Insurance Law Reviewer

Republic Act No. 10607: An Act Strengthening The Insurance Industry, Further Amending Presidential Decree No. 612, Otherwise Known As The Insurance Code, As Amended By Presidential Decree Nos. 1141, 1280, 1455, 1460, 1814 And 1981, And Batas Pambansa Blg. 874, And For Other Purposes

[1] What are the effects of an irrevocable designation of a beneficiary under the Insurance Code? Explain.

The beneficiary acquires vested right over life insurance once he is designated irrevocably. This means that his consent is needed in order for the insured to divest beneficiary in whole or in part.

The beneficiary designated in a life insurance contract cannot be changed without the consent of the beneficiary because he has a vested interest in the policy. (G.R. No. L-54216, July 19, 1989)

The insured cannot take the cash surrender value, assign or even borrow on said policy without the beneficiary's consent. (G.R. No. 22796, June 26, 1967)

The additional of additional beneficiaries is also not allowed as this would reduce the recoverable amount and adversely affect the rights of the irrevocable beneficiary/beneficiaries. (G.R. No. 47705, April 25, 1941)

The insured cannot exercise rights and/or privileges pertaining to the insurance contract, for otherwise, the vested rights of the irrevocable beneficiaries would be rendered inconsequential. (G.R. No. 54216, July 19, 1989)

Opinion has been expressed that the death of an irrevocable beneficiary does not give the insured the power to designated another in the former's stead. The irrevocable beneficiary's estate acquires vested right over the policy upon his death. (Silliman University College of Law, Batch 2005)

[2] Jacob obtained a life insurance policy for P1 Million designating irrevocably Diwata, a friend, as his beneficiary. Jacob, however, changed his mind and wants Yob and Jojo, his other friends, to be included as beneficiaries considering that the proceeds of the policy are sufficient for the three friends. Can Jacob still add Yob and Jojo as his beneficiaries? Explain.

No, Jacob cannot add Yob and Jojo, unless Diwata consents.

An irrevocable beneficiary is entitled to the full amount of the policy. Additional beneficiaries would impair Diwata's vested rights over the policy.

[3] Juan de la Cruz was issued Policy No. 8888 of the Midland Life Insurance Co on a whole life plan for P20,000 on August 19, 1989. Juan is married to Cynthia with whom he has three legitimate children. He, however, designated Purita, his common-law wife, as the revocable beneficiary. Juan referred to Purita in his application and policy as the legal wife. 3 years later, Juan died. Purita filed her claim for the proceeds of the policy as the designated beneficiary therein. The widow, Cynthia, also filed a claim as the legal wife. To whom should the proceeds of the insurance policy be awarded? (5%)

The estate of Juan acquires rights over the proceeds over the insurance policy upon his death. Illicit relation disqualifies one to be a donee and as a beneficiary. 

[4] A applied for a non-medical life insurance. The insured did not inform the insurer that one week prior to his application for insurance, he was examined and confined at St. Luke‘s Hospital where he was diagnosed for lung cancer. The insured soon thereafter died in a plane crash. Is the insurer liable considering that the fact concealed had no bearing with the cause of death of the insured? Why?

No, the insurer is not liable. There is material misrepresentation. It does not matter that the insured died of a cause about which he did not disclose.

[5] On September 23, 1990, Tan took a life insurance policy from Philam. The policy was issued on November 6, 1990. He died on April 26, 1992 of hepatoma. The insurance company denied the beneficiaries' claim and rescinded the policy by reason of alleged misrepresentation and concealment of material facts made by Tan in his application. It returned the premiums paid.

The beneficiaries contend that the company had no right to rescind the contract as rescission must be done during the lifetime of the insured within two years and prior to the commencement of the action. Is the contention of the beneficiaries tenable?

No, the beneficiaries' contention is not tenable.

The right to rescind is lost upon the lapse of two (2) years from the issuance of the policy or upon the commencement of an action on the policy.

[6] Juan procured a non-medical life insurance from Good Life Insurance. He designated his wife, Petra, as the beneficiary. Earlier, in his application in response to the question as to whether or not he had ever been hospitalized, he answered in the negative. He forgot to mention his confinement at the Kidney Hospital.

