Sec. 387. It shall be unlawful for any land
transportation operator or owner of a motor vehicle to operate the same in the public highways unless there is in force in relation thereto a policy of insurance or guaranty in cash or surety bond issued in accordance with the provisions of this chapter to indemnity the death, bodily injury and/or damage to property of a third-party or passenger, as the case may be, arising from the use thereof.
Compulsory motor vehicle liability insurance is a policy of insurance or guaranty in cash or surety bond to indemnify the death, bodily injury, and/or damage to property of a third- party or passenger arising from the use of a motor vehicle.
It is a requisite for registration or renewal of registration of a motor vehicle by every land transportation operator or owner [Sec. 390]. It is the only type of compulsory insurance provided for under the Insurance Code.
It is a species of compulsory insurance that provides for protection coverage that will answer for legal liability for losses and damages for bodily injuries or property damage that may be sustained by another arising from the use and operation of motor vehicle by its owner. It applies to all vehicles whether public or private vehicles.
To the extent that motor vehicle insurance is compulsory, it must be a liability policy, and the provision making it merely an indemnity insurance contract cannot have any effect
[Campos (1983)]
The insurer’s liability is direct and primary so the insurer need not wait for final judgment in the criminal case to be liable. The purpose
is to give immediate financial assistance to victims of motor vehicle accidents and/or their dependents, especially if they are poor, regardless of the financial capability of motor vehicle owners or operators responsible for the accident sustained [Shafer v. Judge, RTC
Olongapo, G.R. No. 78848 (1988)]
The claimants/victims may be a passenger or a third party. The insured may be the party at fault as against claims of third parties (third party liability) or the victim of the contingent event.
The following clauses are relevant to compulsory motor vehicle liability insurance: (1) Authorized driver clause is a stipulation in
a motor vehicle insurance policy which provides that the driver, other than the insured owner, must be duly licensed to drive the motor vehicle, otherwise the insurer is excused from liability;
(2) Theft clause is a stipulation including theft as one of the risks insured against. If there is such a provision and the vehicle was unlawfully taken, the insurer is liable under the theft clause and the authorized driver clause does not apply. The insured can recover even if the thief has no driver’s license.
(3) No Fault Clause is a provision required in every compulsory motor vehicle liability insurance regarding claims for death or injury to a passenger or third party on a liability insurance policy covering the vehicle.
Any claim for death or injury to any passenger or third party shall be paid without the necessity of proving fault or negligence of any kind, provided the total indemnity in respect of any person shall not exceed P15,000. The claim shall be made against only one motor vehicle. It shall lie against the insurer of the vehicle in which the occupant is riding, and no other. The claimant is not free to choose from which insurer he will claim the no fault indemnity. [Perla Compania de
Seguros v. Ancheta, G.R. No. L-49699 (1988)]
V. Insurable Interest
A. IN GENERAL
In general, an insurable interest is that interest which a person is deemed to have in the subject matter insured, where he has a relation or connection with or concern in it, such that the person will derive pecuniary benefit or advantage from the preservation of the subject matter insured and will suffer pecuniary loss or damage from its destruction, termination, or injury by the happening of the event insured against. The existence of an insurable interest gives a person the legal right to insure the subject matter of the policy of insurance [Lalican v. Insular Life Ins., G.R. No. 183526 (2009)]
An insurable interest is one of the most basic and essential requirements in an insurance contract. As such, it may NOT be waived by stipulation. Absence of insurable interest renders the insurance contract void. [See Sec. 25]
The insurable interest need not always be pecuniary in nature (such as by insuring the life of a person) [Lucena v Crawford, 2Bos & PNR 269 (1806)].
Rationale:
(1) As a deterrence to the insured. A policy issued to a person without interest is a mere wager policy or contract and is void for illegality. A wager policy is obviously contrary to public interest. [De Leon (2014)]
There is a moral hazard in removing insurable interest as a requirement for the validity of an insurance policy – It allows the insured to have an interest in the destruction of the subject matter rather than in its preservation.
(2) As a measure of limit of recovery. The insurable interest is the measure of the upper limit of his provable loss under the contract. Sound public policy requires that insurance should not provide the insured means of making a net profit from the happening of the event insured against. [De Leon (2014)]
A.1. WHEN INSURABLE INTEREST SHOULD EXIST
Policy Insurable interest required
Inception Intervening period Occurrence of loss Life or health P Property P P
For Life Insurance:Insurable interest over life/health mustexist at the time of the inception of the contract but may be lost after.[Sec. 19]
For Property Insurance: Insurable interest must exist at the time of the inception of the contractand at the occurrence of the loss. But it need not exist during the intervening period or from the time between when the policy takes effect and the loss occurs. The alienation of insured property will not defeat a recovery if the insured has subsequently reacquired the property and possesses an insurable interest at the time of loss [Sec. 19 and Womble v.
Dubuque Fire &Marine Ins. Co.310 Mass. 142,
144-145 (1941)]
A.2. CHANGE OF INTEREST
Change of interest means the absolute transfer of the property insured.
General rule:A change of interest in the thing insured does not transfer the policy, but suspends the insurance to an equivalent extent until the interest in the thing and the interest in the insurance policy are vested in the same person. Thus, the contract is not rendered void but is merely suspended [Sec.
