Dear PAO,Lindsay and I agreed that she will supply parts of the machine which I am using for the production of certain products for her business. We also agreed that I will sell the product to her at a discounted rate. We would like to insure the machine, but the insurance agent claimed that I am the only one who can insure it. He told us that Lindsay has no insurable interest in the machine because she is not the owner. Is this correct?

Harelle

Dear Harelle,

Insurable interest in property is specifically governed by Section 13, Title 3, of Republic Act 10607 otherwise known as the “Insurance Code” which provides that:

“Every interest in property, whether real or personal, or any relation thereto, or liability in respect thereof, of such nature that a contemplated peril might directly damnify the insured, is an insurable interest.”

“Correlative thereto, Section 14 of the same law states that: “An insurable interest in property may consist in:

“(a) An existing interest;

“(b) An inchoate interest founded on an existing interest; or

“(c) An expectancy, coupled with an existing interest in that out of which the expectancy arises.”

Insurable interest in property based from the afore-cited law is not limited to ownership. This was explained in the case of UCPB General Insurance Co. Inc. vs. Asgard Corrugated Box Manufacturing Corporation (GR 244407, Jan. 26, 2021), where the Supreme Court speaking through former Associate Justice Rosmari Carandang stated that:

“Therefore, an insurable interest in property does not necessarily imply a property interest in, or a lien upon, or possession of, the subject matter of the insurance, and neither the title nor a beneficial interest is requisite to the existence of such an interest. It is sufficient that the insured is so situated with reference to the property that he would be liable to loss should it be injured or destroyed by the peril against which it is insured. Anyone has an insurable interest in property who derives a benefit from its existence or would suffer loss from its destruction.

“Insurable interest in property is not limited to property ownership in the subject matter of the insurance. Where the interest of the insured in, or his relation to, the property is such that he will be benefitted by its continued existence, or will suffer a direct pecuniary loss by its destruction, his contract of insurance will be upheld, although he has no legal or equitable title. A husband would thus have an insurable interest in the paraphernal property of his wife since the fruits thereof belong to the conjugal partnership and may be used for the support of the family.”

Applying the above-quoted decision in your situation, insurable interest in property is not limited to ownership. Lindsay is in a position where she will be benefitted from the continued operation of the machine because its products were intended for her business. She has an insurable interest thereon since she will suffer loss or it may affect her business when the same will be destroyed or lost. Thus, it is safe to conclude that Lindsay has insurable interest in the said machine and the statement of the representative that she cannot insure the same considering that she was not its owner is not correct and has no legal basis.

We hope that we were able to answer your queries. This advice is based solely on the facts you have narrated and our appreciation of the same. Our opinion may vary when other facts are changed or elaborated.