After Juan died in a plane crash, Petra filed a claim with Good Life. Discovering Juan‘s previous hospitalization, Good Life rejected Petra‘s claim on the ground of concealment and misrepresentation. Petra sued Good Life, invoking good faith on part of Juan.

Will Petra's suit prosper? Explain.

No, Petra's suit will not prosper.

Good faith is not a defense in material concealment. Although incontestability and the filing of a claim by the beneficiaries precludes the insurer from rescinding the contract, it can nevertheless prove in the claim proceedings that there has been material concealment which avoids the contract.

In this case, the failure of Juan to disclose is material to the approval of the policy or the setting of the premiums.

[7] The assured answers "No" to the question in the application for a life policy: Are you suffering from any form of heart illness? In fact, the assured has been a heart patient for many years. On 7 Sep 1991, the assured is killed in a plane crash. The insurance company denies the claim for insurance proceeds and returns the premiums paid. Is the decision of the insurance company justified?

There is material misrepresentation in this case. It does not matter that insured died of a cause different from the one concealed.

[8] Atty Roberto took out a life insurance policy from the Dana Ins Co (DIC) on 1 Sep 1989. On 31 Aug 1990, Roberto died. DIC refused to pay his beneficiaries because it discovered that Robert had misrepresented certain material facts in his application. The beneficiaries sued on the basis that DIC can contest the validity of the insurance policy only within 2 years from the date of issue and during the lifetime of the insured. Decide the case.

Rule in favor of the insurance company. The issue of material misrepresentation may be raised or invoke in the proceedings on the claim.

[9] Renato was issued a life insurance policy on January 2, 1990. He concealed the fact that 3 years prior to the issuance of his life insurance policy, he had been seeing a doctor about his heart ailment.

On March 1, 1992, Renato died of heart failure. May the heirs file a claim on the proceeds of the life insurance policy of Renato? (5%)

Yes, the heirs may file a claim on the proceeds because the incontestability clause applies.

[10] BD has a bank deposit of half a million pesos. Since the limit of the insurance coverage of the Philippine Deposit Insurance Corp (PDIC) (RA 3591) is only one tenth of BD‘s deposit, he would like some protection for the excess by taking out an insurance against all risks or contingencies of loss arising from any unsound or unsafe banking practices including unforeseen adverse effects of the continuing crisis involving the banking and financial sector in the Asian region. Does BD have an insurable interest within the meaning of the Insurance Code of the Philippines (PD1460)?

Yes, BD has insurable interest over said deposit. He will suffer pecuniary loss in case of loss thereof.

[11] May a member of the MILF or its breakaway group, the Abu Sayyaf, be insured with a company licensed to do business under the Insurance Code of the Phils (PD 1460)? Explain.

Yes. What is prohibited to be insured is a public enemy. A public enemy is a citizen or national of a country with which the Philippines is at war.

[12] A businessman in the grocery business obtained from First Insurance an insurance policy for P5M to fully cover his stocks-in-trade from the risk of fire.

Three months thereafter, a fire of accidental origin broke out and completely destroyed the grocery including his stocks-in-trade. This prompted the businessman to file with First Insurance a claim for five million pesos representing the full value of his goods.

First Insurance denied the claim because it discovered that at the time of the loss, the stocks-in-trade were mortgaged to a creditor who likewise obtained from Second Insurance Company fire insurance coverage for the stocks at their full value of P5M.

a) May the businessman and the creditor obtain separate insurance coverages over the same stocks- in-trade? Explain.

b) First Insurance refused to pay claiming that double insurance is contrary to law. Is this contention tenable?

 c) Suppose you are the Judge, how much would you allow the businessman and the creditor to recover from their respective insurers. Explain.

Yes, the owner and the mortgagee have separate insurable interests over the same.

Double insurance is not illegal per se. Over-insurance is regulated.

I would allow the businessman to recover to the full extent of the value of the goods lost. I would allow the mortgagee-creditor to recover up to the extent of his credit. 

[13] A piece of machinery was shipped to Mr Pablo on the basis of C&F Manila. Pablo insured said machinery with the Talaga Merchants Ins Co (Tamic) for loss or damage during the voyage. The vessel sank en route to Manila. Pablo then filed a claim with Tamic which was denied for the reason that prior to deliver, Pablo had no insurable interest. Decide the case.

The buyer in a perfected contract of sale has insurable interest over the goods sold based on his equitable interest.

