G.R. No. 124520, 18 August 1997, 277 SCRA 690

FACTS:

Spouses Nilo Cha and Stella Uy-Cha, as lessees, entered into a lease contract with CKS Development Corporation, as lessor, on 5 October 1988. One of the stipulations of the 1 year lease contract states that “The LESSEE shall not insure against fire the chattels, merchandise, textiles, goods and effects placed at any stall
or store or space in the leased premises without first obtaining the written consent and approval of the LESSOR. If the LESSEE obtain(s) the insurance thereof without the consent of the LESSOR then the policy is deemed assigned and transferred to the LESSOR for its own benefit” Notwithstanding the above stipulation in the lease contract, the Cha spouses insured against loss by fire their merchandise inside the leased premises for P500,000.00 with the United Insurance Co., Inc. without the written consent of CKS. On the day that the lease contract was to expire, fire broke out inside the leased premises. When CKS learned of the insurance earlier procured by the Cha spouses (without its consent), it wrote the insurer (United) a demand letter asking
that the proceeds of the insurance contract (between the Cha spouses and United) be paid directly to CKS, based on its lease contract with the Cha spouses. United refused to pay CKS. Hence, the latter filed a complaint against the Cha spouses and United. On 2 June 1992, the Regional Trial Court, Branch 6, Manila, rendered a decision ordering United to pay CKS the amount of P335,063.11 and the Cha spouses to pay P50,000.00 as exemplary damages, P20,000.00 as attorney’s fees and costs of suit. On appeal, the Court of Appeals in CA GR CV 39328 rendered a decision dated 11 January 1996, affirming the trial court decision, deleting however the awards for exemplary damages and attorney’s fees. A motion for reconsideration by
United was denied on 29 March 1996. The spouses Cha and United filed the petition for review on certiorari.

ISSUE:

Whether or not the CKS has insurable interest because the spouses Cha violated the stipulation on the lease contract.

RULING:

NO. CA set aside. Awarding the proceeds to spouses Cha.
Under Sec. 18 of the Insurance Code of the Philippines which provides that “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”.

A non-life insurance policy such as the fire insurance policy taken by petitioner-spouses over their merchandise is primarily a contract of indemnity. Insurable interest in the property insured must exist a t the time the insurance takes effect and at the time the loss occurs. The basis of such requirement of insurable interest in property insured is based on sound public policy: to prevent a person from taking out an insurance policy on property upon which he has no insurable interest and collecting the proceeds of said policy in case of loss of the property. In such a case, the contract of insurance is a mere wager which is void under Section 25 of the Insurance Code.

In Sec. 25 of the same Code states, “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”.

Also under Sec. 17 of the same Code provides that the measure of an insurable interest in property is the extent to which the insured might be damnified by loss of injury thereof.

Hence, the automatic assignment of the policy to CKS under the provision of the lease contract previously quoted is void for being contrary to law and/or public policy. The proceeds of the fire insurance policy thus rightfully belong to the spouses. The liability of the Cha spouses to CKS for violating their lease contract in that Cha spouses obtained a fire insurance policy over their own merchandise, without the consent of CKS, is a separate and distinct issue which we do not resolve in this case.

*Case Digest by Honeyleth Luvie T. Hayag, Ll.B.-4, Andres Bonifacio Law School, SY 2018-2019