Bar Exams Questions and Answers in Mercantile Law Review II I.

Bar Exams Questions and Answers in Mercantile Law Review II

I. Insurance Code

1. A group of Malaysians wanted to invest in the Philippines' insurance business. After negotiations, they agreed to "FIMA Insurance Corp." with a group of Filipino businessmen. FIMA would have a P50 M paid up capital. P40 M of which would come up from the Filipino group. All corporate officers would be Filipinos and 8 out of 10-member Board of Directors would be Filipinos. Can FIMA operate an insurance business in the Philippines?

a. No, since an insurance company must have at least P74 M paid up capital. b. Yes, since there is substantial compliance with our nationalization laws respecting paid-up capital

and Filipino dominated Board of Directors. c. Yes, since FIMA's paid up capital more than meets the country's nationalization laws. d. No, since an insurance company should be 100% owned by Filipinos.

Answer:

a.

No, since an insurance company must have at least P74 M paid up capital. (BAR 2011)

NB The minimum paid up capital requirement for a new insurance company is now P 1 billion

A. Concept of Insurance

1. 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 Philippines? Explain.

b) BD has a bank deposit of half a million pesos. Since the limit of the insurance coverage of the PDIC is only 1/10 of BD's deposit, he would like some protection for the excess by taking out an insurance against all risk 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 the Insurance Code of the Philippines?

Answer: a) A member of the MILF or the Abu Sayyaf may be insured with a company licensed to do business under the

Insurance Code of the Philippines. 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. Such member of the MILF or the Abu Sayyaf is not a citizen or national of another country, but of the Philippines.

b) Yes. BD has insurable interest in his bank deposit. In case of loss of said deposit, more particularly to the extent of the amount in excess of the limit covered by the PDIC Act, BD will be damnified. He will suffer pecuniary loss of P400,000, that is, his bank deposit of half a million pesos minus P100,000 which is the maximum amount recoverable from the PDIC. (BAR 2000)

2. What is a mutual insurance company or association?

Page | 1

Answer: A mutual insurance company is a cooperative enterprise where the members are both the insurer and the insured. In it, the members all contribute, by a system of premiums or assessments, to the creation of a fund from which all losses and liabilities are paid, and where the profits are divided among themselves, in proportion of their interest. (BAR 2006)

3. In return for the 20 years of faithful service of X as a house helper to Y, the latter promised to pay P100,000 to X's heirs if he (X) dies in an accident by fire. X agreed. Is this an insurance contract?

a. Yes, since all the elements of an insurance contract are present. b. Yes, since X's services may be regarded as the consideration. c. No, since Y actually made a conditional donation in X's favor. d. No, since it is in fact an innominate contract between X and Y.

Answer: b) No, since Y actually made a conditional donation in X's favor. (BAR 2011)

B. Elements of an Insurance Contract C. Characteristics/Nature and General Principles of Insurance Contract

1. The Civil Code adopts the theory of cognition, while the Code of Commerce generally recognizes the theory of manifestation, in the perfection of contracts. How do these two theories differ?

Answer: Under the theory of cognition, the acceptance is considered to effectively bind the offeror only from the time it came to his knowledge. Under the theory of manifestation, the contract is perfected at the moment when the acceptance is declared or made by the offeree. (BAR 1997)

2. An Insurance Contract is a contract of adhesion, which means that in resolving ambiguities in the provision of the insurance contract ?

a) The general rule is that, the insurance contract is to be interpreted strictly in accordance with what is written in the contract;

b) Are to be construed liberally in favor of the insured and strictly against the insurer who drafted the insurance policy;

c) Are to be construed strictly against the insured and liberally in favor of the insurer; d) If there is an ambiguity in the insurance contract, this will invalidate the contract.

Answer: b) Are to be construed liberally in favor of the insured and strictly against the insurer who drafted the insurance policy. (BAR 2012)

3. An insurance contract is an aleatory contract, which means that--

a) An insurer will pay the insured equivalent to the amount of the premium; b) The obligation of the insurer is to pay depending upon the happening of an uncertain event;

Page | 2

c) The insured pays a fixed premium for the duration of the policy period and the amount of the premiums paid to the insurer is not necessarily the same amount as what the insured will get upon the happening of an uncertain future event;

d) The obligation of the insurer is to pay depending upon the happening of an event that is certain to happen.

Answer: b) The obligation of the insurer is to pay depending upon the happening of an uncertain event. (BAR 2012)

D. Parties to Insurance Contract

1. Insurer

1. 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.

Answer: 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. (BAR 2000)

2. Insured 3. Beneficiary

1. On July 1, 1979, Crispulo, married to Laura with whom he has two legitimate children, was issued Policy No. 8008 of the Midland Life Insurance Co. on a whole-life plan for P10,000. He designated Angie, his common-law wife as the recoverable beneficiary. He referred to her, in his application and policy, as his wife.

Two years later, Crispulo died. Angie filed her claim for the proceeds of the policy as the designated beneficiary therein. The widow, Laura, also filed her claim as legal wife.

