Problems.
A insured his property valued at P100,000 for P120,000. A suffered a total loss. How much is he entitled to recover?
A is entitled to recover only the value of his loss which is 100T and not 120T because it is against public policy to profit from a loss.
What if the one who caused the damage, B paid A P80,000? What is the liability of the Insurance Company? The insurance claim is reduced in the same amount of 80T. Anything that reduces or diminishes the loss, reduces and diminished the amount which the insurer is bound to pay. Hence the insurer is liabile for 20T. Under a building contract, A constructed a house in Ayala Alabang for 4M for Z who made an advance payment of 1M, the balance to be paid upon deliver of the house on Aug. 13, 1993. A finished the house on July 13, 1993 so he insured the house against fire for 4M. Before delivery of the house in August, the house burned down. What is the extent of the insurable interest of A?
It is still 4M, notwithstanding the fact that he has received from Z 1M as advance payment. The reason why he is entitled to the whole 4M is, he has to replace the house destroyed with another house worth 4M as per the contract, not one valued at only 3M. In other words, 4M was the extent to which A was damnified by the loss of the house.
Cases:
(36) San Miguel Brewery v. Law Union Rock Insurance Company (repeat – case #12) 40 PHIL 674
Facts:
On Jan. 12, 1918, Dunn mortgaged a parcel of land to SMB to secure a debt of 10T.
Mortgage contract stated that Dunn was to have the property insured at his own expense, authorizing SMB to choose the insurers and to receive the proceeds thereof and retain so much of the proceeds as would cover the mortgage debt.
Dunn likewise authorized SMB to take out the insurance policy for him.
Brias, SMB’s general manager, approached Law Union for insurance to the extent of 15T upon the property. In the application, Brias stated that SMB’s interest in the property was merely that of a mortgagee.
Law Union, not wanting to issue a policy for the entire amount, issued one for P7,500 and procured another policy of equal amount from Filipinas Cia de Seguros. Both policies were issued in the name of SMB only and contained no reference to any other interests in the propty. Both policies required assignments to be approved and noted on the policy.
Premiums were paid by SMB and charged to Dunn. A year later, the policies were renewed.
In 1917, Dunn sold the property to Harding, but no assignment of the policies was made to the latter. Property was destroyed by fire. SMB filed an action in court to recover on the policies. Harding was
made a defendant because by virtue of the sale, he became the owner of the property, although the policies were issued in SMB’s name.
SMB sought to recover the proceeds to the extent of its mortgage credit with the balance to go to Harding.
Insurance Companies contended that they were not liable to Harding because their liability under the policies was limited to the insurable interests of SMB only.
SMB eventually reached a settlement with the insurance companies and was paid the balance of it’s mortgage credit. Harding was left to fend for himself. Trial court ruled against Harding. Hence the appeal.
Issue: WON the insurance companies are liable to Harding for the balance of the proceeds of the 2 policies. Held: NOPE.
Under the Insurance Act, the measure of insurable interest in the property is the extent to which the insured might be daminified by the loss or injury thereof. Also it is provided in the IA that the insurance shall be applied exclusively to the proper interest of the person in whose name it is made. Undoubtedly, SMB as the mortgagee of the property, had an insurable interest therein; but it could NOT, an any event, recover upon the two policies an amount in excess of its mortgage credit.
By virtue of the Insurance Act, neither Dunn nor Harding could have recovered from the two policies. With respect to Harding, when he acquired the property, no change or assignment of the policies had been undertaken. The policies might have been worded differently so as to protect the owner, but this was not done.
If the wording had been: “Payable to SMB, mortgagee, as its interests may appear, remainder to whomsoever, during the continuance of the risk, may become owner of the interest insured”, it would have proved an intention to insure the entire interest in the property, NOT merely SMB’s and would have shown to whom the money, in case of loss, should be paid. Unfortunately, this was not what was stated in the policies.
If during the negotiation for the policies, the parties had agreed that even the owner’s interest would be covered by the policies, and the policies had inadvertently been written in the form in which they were eventually issued, the lower court would have been able to order that the contract be reformed to give effect to them in the sense that the parties intended to be bound. However, there is no clear and satisfactory proof that the policies failed to reflect the real agreement between the parties that would justify the reformation of these two contracts.
(37) Ang Ka Yu v. Phoenix Assurance 1 CARA 704