudation is imperative and it is for the
insurer to show this. The Insular Assurance Co., Ltd. vs. The Heirs of Jose H. Alvarez, G.R. No.
207526, October 03, 2018

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The RTC correctly held that the CDH’s medical records that might have established the insured’s
purported misrepresentation/s or concealment/s was inadmissible for being hearsay, given the
fact that Manulife failed to present the physician or any responsible official of the CDH who
could confirm or attest to the due execution and authenticity of the alleged medical records.

Manulife had utterly failed to prove by convincing evidence that it had been beguiled, inveigled,
or cajoled into selling the insurance to the insured who purportedly with malice and deceit
passed himself off as thoroughly sound and healthy, and thus a fit and proper applicant for life
insurance. Manulife’s sole witness gave no evidence at all relative to the particulars of the
purported concealment or misrepresentation allegedly perpetrated by the insured. In fact,
Victoriano merely perfunctorily identified the documentary exhibits adduced by Manulife; she
never testified in regard to the circumstances attending the execution of these documentary
exhibits much less in regard to its contents. Of course, the mere mechanical act of identifying
these documentary exhibits, without the testimonies of the actual participating parties thereto,
adds up to nothing. These documentary exhibits did not automatically validate or explain
themselves.

“The fraudulent intent on the part of the insured must be established to entitle the insurer to
rescind the contract. Misrepresentation as a defense of the insurer to avoid liability is an
affirmative defense and the duty to establish such defense by satisfactory and convincing
evidence rests upon the insurer.” For failure of Manulife to prove intent to defraud on the part
of the insured, it cannot validly sue for rescission of insurance contracts. Manulife Philippines,
Inc. vs. Ybañez, 810 SCRA 516, G.R. No. 204736 November 28, 2016

Rescission of life insurance due to fraud

After the two-year period lapses, or when the insured dies within the period, the insurer must
make good on the policy, even though the policy was obtained by fraud, concealment, or
misrepresentation. Manila Bankers Life Insurance Corporation vs. Aban, 702 SCRA 417, G.R. No.
175666, July 29, 2013

The insurer has two years from its issuance to investigate and verify whether the policy was
obtained by fraud, concealment, or misrepresentation. Upon the death of the insured within the
two-year period from the issuance of the policy, the insurer loses its right to rescind the policy.
Sun Life of Canada (Philippines), Inc. v. Ma. Daisy’s Sibya, G.R. No. 211212, June 8, 2016

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Defenses not barred by incontestability

The following defenses may still be interposed by the insurer notwithstanding incontestable
status of the policy:

1. The person taking the insurance lacked insurable interest as required by law.
2. The cause of the death of the insured is an excepted risk.
3. The premiums have not been paid.
4. The conditions of the policy relating to military or naval service have been violated.
5. The fraud is of a particularly vicious type.
6. The beneficiary failed to furnish proof of death or to comply with any condition imposed
by the policy after the loss has happened.
7. The action was not brought within the time specified.

In the context of life insurance policies, the burden of proving suicide as the cause of death of
the insure to avoid liability rests on the insurer. Therefore, Fortune must prove suicide to defeat
Susan's claim.

In the present case, We find that Fortune failed to discharge its burden of proving, by
preponderance of evidence, that Reuben's death was caused by suicide, an excluded risk in his
policy. The CA primarily relied on the testimony of Dr. Pagayatan which the CA considered res
gestae, and the testimony of Dr. Fortun in concluding that Reuben committed suicide. However,
these pieces of evidence cannot be given credence by the Court. Susan Dela Fuente vs. Fortune
Life Insurance, G.R. No. 224863, December 2, 2020

Liability of insurer in case of suicide

The insurer in a life insurance contract shall be liable in case of suicide only when it is committed
after the policy has been in force for a period of two (2) years from the date of its issue or of its
last reinstatement, unless the policy provides a shorter period: Provided, however, That suicide
committed in the state of insanity shall be compensable regardless of the date of commission.
Sec. 183, IC

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Insurance is a contract whereby one undertakes for a consideration to indemnify another

against loss, damage or liability arising from an unknown or contingent event. Just like any
other contract, it requires a cause or consideration.

The consideration is the premium, which must be paid at the time and in the way and manner
specified in the policy. If not so paid, the policy will lapse and be forfeited by its own terms. The
law, however, limits the parties’ autonomy as to when payment of premium may be made for
the contract to take effect. Gaisano vs. Development Insurance and Surety Corporation, 818
SCRA 603, G.R. No. 190702 February 27, 2017

Cash and Carry Rule

Notwithstanding any agreement to the contrary, no policy or contract of insurance issued by an

insurance company is valid and binding unless and until the premium thereof has been paid.

