Bar Q and A #8

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1.) On May 13, 1996, PAM, Inc. obtained a P15M fire insurance policy from Ilocano Insurance covering its machineries and equipment effective for 1 year or until May 14, 1997. The policy expressly stated that the insured properties were located at “Sanyo Precision Phils. Building, Phase III, Lots 4 and 6, Block 15, PEZA, Rosario Cavite.” Before its expiration, the policy was renewed on “as is” basis for another year until May 13, 1998. The subject properties were later transferred to Pace Factory also in PEZA. On October 12, 1997, during the effectivity of the renewed policy, a fire broke out at the Pace Factory which totally burned the insured properties. The policy forbade the removal of the insured properties unless sanctioned by Ilocano. Condition 9(c) of the policy provides that “the insurance ceases to attach as regards the property affected unless the insured, before the occurrence of any loss or damage, obtains the sanction of the company signified by endorsement upon the policy xxx (c) if the property insured is removed to any building or place other than in that which is herein stated to be insured.” PAM claims that it has substantially complied with notifying Ilocano for the insurance coverage. Is Ilocano liable under the policy?

NO. Ilocano is not liable under the policy. With the transfer of the location of the subject properties, without notice and without the insurer’s consent after the renewal of the policy, the insured clearly committed concealment, misrepresentation and a breach of material warranty. The Insurance Code provides that a neglect to communicate that which a party knows and ought to communicate is called concealment. Concealment entitles the injured party to rescind a contract of insurance in case of an alteration in the use or condition of the thing insured. 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 the insurer to rescind the contract of fire insurance.

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2.) X insured his life for P20M. X plays golf and regularly exercises everyday, hence is considered in good health. He did not know, however, that his frequent headaches are really caused by his being hypertensive. In his application for a life insurance for himself, he did not put a check to the question if he is suffering from hypertension, believing that because of his active lifestyle, being hypertensive is remote possibility. While playing golf one day, X collapsed at the fairway and was declared dead on arrival at the hospital. His death certificate stated that X suffered a massive heart attack. a. Will the beneficiary of X be entitled to the proceeds of the life insurance under the circumstances, despite the non- disclosure that he is hypertensive at the time of application? b. If X died in an accident instead of a heart attack, would the fact of X’s failure to disclose that he is hypertensive be considered as material information?

a. NO, the beneficiary of X is not entitled to the proceeds of the life insurance. The hypertension of X is a material fact that should have been disclosed to the insurer. The concealment of such material fact entitles the insurer to rescind the insurance policy.

b. It is still a material information. It is settled that the insured cannot recover even though the material fact not disclosed is not the cause of the loss.

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3.) Julie and Alma formed a business partnership. Under the business name Pino Shop, the partnership engaged in a sale of construction materials. Julie insured the stocks in trade of Pino Shop with WGC Insurance Company for P350,000. Subsequently, she again got an insurance contract with RSI for P1M and then from EIC for P200,000. A fire of unknown origin gutted the store of the partnership. Julie filed her claims with the 3 insurance companies. However, her claims were denied separately for breach of policy condition which required the insured to give notice of any insurance effected covering the stocks in trade. Julie went to court and contended that she should not be blamed for the omission, alleging that the insurance agents for WGC, RSI and EIC knew of the existence of the additional insurance coverage and that she was not informed about the requirement that such other or additional insurance should be stated in the policy. a. Is the contention of Julie tenable? Explain. b. May she recover on her fire insurance policies? Explain.

a. NO. An insured is required to disclose the other insurances covering the subject matter of the insurance being applied for.

b. NO, because she is guilty of violation of a warranty/ condition.

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4.) CNI insured SAM under a homeowner’s policy against claims for accidental injuries by neighbors. SAM’s minor son, BOY, injured 3 children of POS, a neighbor, who sued SAM for damages. SAM’s lawyer was at ATT, who was paid for his services by the insurer for reporting periodically on the case to CNI. In one report, ATT disclosed to CNI that after his investigations, he found the injuries to the 3 children not accidental but intentional. SAM lost the case in court, and POS was awarded P1M in damages which he sought to collect from the insurer. But CNI used ATT’s report to deny the claim on the ground that the injuries to POS’ 3 children were intentional, hence excluded from the policy’s coverage. POS countered that CNI was stopped from using ATT’s report because it was unethical for ATT to provide prejudicial information against his client to the insurer, CNI. Who should prevail: the claimant, POS; or the insurer, CNI? Decide with reasons briefly.