If you were the Legal Counsel for the Insurance Company, to whom would you adjudicate the proceeds of the insurance policy? Reason out your answer briefly.

Answer:

Page | 3

I would adjudicate the proceeds of the insurance policy to Laura, the legal wife. In the appointment of beneficiary, the New Civil Code imposed certain limitations; one of them being that the insured may not appoint, as his beneficiary, one with whom he is guilty of concubinage, at the time of designation. Since Crispulo was married to Laura at the time when he designated as his beneficiary his concubine Angie, with whom he was guilty of concubinage at the time of designation, Laura may have said designation of Angie nullified, by mere preponderance of evidence in the same action for nullification. There is even no need of the criminal conviction for concubinage. (Arts. 739 and 2012, N.C.C.; Insular Life assn. Co., Ltd. v. Ebrado, Oct. 28, 1977; 80 SCRA 181) (BAR 1981, )

2. On December 20, 1974, A took out a life insurance policy and named his wife B, as beneficiary. The policy was silent with regard to any change of beneficiary. Suspecting that B was committing adultery, A immediately notified the insurance company in writing that he is substituting his brother C as beneficiary in place of B. A died later on June 30, 1975. B claims the proceeds of the insurance policy, contending that as designated beneficiary, she cannot be changed without her consent, she having acquired a vested right to the proceeds of the policy. Decide. Give reasons for your answer.

Answer: B cannot claim the proceeds of A's life insurance policy. A's action in substituting his brother C as his beneficiary in

place of B, his wife, in his insurance policy, is valid. The insured, A, can change the beneficiary in a policy of life insurance, without the consent of the beneficiary. (BAR 1978)

3. Eduardo Fernandez applied for and was issued Policy No. 0777 by Atlas Life Insurance Corporation on a whole-life plan for P200,000. Although he was married to Clara, with whom he had 5 legitimate children, he designated his common-law wife, Diana Cruz, as his revocable beneficiary in the policy, and referred to Diana in his application and policy, as his wife. 5 years thereafter, he died. Diana immediately filed her claim for the proceeds of the policy as the designated beneficiary. Clara also filed her claim as legal wife. The insurance company filed a petition for Interpleader before the RTC of Rizal to determine who should be entitled to the proceeds of the policy.

If you were the judge, how would you decide the said interpleader action? Explain.

Answer: If I were the judge, I would decide that the legal wife, Clara, be entitled to the proceeds of insurance taken by Eduardo Fernandez who named his common-law wife, Diana, as his revocable beneficiary, at the time they were guilty of concubinage. In that case, the designation of Diana is void, being prohibited by the New Civil Code (Art. 739 and 2012). The guilt of Eduardo and Diana for concubinage may be proved by mere preponderance of evidence in the same action and there is no need for a criminal conviction for concubinage. (BAR 1985)

4. 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.

Page | 4

Answer: a) No, the designation of the beneficiary is revocable unless the right to revoke is waived. (BAR 1988)

5. 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 de la Cruz is married to Cynthia with whom he has three legitimate children. He, however, designated Purita, his common-law-wife, as the revocable beneficiary. Juan de la Cruz referred to Purita in his application and policy as the legal wife.

3 years later, Juan de la Cruz 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?

Answer: The proceeds of the insurance policy shall be awarded to the estate of Juan. Purita, the common-law wife, is disqualified as the beneficiary of the deceased because of illicit relation between the deceased and Purita, the designated beneficiary. Due to such illicit relation, Purita cannot be a donee of the deceased. Hence, she cannot also be his beneficiary. (BAR 1998)

6. Jacob obtained a life insurance policy for P1 M 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.

Answer: The insured cannot add other beneficiaries as this would diminish the interest of Diwata who is the irrevocably designated beneficiary. The insured can only do so with the consent of Diwata. (BAR 2005)

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

Answer: The irrevocable beneficiary has a vested interest in the policy, including its incident such as the policy loan and cash surrender value. (BAR 2005)

8. On January 1, 2000, Antonio Rivera secured a life insurance from SOS Insurance Corp. for P1 M with Gemma Rivera, his adopted daughter, as the beneficiary. Antonio Rivera died on March 4, 2005 and in the police investigation, it was ascertained that Gemma Rivera participated as an accessory in the killing of Antonio Rivera. Can SOS Insurance Corp. avoid liability by setting up as a defense the participation of Gemma Rivera in the killing of Antonio Rivera? Discuss with reasons.

Answer: SOS cannot avoid liability under the policy. While Gemma's interest as beneficiary in the policy is considered forfeited since she is an accessory to the killing of Antonio, the proceeds of the policy should be paid to the nearest relative of Antonio (if not otherwise disqualified). The Insurance Code provides that the interest of a beneficiary in a life insurance policy shall be forfeited when the beneficiary is the principal, accomplice, or accessory in willfully bringing about the death of the insured; in which event, the nearest relative of the insured shall receive the proceeds of said insurance if not otherwise disqualified. (BAR 2008)

Page | 5

 ................
................

In order to avoid copyright disputes, this page is only a partial summary.

Google Online Preview   Download