Exceptions are:

1. In case of life or industrial life policy, whenever the grace period provision applies, as
expressly provided by Section 77 itself;
2. Where the insurer acknowledged in the policy or contract of insurance itself the receipt
of premium, even if premium has not been actually paid, as expressly provided by Section
79 itself;
3. Where the parties agreed that premium payment shall be in installments and partial
payment has been made at the time of loss;
4. Where the insurer granted the insured a credit term for the payment of the premium,
and loss occurs before the expiration of the term;
5. Salary deduction of government employees under Section 78; and
6. Where the insurer is in estoppel as when it has consistently granted a 60 to 90-day credit
term for the payment of premiums. Gaisano vs. Development Insurance and Surety
Corp., G.R. No. 190702, 27 February 2017

The notice of the availability of the check, by itself, does not produce the effect of payment of
the premium.

Here, there is no dispute that the check was delivered to and was accepted by respondent’s
agent, Trans-Pacific, only on September 28, 1996. No payment of premium had thus been made
at the time of the loss of the vehicle on September 27, 1996. While petitioner claims that Trans-

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Pacific was informed that the check was ready for pickup on September 27, 1996, the notice of
the availability of the check, by itself, does not produce the effect of payment of the premium.
Trans-Pacific could not be considered in delay in accepting the check because when it informed
petitioner that it will only be able to pick up the check the next day, petitioner did not protest to
this, but instead allowed Trans-Pacific to do so. Thus, at the time of loss, there was no payment
of premium yet to make the insurance policy effective. There are, of course, exceptions to the
rule that no insurance contract takes effect unless premium is paid. Gaisano vs. Development
Insurance and Surety Corporation, 818 SCRA 603, G.R. No. 190702 February 27, 2017

The Jumbo Risk Provision clearly indicates that failure to pay in full any of the scheduled
installments on or before the due date shall render the insurance policy void and ineffective as
of 4 p.m. of such date.

Parc Association's failure to pay on the first due date (November 30, 2003), resulted in a void and
ineffective policy as of 4 p.m. of November 30, 2003. Hence, there is no credit extension to
consider as the Jumbo Risk Provision itself expressly cuts off the inception of the insurance policy
in case of default. Philam Insurance Co., Inc. vs. Parc Chateau Condominium Unit Owners
Association, Inc., G.R. No. 201116, March 04, 2019

Case law illumines that the prescriptive period for the insured’s action for indemnity should be
reckoned from the “final rejection” of the claim.

Section 10 of the General Conditions of the subject CAR Policies commonly read: 10. If a claim is
in any respect fraudulent, or if any false declaration is made or used in support thereof, or if any
fraudulent means or devices are used by the Insured or anyone acting on his behalf to obtain any
benefit under this Policy, or if a claim is made and rejected and no action or suit is commenced
within twelve months after such rejection or, in case of arbitration taking place as provided
herein, within twelve months after the Arbitrator or Arbitrators or Umpire have made their
award, all benefit under this Policy shall be forfeited. H.H. Hollero Construction, Inc. vs.
Government Service Insurance System, 736 SCRA 303, G.R. No. 152334 September 24, 2014

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A contract of reinsurance is one by which an insurer (the “direct insurer” or “cedant”) procures
a third person (the “reinsurer”) to insure him against loss or liability by reason of such original
insurance.

The reinsurer’s contractual relationship is with the direct insurer, not the original insured, and
the latter has no interest in and is generally not privy to the contract of reinsurance. Put simply,
reinsurance is the “insurance of an insurance.” Communication and Information Systems
Corporation vs. Mark Sensing Australia Pty. Ltd., 815 SCRA 449, G.R. No. 192159 January 25,
2017

Life insurance proceeds are not part of the estate of the insured.

Under Section 85(e) of the National Internal Revenue Code, such proceeds may be included in
the gross estate, subject to certain exceptions, but merely for the purpose of computing the
estate tax due.