CNI is not estopped from using ATT’s report because CNI, in the first place, commissioned it and paid ATT for it. On the other hand, ATT has no conflict of interest because SAM and CNI are on the same side—their interests being congruent with each other, namely, to oppose POS’ claim. It cannot be said that ATT has used the information to the disadvantage or prejudice of SAM.

However, in Finman General Assurance Corp. v. Court of Appeals, 213 SCRA 493 (1992), it was explained that there is no “accident” in the context of an accident policy, if it is the natural result of the insured’s voluntary act, unaccompanied by anything unforeseen except the injury. There is no accident when a deliberate act is performed, unless some additional and unforeseen happening occurs that brings about the injury. This element of deliberateness is not clearly shown from the facts of the case, especially considering the fact that BOY is a minor, and the injured parties are also children. Accordingly, it is possible that CNI may not prosper. ATT’s report is not conclusive on POS or the court.

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5.) X Company procured a group accident insurance policy for its construction employees variously assigned to its provincial infrastructure projects. Y Insurance Company underwrote the coverage, the premiums of which were paid for entirely by X Company without any employee contributions. While the policy was in effect, five of the covered employees perished at sea on their way to their provincial assignments. Their wives sued Y Insurance Company for payment of death benefits under the policy. While the suit was pending, the wives signed a power of attorney designating an X Company executive. PJ as their authorized representative to enter into a settlement with the insurance company. When a settlement was reached, PJ instructed the insurance company to issue a settlement check to the order of the X Company, which will undertake the payment to the individual claimants of their respective shares. PJ misappropriated the settlement amount and the wives pursued their case against Y Insurance Company. Will the suit prosper? Explain.

YES. The suit will prosper. Y insurance Company is liable. X Company, through its executive, PJ, acted as agent of Y Insurance Company. The latter is thus bound by the misconduct of its agent. It is the usual practice in the group insurance business that the employer-policy holder is the agent of the issuer.

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6.) (a) Suppose that Fortune owns a house valued at P600,000 and insured the same against fire with 3 insurance companies as follows: X P400,000.00 Y P200,000.00 Z P600,000.00 In the absence of any stipulation in the policies from which insurance company or companies, may Fortune recover in case of fire should destroy his house completely? (b) If each of the fire insurance policies obtained by Fortune in problem (a) is a valued policy and the value of his house was fixed in each of the policies at P1M, how much would Fortune recover from X if he has already obtained full payment on the insurance policies issued by Y and Z? (c) If each of the policies obtained by Fortune in problem (a) above is an open policy and it was immediately determined after the fire that the value of Fortune’s house was P2.4 M, how much may he collect from X, Y and Z? (d) In problem (a), what is the extent of the liability of the insurance companies among themselves? € Supposing in problem (a) above, Fortune was able to collect from both Y and Z, may he keep the entire amount he was able to collect from the said 2 insurance companies? Explain your answer.

a. Fortune may recover from the insurers in such order as he may select up to their concurrent liability.

b. One Answer (assuming that the real value is P1 M):
Fortune may still recover only the balance of P200,000 from X Insurance Company since the insured may only recover up to the extent of his loss.

c. In an open policy, the insured may recover his total loss up to the amount of the insurance coverage. Thus, the extent of recovery would be P400,000 from X; P200,000 from Y; and P600,000 from Z.

d. In the problem (a), the insurance companies among themselves would be liable, viz:
X— 4/12 of P600,000 = P200,000
Y— 2/12 of P600,000 = P100,000
Z— 6/12 of P600,000 = P300,000

e. NO, he can only be indemnified for his loss, not profit thereby; hence, he must return P200,000 of the P800,000 he was able to collect.