[14] A obtains a fire insurance on his house and as a generous gesture names his neighbor as the beneficiary. If A's house is destroyed by fire, can B successfully claim against the policy?

A obtains insurance over his life and names his neighbor B the beneficiary because of A‘s secret love for B. If A dies, can B successfully claim against the policy?

No, B cannot. B has no insurance interested. In property insurance, the beneficiary must have insurable interest.

Yes, B can. A insured who takes out life insurance over his own life can designate anyone as beneficiary, regardless of insurable interest.

[15] IS, an elderly bachelor with no known relatives, obtained life insurance coverage for P250,000.00 from Starbrite Insurance Corporation, an entity licensed to engage in the insurable business under the Insurance Code of the Philippines (PD1460). He also insured his residential house for twice that amount within the same corporation. He immediately assigned all his rights to the insurance proceeds to BX, a friend-companion living with him. Three years later, IS died in a fire that gutted his insured house two days after he had sold it. There is no evidence of suicide or arson or involvement of BX in these events. BX demanded payment of the insurance proceeds from the two policies, the premiums for which IS had been faithfully paying during all the time he was alive. Starbrite refused payment, contending that BX had no insurable interest and therefore was not entitled to receive the proceeds from IS‘s insurance coverage on his life and also on his property. Is Starbrite‘s contention valid? Explain?

As to property insurance, insurable interest must exist in the beneficiary. Otherwise, there can be no valid entitlement to proceeds.

As to life insurance taken by the insured on his own life with the designation of another as beneficiary, the latter need not have insurable interest.

[16] Distinguish insurable interest in property insurance from insurable interest in life insurance.

BASIS OF INTEREST. In property insurance, expectation of benefit must have a legal basis. In life insurance, the expectation of benefit to be derived from the continued existence of a life need not have any legal basis.

LIMIT. In property insurance, the actual value of the interest therein is the limit of the insurance that can validly be placed thereon. In life insurance, there is no limit to the amount of insurance that may be taken upon life.

INSURABLE INTEREST AT THE TIME OF LOSS. In property insurance, an interest insured must exist when the insurance takes effect and when the loss occurs but need not exist in the meantime. In life insurance, it is enough that insurable interest exists at the time when the contract is made but it need not exist at the time of loss. (Silliman University College of Law, Batch 2005)

[17] In a civil suit, the Court ordered Benjie to pay Nat P500,000.00. To execute the judgment, the sheriff levied upon Benjie‘s registered property (a parcel of land and the building thereon),and sold the same at public auction to Nat, the highest bidder. The latter, on March 18, 1992, registered with the Register of Deeds the certificate of sale issued to him by the sheriff. Meanwhile, on January 27, 1993, Benjie insured with Garapal Insurance for P1,000,000.00 the same building that was sold at public auction to Nat. Benjie failed to redeem the property by March 18, 1993.

On March 19, 1993, a fire razed the building to the ground. Garapal Insurance refused to make good its obligation to Benjie under the insurance contract. 1) Is Garapal Insurance legally justified in refusing payment to Benjie? 2) Is Nat entitled to collect on the insurance policy?

Yes. Insurable interest, in property insurance, must exist at the time of loss. 

No. Insurable interest may transfer as when, for example, ownership over the thing insured is transferred by sale. However, ownership of the policy itself does not transfer, except when there is an automatic transfer clause.

[18] JQ, owner of a condominium unit, insured the same against fire with the XYZ Insurance Co., and made the loss payable to his brother, MLQ. In case of loss by fire of the said condominium unit, who may recover on the fire insurance policy? State the reason(s) for your answer.

For a person to recover from a property/fire insurance policy, he must have insurable interest at the time of loss.

[19] What is meant by "cash and carry" in the business of insurance?

Under the cash and carry system, the health need of an individual was only attended to after initial payment for the service was made. Even in cases when patients had been brought into the hospital on emergencies it was required that money was paid at every point of service delivery.

[20] Distinguish co-insurance from re-insurance.

CO-INSURANCE is the percentage in the value of the insured property which the insured himself assumes or undertakes to act as insurer to the extent of the deficiency in the insurance of the insured property. In case of loss or damage, the insurer will be liable only for such proportion of the loss or damage as the amount of insurance bears to the designated percentage of the full value of the property insured.