Nevertheless, We must stress that the designation of a beneficiary in an insurance policy is

categorically different from the institution of a testamentary heir. Therefore, We cannot give
credence to petitioners' arguments that they are entitled to the proceeds of the subject policies
because that was supposedly Sarte's way of ensuring that his three families would equally share
in his wealth. This Court has resolved this case by applying the pertinent laws on contracts and
insurance on the established facts, not on some perceived estate planning scheme that Sarte had
supposedly put in place. Edita de Leon, et al., vs. The Manufacturers Life Insurance Company,
G.R. No. 243733, January 12, 2021

The actual investment of Susan at the time of Reuben's death is P16,000,000.00 of

P1,000,000.00 more than the face value of the policy. The intention of the parties in entering
into several memoranda of agreement reflecting the investment contracts, and in taking out
an insurance policy on the life of Reuben with Susan as the beneficiary is to secure Reuben's
debt.

In taking out a policy on his own life and paying its premium, Reuben intended to use it as a
collateral for his debt at least to the amount of the policy's face value. The insurable interest of
Susan is not limited to just what Reuben owed her at the time the policy took effect. Instead, she
becomes entitled to the value of Reuben's outstanding obligation at the time of his death the
maximum recoverable amount of which is the face value of the policy.

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Nevertheless, taking into consideration the state's policy against wagering contracts and the
principle of equity, the P2,000,000.00 which Susan received from Rossana should be deducted
from P16,000,000.00, the total outstanding obligation of Reuben at the time of his death. The
face value of the policy, P15,000,000.00 should be the maximum amount that Susan may receive.
Susan Dela Fuente vs. Fortune Life Insurance, G.R. No. 224863, December 2, 2020

The obligations of the surety to the principal under the surety bond are different from the
obligations of the contractor to the client under the principal contract.

The surety guarantees the performance of the contractor’s obligations. Upon the contractor’s
default, its client may demand against the surety bond even if there was no privity of contract
between them. This is the essence of a surety agreement. People's Trans-East Asia Insurance
Corporation vs. Doctors of New Millennium Holdings, Inc., 732 SCRA 631, G.R. No. 172404
August 13, 2014

A suretyship consists of two different contracts: (1) the surety contract and (2) the principal
contract which it guarantees.

Since the insurer’s liability is strictly based only on the terms stated in the surety contract in
relation to the principal contract, any change in the principal contract, which materially alters the
principal’s obligations would, in effect, constitute an implied novation of the surety contract: A
surety is released from its obligation when there is a material alteration of the contract in
connection with which the bond is given, such as a change which imposes a new obligation on
the promising party, or which takes away some obligation already imposed, or one which changes
the legal effect of the original contract and not merely its form. A surety, however, is not released
by a change in the contract which does not have the effect of making its obligation more onerous.
People's Trans-East Asia Insurance Corporation vs. Doctors of New Millennium Holdings, Inc.,
732 SCRA 631, G.R. No. 172404 August 13, 2014

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As part of American personal injury law, the collateral source rule was originally applied to tort
cases wherein the defendant is prevented from benefitting from the plaintiff’s receipt of money
from other sources.

Under this rule, if an injured person receives compensation for his injuries from a source wholly
independent of the tortfeasor, the payment should not be deducted from the damages which he
would otherwise collect from the tortfeasor. In a recent Decision by the Illinois Supreme Court,
the rule has been described as “an established exception to the general rule that damages in
negligence actions must be compensatory.”

The Court went on to explain that although the rule appears to allow a double recovery, the
collateral source will have a lien or subrogation right to prevent such a double recovery. In
Mitchell v. Haldar, 883 A.2d 32, 37-38 (Del. 2005), the collateral source rule was rationalized by
the Supreme Court of Delaware: The collateral source rule is ‘predicated on the theory that a
tortfeasor has no interest in, and therefore no right to benefit from monies received by the
injured person from sources unconnected with the defendant.’ According to the collateral source
rule, ‘a tortfeasor has no right to any mitigation of damages because of payments or
compensation received by the injured person from an independent source.’ The rationale for the
collateral source rule is based upon the quasi-punitive nature of tort law liability. It has been
explained as follows:

The collateral source rule is designed to strike a balance between two competing principles of
tort law: (1) a plaintiff is entitled to compensation sufficient to make him whole, but no more;
and (2) a defendant is liable for all damages that proximately result from his wrong. A plaintiff
who receives a double recovery for a single tort enjoys a windfall; a defendant who escapes, in
whole or in part, liability for his wrong enjoys a windfall. Because the law must sanction one
windfall and deny the other, it favors the victim of the wrong rather than the wrongdoer. Thus,
the tortfeasor is required to bear the cost for the full value of his or her negligent conduct even
if it results in a windfall for the innocent plaintiff. (Citations omitted) As seen, the collateral source
rule applies in order to place the responsibility for losses on the party causing them. Its
application is justified so that “the wrongdoer should not benefit from the expenditures made by
the injured party or take advantage of contracts or other relations that may exist between the
injured party and third persons.”