20]
Exceptions:
(1) Life, health, and accident insurance; (2) A change of interest in the thing insured
after the occurrence of an injury which results in a loss does not affect the policy
[Sec. 21];
(3) A change in the interest in one or more of several things, separately insured by one policy, such as a conveyance of one or more things, does not affect the policy with respect to the others not so conveyed [Sec. 22];
(4) A change of interest by will or succession on the death of the insured. The death of the insured does not avoid insurance policy. It does not affect the policy except his interest passes to his heir or legal representative who may continue the insurance policy on the property by continuing paying premiums [Sec. 23]; (5) A transfer of interest by one of several
partners, joint owners, or owners in common, who are jointly insured, to the others. This does not avoid the insurance. It will avoid the policy only as to the selling partners or co-owners but not as to others. The rule applies even though it has been agreed that the insurance cease upon alienation of the thing [Sec. 24]; (6) Automatic transfers of interest in cases in
which the policy is so framed that it will inure to the benefit of whosoever may become the owner of the interest insured during the circumstance of the risk [Sec.
57]. It is an exception to the general rule
that upon maturity, the proceeds of a policy shall be given exclusively to the proper interest if the person in whose name or for whose benefit it is made. (7) An express prohibition against alienation
in the policy [Article 1306, Civil Code], in which case alienation will not merely suspend the contract but avoid it entirely.
B. IN LIFE/HEALTH INSURANCE
Sec. 10.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;
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
(4) Of any person upon whose life any estate or interest vested in him depends.
Unless the interest of a person insured is susceptible of exact pecuniary measurement, the measure of indemnity under a policy of insurance upon life or health is the sum fixed in the policy. [Sec. 186]
Life insurance policies may be divided into two general classes:
(1) Insurance upon one’s life; (2) Insurance upon life of another. B.1. IN LIFE INSURANCE
B.1.A. INTEREST IN ONE’S OWN
LIFE
The Cestui que vie is the insured himself. The insured can designate anyone to be the beneficiary of the policy.
Each person has unlimited interest in his own life, whether the insurance is for the benefit of himself or another. [40 CJS 909]
The beneficiary designated need not have any interest in the life of the insured when person takes out policy on his own life. But if a person obtains a policy on the life of another and names himself as the beneficiary, he must have insurable interest therein. [De Leon (2014)]
B.1.B. INTEREST IN LIFE OF
ANOTHER
In life insurance, unless based on commercial relationship, the policy owner does not necessarily have “pecuniary interest” on the life of the cestui que vie. A mere relationship is a sufficient interest to be insured.
The insurable interest must be based on moral and legal grounds. Such interest exists
whenever the insured has a responsible expectation of deriving benefit from the continuation of the life of the other person or of suffering detriment through its termination. There is no insurable interest in the life of an illegitimate spouse.
A creditor may take out insurance on the life of his debtor but his insurable interest is only up to the amount of the debt and only when the debt is unsecured. [Carale (2014)]
An assignee of the insurance contract is not required to have insurable interest in the life of the insured. To require such interest in him is to diminish the investment value of the contract to the owner.
Note: An assignment of the insurance contract is different from a change in the designated beneficiary.
B.1.C. BENEFICIARY
A beneficiary is the person named or designated in a contract of life, health, or accident insurance as the person who is to receive the proceeds or benefits which become payable, according to the terms of the contract, if the insured risk occurs.
General rule: A person may designate a beneficiary, irrespective of the beneficiary’s lack of insurable interest, provided he acts in good faith and without intent to make the transaction merely a cover for a forbidden wagering contract [De Leon (2014)]
Exceptions:Any person who is forbidden from receiving any donation under Article 739,
Civil Code cannot be named beneficiary of a
life insurance policy by the person who cannot make any donation to him. [Article
2012, Civil Code]
Sec. 739, Civil Code: The following donations
are void:
(1) Those made between persons who were guilty of adultery or concubinage at the time of the donation;
(2) Those made between persons found guilty of the same criminal offense, in
consideration thereof;
(3) Those made to a public officer or his wife, descendants and ascendants, by reason of his office.
General Rule: The insured shall have the right to change the beneficiary he designated in the policy [Sec. 11]
Exception: If the insured expressly waived his right to change the beneficiary, this makes the latter an irrevocable beneficiary. But despite the waiver, he can still change the beneficiary, provided he obtained the beneficiary’s consent. [Sec. 11]
Under the Slayer Statute, when the beneficiary is the principal, accomplice or
accessory in willfully bringing about the death
of the insured, interest of beneficiary in life insurance policy is forfeited [Sec. 12]
B.2. INTEREST IN HEALTH INSURANCE General rule: Interest in the life or health of a person must exist at the inception of the insurance contract but need not exist thereafter or when the loss occurs. [Sec. 19] Exceptions:
(1) In the case of a creditor’s insurance taken on the life of the debtor, insurable interest disappears once the debt has been paid. At this point, the creditor/insured can no longer recover on the policy;
(2) In the case of a company’s insurance taken on the life of an employee, insurable interest disappears once the employee leaves the company, in which case, the company can no longer recover on the policy.
B.3. TRANSFER OF POLICY
The life insurance policy can be transferred whether the transferee has insurable interest or not. Notice of the transfer to the insurer is not required for the validity of the same. [Sec. 184 and 185]
There is no right of subrogation in life insurance, because it is not a contract of indemnity.