REINSURANCE is where the insurer procures a third party, called the reinsurer, to insure him against liability by reason of such original insurance.

[21] When does double insurance exist?

A double insurance exists where the same person is insured by several insurers separately in respect to the same subject and interest. This is a different concept from "over-insurance."

Where the insured is overinsured by double insurance:

(a) The insured, unless the policy otherwise provides, may claim payment from the insurers in such order as he may select, up to the amount for which the insurers are severally liable under their respective contracts;

(b) Where the policy under which the insured claims is a valued policy, the insured must give credit as against the valuation for any sum received by him under any other policy without regard to the actual value of the subject matter insured;

(c) Where the policy under which the insured claims is an unvalued policy he must give credit, as against the full insurable value, for any sum received by him under any policy;

(d) Where the insured receives any sum in excess of the valuation in the case of valued policies, or of the insurable value in the case of unvalued policies, he must hold such sum in trust for the insurers, according to their right of contribution among themselves;

(e) Each insurer is bound, as between himself and the other insurers, to contribute ratably to the loss in proportion to the amount for which he is liable under his contract.

[22] 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 Co for P350th. Subsequently, she again got an insurance contract with RSI for P1m and then from EIC for P200th. A fire of unknown origin gutted the store of the partnership. Julie filed her claims with the three 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 coverages and that she was not informed about the requirement that such other or additional insurance should be stated in the policy.

Is the contention of Julie tenable? Explain.

May she recover on her fire insurance policies? Explain.

No. The law requires disclosure of other insurance coverage over the same subject matter.

No. There is violation of warranty in this case. Or condition.

[23] The Peninsula Insurance Company offered to insure Francis' brand new car against all risks in the sum of PI Million for 1 year. The policy was issued with the premium fixed at 160,000.00 payable in 6 months. Francis only paid the first two months installments. Despite demands, he failed to pay the subsequent installments. Five months after the issuance of the policy, the vehicle was carnapped. Francis filed with the insurance company a claim for its value. However, the company denied his claim on the ground that he failed to pay the premium resulting in the cancellation of the policy. Can Francis recover from the Peninsula Insurance Company?

Yes, non-payment of premiums is excused when there is agreement between the insurer and the insured for payment thereof on installments. As long as the loss happened within the period for payment agreed upon, the insurer is liable. Nevertheless, the insurer has the right to deduct unpaid premiums from the proceeds demandable.

[24] The policy of insurance upon his life, with a face value of P100th was assigned by Jose, a married man with 2 legitimate children, to his nephew Y as security for a loan of P50th. He did not give the insurer any written notice of such assignment despite the explicit provision to that effect in the policy. Jose died. Upon the claim on the policy by the assignee, the insurer refused to pay on the ground that it was not notified of the assignment. Upon the other hand, the heirs of Jose contended that Y is not entitled to any amount under the policy because the assignment without due notice to the insurer was void. Resolve the issues.

Although life insurance is assignable, the parties may agree that notice must first be made to the insurer regarding such assignment. However, failure to notify does not avoid the policy.

[25] Josie Gatbonton obtained from Warranty Insurance Corporation a comprehensive motor vehicle insurance to cover her brand new automobile. She paid, and the insurer accepted payment in check. Before the check could be encashed, Josie was involved in a motor vehicle accident where her car became a total wreck. She sought payment from the insurer. Could the insurer be made liable under the insurance coverage?

Although a check is not legal tender, the acceptance by the insurer of the check should be considered payment by the insured.

Another view has been expressed that there is no payment of premium in this case.

[26] Robin insured his building against fire with EFG Assurance. The insurance policy contained the usual stipulation that any action or suit must be filed within one year after the rejection of the claim.

After his building burned down, Robin filed his claim for fire loss with EFG. On Feb 28, 1994, EFG denied Robin‘s claim. On April 3, 1994, Robin sought reconsideration of the denial, but EFG reiterated its position. On March 20, 1995, Robin commenced judicial action against EFG. Should Robin‘s action be given due course? Explain.

The condition contained in an insurance policy that claims must be presented within one year after rejection is not merely a procedural requirement but an important matter essential to a prompt settlement of claims against insurance companies as it demands that insurance suits be brought by the insured while the evidence as to the origin and cause of destruction have not yet disappeared. (G.R. No. 89741, March 13, 1991)
[27] Name at least three instances when an insured is entitled to a return of the premium paid.