Thus, it finds no application to cases involving no-fault insurances under which the insured is
indemnified for losses by insurance companies, regardless of who was at fault in the incident
generating the losses. Here, it is clear that MMPC is a no-fault insurer. Hence, it cannot be obliged
to pay the hospitalization expenses of the dependents of its employees which had already been
paid by separate health insurance providers of said dependents. Mitsubishi Motors Philippines
Salaried Employees Union (MMPSEU) vs. Mitsubishi Motors Philippines Corporation, 698 SCRA
599, G.R. No. 175773 June 17, 2013

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 2023 BAR REVIEW COMMERCIAL LAW
Handout No. 46
INSURANCE LAW

An insurer or bonding company like the petitioner that seeks to defeat a claim on the ground
that the counterbond was invalidly issued has the burden of proving such defense. However,
the petitioner did not discharge the burden herein.

No less than the officers charged with the responsibility of making sure that all forms and records
of the petitioner were audited admitted that the missing counterbond was in fact a valid
preapproved form of the Insurance Commission, so that the absence or lack of the signature of
the president did not render the bond invalid. Capital Insurance and Surety Co., Inc. vs. Del
Monte Motor Works, Inc., 777 SCRA 1, G.R. No. 159979 December 9, 2015

Section 89 of the Insurance Code (Republic Act No. 10607) is clear - an insurer is not liable for a
loss caused by the willful act of the insured.

Section 89. An insurer is not liable for a loss caused by the willful act or through the connivance
of the insured; but he is not exonerated by the negligence of the insured, or of the insurance
agents or others.

The insurer is not liable for a loss caused by the intentional act of the insured or through his
connivance. Such damage/loss is not an insurable risk because the occurrence of the loss was
subject to the control of one of the parties and not merely caused by the negligence of the
insured.

However, the insurer is not relieved from liability by the mere fact that the loss was caused by
the negligence of the insured, or of his agents or others. Accordingly, it is no defense to an action
on the policy that the negligence of the insured caused or contributed to the injury. However,
when the insured's negligence is so gross that it is tantamount to misconduct, or willful or
wrongful act, the insurer is not liable. UCPB General Insurance Co., Inc. v. Asgard Corrugated
Box Manufacturing Corp., G.R. No. 244407, January 26, 2021

The right of subrogation is however, not absolute. “There are a few recognized exceptions to
this rule. For instance, if the assured by his own act releases the wrongdoer or third party liable
for the loss or damage, from liability, the insurer’s right of subrogation is defeated.

x x x Similarly, where the insurer pays the assured the value of the lost goods without notifying
the carrier who has in good faith settled the assured’s claim for loss, the settlement is binding on
both the assured and the insurer, and the latter cannot bring an action against the carrier on his
right of subrogation. x x x And where the insurer pays the assured for a loss which is not a risk

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 2023 BAR REVIEW COMMERCIAL LAW
Handout No. 46
INSURANCE LAW

covered by the policy, thereby effecting ‘voluntary payment,’ the former has no right of
subrogation against the third party liable for the loss x x x.” Loadstar Shipping Company,
Incorporated vs. Malayan Insurance Company, Incorporated, 742 SCRA 627, G.R. No. 185565
November 26, 2014

Should the insurer pay the insured and it turns out that indemnification is not due, or if due, the
amount paid is excessive, the insurer takes the risk of not being able to seek recompense from
the alleged wrongdoer.

This is because the supposed subrogor did not possess the right to be indemnified and therefore,
no right to collect is passed on to the subrogee. Loadstar Shipping Company, Incorporated vs.
Malayan Insurance Company, Incorporated, 742 SCRA 627, G.R. No. 185565 November 26, 2014

As the Court discussed in the Decision dated November 26, 2014, Malayan was not able to prove
the pecuniary loss suffered by PASAR for which the latter was indemnified. This is in line with the
principle that a subrogee steps into the shoes of the insured and can recover only if the insured
likewise could have recovered. Loadstar Shipping Company, Incorporated vs. Malayan
Insurance Company, Incorporated, 825 SCRA 14, G.R. No. 185565 April 26, 2017

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