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Insurance - Ch. 3 - Insurable Interest - Coggle Diagram
Insurance - Ch. 3 - Insurable Interest
Definition and Purpose (Sec. 3,18,25,236)
Insurable Interest
- - the interest which a person is deemed to have over the subject matter insured.
Relation with the subject matter such that they will derive pecuniary benefit or advantage from its preservation OR
suffer pecuniary loss for its damage.
SEC. 3.
Any contingent or unknown event, whether past or future, which may damnify a person having an insurable interest, or create a liability against him, may be insured against, subject to the provisions of this chapter.
“The consent of the spouse is not necessary for the validity of an insurance policy taken out by a married person on his or her life or that of his or her children.
“All rights, title and interest in the policy of insurance taken out by an original owner on the life or health of the person insured shall automatically vest in the latter upon the death of the original owner, unless otherwise provided for in the policy.
“SEC. 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.
“SEC. 25
. 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, or that the policy shall be received as proof of such interest, and every policy executed by way of gaming or wagering, is void.
“SEC. 235.
The term industrial life insurance as used in this Code shall mean that form of life insurance under which the premiums are payable either monthly or oftener, if the face amount of insurance provided in any policy is not more than five hundred times that of the current statutory minimum daily wage in the City of Manila, and if the words industrial policy are printed upon the policy as part of the descriptive matter.
“An industrial life policy shall not lapse for nonpayment of premium if such nonpayment was due to the failure of the company to send its representative or agent to the insured at the residence of the insured or at some other place indicated by him for the purpose of collecting such premium: Provided, That the provisions of this paragraph shall not apply when the premium on the policy remains unpaid for a period of three (3) months or twelve (12) weeks after the grace period has expired.
Pecuniary Interest
- Most basic requirement of an insurance policy. Also determines the ceiling of provable loss
Exception
- life insurance, as hard to determine pecuniary equivalent of a life.
Generally, insured should not make a net profit from the occurrence of the event being insured against. (Encourages fraud?)
Without insurable interest, an insurance policy is mere gambling i.e. illegal
Life Insurance v. Non-Life Insurance
Life Insurance
- closer to a contract of investment, because pecuniary value of life not capable of exact pecuniary estimation.
Non Life Insurance
- a contract of indemnity, whereby the insurable interest is capable of exact pecuniary estimation.
Sec. 25 of IC
- provides that if insurance without insurable interest or payment with or without loss, or if policy is proof of interest or policy is gambling or wagering, then void.
Sec. 2a -
Definition of contract of insurance hints at insurable interest. Agreement whereby one underakes for a considration to indemnify another against loss, damage or liability arising from an unknown or contingent event.
Sec. 3
- Provides that only a person that has an insurable interest may be insured against the unknown or contingent event.
Unknown or contingent event
- means that there is an element of chance. Without insurable interest providing pecuniary estimation then insurance policy just gambling.
Insurable Interest in Life/Health
Sec. 10 provides two classes of life insurance:
(1) Insurance based on one's life;
(2) Insurance taken on another's life
SEC. 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.
(1) Insurance based on one's life
(Sec. 10a)
Here, good faith is presumed as every person has limited insurable interest over their own life. This extends to cases where even a person takes out insurance on his own life for the benefit of another.
Exception
- when the insurance policy is taken upon the initiative of, or on the order/command of a third person beneficiary. This can be proven usually either (1) Beneficiary was the one who initiated taking out the policy; (2) Premiums paid by the beneficiary.
Generally, unlimited insurable interest over own life. Freedom to designate beneficiaries subject to statutory limitations regarding persons qualified.
Designation of a beneficiary
General Rule
: Anyone can be designated as a beneficiary
Exception
- if the designation is void due to being contrary to public policy.
Designations of beneficiaries are considered as a contract of donation. Thus, prohibitions on donations apply to designation of beneficiaries.
C2. Capacity of donees
- sufficient that the donee has juridical capacity. No need that they have capacity to act. So long as not specially disqualified.
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(2) Insurance upon other's lives (Sec. 10b-d)
Requires that a person has insurable interest over the life of another person.
Insurable Interest on One's Spouse
Does not expressly provide the type of spouse. However, can be presumed that spouse here refers to legal spouse based on NCC 739 (Prohibited Donations & FC 195 on Support)
NCC 739
- donation between persons guilty of adultery/concubinage at the time of donation will be void.
Insurable Interest on Children
No qualification between legitimate/illegitimate children.
Because pecuniary interest either way, due to obligation to provide support.
Insurable Interest on Employee
Requires a showing that the death of employee should materially and injuriously affect the employer
This establishes the insurable interest.
Insurable Interest on Debtor
Insurable Interest - amount of policy should not be disproportionate with the amount of debts and liens + cost of the insurance
Otherwise, will become a wagering policy which will be void.
Insurable Interest on a Partner
Insurable interest ipso facto established by partnership. No dinstinction between industrial or capital partnerships.
Insurable Interest on Estate dependent on Insured's Life
Example: usufruct to enjoy another’s property
○ A allows B to live in his condo unit for as long as he is alive.
○ B would have insurable interest over A’s life.
Insurable Interest based Pecuniary Interest
GR
- No need for pecuniary interest in blood ties.
XCPN
- However, for those with lesser degree of kinship aunts, cousins) or relationships by affinity (in laws) pecuniary interest is essential.
FC 195-196 - Insurable interest in the form of obligation to support.
When Insurable Interest Necessary (Sec. 19)
- Insurable interest is necessary only when the insurance takes effect. As such, acquisition of insurable interest at a later time or during the actual loss will not cure the defective policy.
Insurable Interest in Property
“SEC. 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.
Existing Interest
- Can refer to ownership or possessory rights or other such rights.
Inchoate Interest founded on an existing interest
- Generally, interest that depends on a future event which will trigger the interest
Expected Interest when coupled with an existing interest from which the EI arises
- Existing interest over a property + expectancy occurring from the property.
Ex. (Sec. 15)
-
Inchoate interest over expected inheritance.
IC Sec. 15 - Carrier or depositary has insurable interest in the held by him
Who has Insurable Interest (IC Sec. 17)
- Any person who derives benefit from the property's existence or would suffer loss if it is damaged has an insurable interest in the property.
However, such interest must be proven
- via a basis of legal right or duty. Without a legal right or duty, they only have a mere factual expectation of loss which is insufficient for insurance.
Lack of insurable interest in property would mean that person would be wagering.
Insurable Interest
- should exist when the insurance takes effect AND when the loss occurs (IC Sec. 19)
"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.