[a] Non-exposure to any peril insured against. All premiums must be returned.
[b] An insurance policy for a period and the insured surrenders the policy. Premiums in proportion to the unexpired time.
[c] Insurance contract voidable because of insurer's fraud or misrepresentation.
[d] Insurance contract voidable because of insurer's agent's fraud or misrepresentation.
[e] Insurance contract voidable because of facts without the fault and knowledge of the insured.
[f] By default of the insured other than actual fraud and the insurer never incurring any liability under the policy.
[g] In case of an over insurance by several insurers, the insured is entitled to a ratable return of the premium, proportioned to the amount by which the aggregate sum insured in all the policies exceeds the insurable value of the thing at risk. (Silliman University College of Law, Batch 2005)

[28] CNI insure 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 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 one million pesos in damages which he sought to collect from the insurer. But CNI used ATTs report to deny the claim on the ground that the injuries to POS's 3 children were intentional, hence excluded from the policy's coverage. POS countered that CNI was estopped from using ATTs 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.

There is not conflict of interest if a lawyer represents two parties joining or resisting the same claim.

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.

[29] Luis was the holder of an accident insurance policy effective Nov 1, 1988 to Oct 31, 1989. At a boxing contest held on Jan 1, 1989 and sponsored by his employer, he slipped and was hit on the fact by his opponent so he fell and his head hit one of the posts of the boxing ring. He was rendered unconscious and was dead on arrival at the hospital due to "intra-cranial hemorrhage."

Can his father who is a beneficiary under said insurance policy successfully claim indemnity from the insurance company? Explain.

Death sustained in a boxing contest is an accident. It is an unforeseen and unexpected injury.

[30] S Insurance Co issued a personal accident policy to Bob Tan with a face value of P500th. In the evening of Sep 5, 1992, after his birthday party, Tan was in a happy mood but not drunk. He was playing with his hand gun, from which he previously removed the magazine. As his secretary was watching television, he stood in front of her and pointed the gun at her. She pushed it aside and said that it may be loaded. He assured her that it was not and then pointed it at his temple. The next moment, there was an explosion and Tan slumped to the floor lifeless.

The wife of the deceased sought payment on the policy but her claim was rejected. The insurance company agreed that there was no suicide. However, it was the submission of the insurance company that there was no accident. In support thereof, it contended a) that there was no accident when a deliberate act was performed unless some additional, unexpected, independent and unforeseen happening occur which produces or brings about the injury or death; and b) that the insured willfully exposed himself to needless peril and thus removed himself from the coverage of the insurance policy. Are the two contentions of the insurance company tenable? Explain.

Willful exposure by the insured of himself to needless peril makes the insurer not liable.

[31] Sun-Moon Insurance issued a Personal Accident Policy to Henry Dy with a face value of P500th. A provision in the policy states that "the company shall not be liable in respect of "bodily injury" consequent upon the insured person attempting to commit suicide or willfully exposing himself to needless peril except in an attempt to save human life." Six months later, Henry Dy died of a bullet wound in his head. Investigation showed that one evening Henry was in a happy mood although he was not drunk. He was playing with his handgun from which he had previously removed its magazine. He pointed the gun at his sister who got scared. He assured her it was not loaded. He then pointed the gun at his temple and pulled the trigger. The gun fired and Henry slumped on the floor.

Henry's wife Beverly, as the designated beneficiary, sought to collect under the policy. Sun-Moon Insurance rejected her claim on the ground that the death of Henry was not accidental. Beverly sued the insurer. Decide and Discuss fully.

Not suicide. It was an act of negligence.

[32] What is the nature of the liability of the several insurers in double insurance? Explain.

They are bound to the contribute ratably to the loss in proportion to the amount for which he is liable under his contract.

(Amount of policy ÷ Total amount of all insurance coverages taken) x Loss = Insurer's liability

[33] While driving his car along EDSA, Cesar sideswiped Roberto, causing injuries to the latter, Roberto sued Cesar and the third party liability insurer for damages and/or insurance proceeds. The insurance company moved to dismiss the complaint, contending that the liability of Cesar has not yet been determined with finality. a) Is the contention of the insurer correct? Explain. b) May the insurer be held liable with Cesar?