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7.) On October 18, 1980, P, took out a life insurance policy and named his only son Q as beneficiary. The policy was silent with regard to any change of beneficiary. P later learned that Q was hooked on drugs and immediately notified the insurance company in writing that he is substituting his sister, R, as his beneficiary in place of Q. P later died of advanced tuberculosis. In the application form filled up by the agent of the insurance company prior to the issuance of the life insurance policy by the insurance company, the agent, without the knowledge of P, filled in a false answer and made it appear that P was in good health. Upon P’s death, Q claimed the proceeds of the insurance policy contending that as designated beneficiary, he cannot be changed without his consent, he having acquired a vested right to the proceeds of the policy. a. Is Q’s contention correct? Reasons. b. Can the insurance company refuse liability on the policy? Reasons.

a. NO, the designation of the beneficiary is revocable unless the right to revoke is waived.

b. NO, the insurer cannot escape liability. The insurance agent is an agent not of the insured but of the insurer and the latter must thus suffer for the misconduct of the agent. The result would have been different had the false answer been made by the agent in connivance with the insured.

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8.) RC Corporation purchased rice from Thailand, which it intended to sell locally. Due to stormy weather, the ship carrying the rice became submerged in sea water and with it the rice cargo. When the cargo arrived in Manila, RC filed a claim for total loss with the insurer, because the rice was no longer fit for human consumption. Admittedly, the rice could still be used as animal feed. Is RC’s claim for total loss justified? Explain.

YES, RC’s claim for total loss is justified. The rice, which was imported from Thailand for sale locally, is obviously intended for consumption by the public. The complete physical destruction of the rice is not essential to constitute an actual loss. Such a loss exists in this case since the rice, having been soaked in sea water and thereby rendered unfit for human consumption, has become totally useless for the purpose for which it was imported.

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9.) ELP Insurance, Inc. issued a Marine Policy No. 888 in favor of FCL Corp. to insure the shipment of 132 bundles of electric copper cathodes against all risks. Subsequently, the cargoes were shipped on board the vessel “M/V Menchu” from Leyte to Pier 10, North Harbor, Manila. Upon arrival, FCL Corp. engaged the services of CGM, Inc. for the release and withdrawal of the cargoes from the pier and the subsequent delivery to its warehouses/plants in Valenzuela City. The goods were loaded on board 12 trucks owned by CGM, Inc., driven by its employed drivers and accompanied by its employed truck helpers. Of the 12 trucks en route to Valenzuela City, only 11 reached the destination. One truck, loaded with 11 bundles of copper cathodes, failed to deliver its cargo. Because of this incident, FCL Corp. filed with ELP Insurance, Inc. a claim for insurance indemnity in the amount of P1.5 M. After the requisite investigation and adjustment, ELP Insurance, Inc. paid FCL Corp. the amount of P1,350,000.00 as insurance indemnity. ELP Insurance, Inc., thereafter, filed a complaint for damages against CGM, Inc. before the RTC, seeking reimbursement of the amount it had paid to FCL Corp. for the loss of the subject cargo. CGM, Inc. denied the claim on the basis that it is not privy to the contract entered into by and between FCL Corp. and ELP Insurance, Inc., and hence, it is not liable therefor. If you are the judge, how will you decide the case?

CGM, Inc. should be held liable for damages against ELP Insurance, Inc. The insurer, upon happening of the risk insured against and after payment to the insured is subrogated to the rights and cause of action of the latter. As such, the insurer has the right to seek reimbursement for all the expenses paid.

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10.) Raul’s truck bumped the car owned by Luz. The car was insured by Cala Insurance. For the damage caused, Cala paid Luz P5,000 in amicable settlement. Luz executed a release claim, subrogating Cala to all her rights against Raul. When Cala demanded reimbursement from Raul, the latter refused saying that he had already paid Luz P4,500 for the damage to the car as evidenced by a release of claim executed by Luz discharging Raul. So Cala demanded reimbursement from Luz, who refused to pay, saying that the total damage to the car was P9,500. Since Cala paid P5,000 only, Luz contends that she was entitled to go after Raul to claim the additional P4,500. a. Is Cala, as subrogee of Luz, entitled to reimbursement from Raul? b. May Cala recover what it has paid Luz?

a. NO. Luz executed a release in favor of Raul.

b. YES. Cala lost its right against Raul because of the release executed by Luz. Since the release was made without the consent of Cala, Cala may recover the amount of P5,000.

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