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Cha v. Cha - Insurable Interest

277 SCRA 690 (1997)

Facts:

>  Spouses Nilo Cha and Stella Uy-Cha, as lessees, entered into a lease contract with CKS Development Corporation (CKS), as lessor.

>  One of the stipulations of the one (1) year lease contract states: "18.     . . . 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, the Cha spouses insured against loss by fire their merchandise inside the leased premises for Five Hundred Thousand (P500,000.00) with the United Insurance without the written consent 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 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, alleging that the latter had no insurable interest. Hence, the latter filed a complaint against the Cha spouses and United.


Issue:

Whether or not CKS can claim the proceeds of the fire insurance.

Held:

NO.  CKS has no insurable interest.

Sec. 18 of the Insurance Code provides:

"Sec. 18. 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 at 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 the present case, it cannot be denied that CKS has no insurable interest in the goods and merchandise inside the leased premises under the provisions of Section 17 of the Insurance Code which provide:

"Section 17.         The measure of an insurable interest in property is the extent to which the insured might be damnified by loss of injury thereof."


Therefore, CKS cannot, under the Insurance Code — a special law — be validly a beneficiary of the fire insurance policy taken by the petitioner-spouses over their merchandise. This insurable interest over said merchandise remains with the insured, the Cha spouses. 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 Nilo Cha and Stella Uy-Cha (herein co-petitioners). The insurer (United) cannot be compelled to pay the proceeds of the fire insurance policy to a person (CKS) who has no insurable interest in the property insured.