Where an insurance policy insures directly against liability, the insurer‘s liability accrues immediately upon the occurrence of the injury or event upon which the liability depends.

Liability based on contract is different from that based on tort.

[34] X was riding a suburban utility vehicle (SUV) covered by a comprehensive motor vehicle liability insurance (CMVLI) underwritten by FastPay Insurance Company when it collided with a speeding bus owned by RM Travel Inc. The collision resulted in serious injuries to X; Y, a passenger of the bus; and Z, a pedestrian waiting for a ride at the scene of the collision. The police report established that the bus was the offending vehicle. The bus had CMVLI policy issued by Dragon Ins Co. X, Y, and Z jointly sued RM Travel and Dragon Ins for indemnity under the Insurance Code of the Phils (PD1460). The lower court applied the ―no fault‖ indemnity policy of the statute, dismissed the suit against RM Travel, and ordered Dragon Ins to pay indemnity to all three plaintiffs. Do you agree with the court‘s judgment? Explain.

No. The cause of action of Y is based on the contract of carriage, while that of X and Z is based on torts. The court should not have dismissed the suit against RM Travel. The court should have ordered Dragon Ins to pay each of X, Y , and Z to the extent of the insurance coverage, but whatever amount is agreed upon in the policy should be answered first by RM Travel and the succeeding amount should be paid by Dragon Insurance up to the amount of the insurance coverage. The excess of the claims of X, Y, and Z, over and above such insurance coverage, if any, should be answered or paid by RM Travel. (Silliman University College of Law, Batch 2005)

[35] What is your understanding of a "no fault indemnity" clause found in an insurance policy?

Any claim for death or injury of any passenger or third party shall be paid without the necessity of proving fault or negligence of any kind.

[36] Raul‘s truck bumped the car owned by Luz. The car was insured by Cala Insurance. For the damage caused, Cala paid Luz P5,000.00 in amicable settlement. Luz executed a release of 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 P9,500.00 Since Cala paid P5,000 only, Luz contends that she was entitled to go after Raul to claim the additional P4,500.00 1) Is Cala, as subrogee of Luz, entitled to reimbursement from Raul? 2) May Cala recover what it has paid Luz?

The right of subrogation can only exist after the insurer has paid the otherwise the insured will be deprived of his right to full indemnity. If the insurance proceeds are not sufficient to cover the damages suffered by the insured, then he may sue the party responsible for the damage for the the [sic] remainder. To the extent of the amount he has already received from the insurer enjoy's [sic] the right of subrogation.

Since the insurer can be subrogated to only such rights as the insured may have, should the insured, after receiving payment from the insurer, release the wrongdoer who caused the loss, the insurer loses his rights against the latter. But in such a case, the insurer will be entitled to recover from the insured whatever it has paid to the latter, unless the release was made with the consent of the insurer. (G.R. No. L-52756; October 12, 1987)

[37] Sheryl insured her newly acquired car, a Nissan Maxima against any loss or damage for P50th and against 3rd party liability for P20th with the XYZ Ins Co. Under the policy, the car must be driven only by an authorized driver who is either: 1) the insured, or 2) any person driving on the insured‘s order or with his permission: provided that the person driving is permitted in accordance with the licensing or other laws or regulations to drive the motor vehicle and is not disqualified from driving such motor vehicle by order of a court.

During the effectivity of the policy, the car, then driven by Sheryl herself, who had no driver‘s license, met an accident and was extensively damaged. The estimated cost of repair was P40th. Sheryl immediately notified XYZ, but the latter refused to pay on the policy alleging that Sheryl violated the terms thereof when she drove it without a driver‘s license. Is the insurer correct?

The Authorized Driver Clause applies only when the person driving the vehicle was one other than the insured at the time of the accident.

[38] Rick de la Cruz insured his passenger jeepney with Asiatic Insurers, Inc. The policy provided that the authorized driver of the vehicle should have a valid and existing driver‘s license. The passenger jeepney of Rick de la Cruz which was at the time driven by Jay Cruz, figured in an accident resulting in the death of a passenger. At the time of the accident, Jay Cruz was licensed to drive but it was confiscated by an LTO agent who issued him a Traffic Violation Report (TVR) just minutes before the accident. Could Asiatic Insurers, Inc., be made liable under its policy? Why?