HILARIO GERCIO, PLAINTIFF AND APPELLEE, VS. SUN LIFE ASSURANCE CO. OF CANADA ET AL., DEFENDANTS. SUN LIFE ASSURANCE CO. OF CANADA, APPELLANT.

The
question of first impression in the law of life insurance to be here
decided is whether the insured—the husband—has the power to change the
beneficiary—the former wife—and to name instead his actual wife, where
the insured and the beneficiary have been divorced, and where the
policy of insurance does not expressly reserve to the insured the right
to change the beneficiary. Although the authorities have been
exhausted, no legal situation exactly like the one before us has been
encountered.

Hilario Gercio, the insured, is the plaintiff.
The Sun Life Assurance Co. of Canada, the insurer, and Andrea Zialcita,
the beneficiary, are the defendants. The complaint is in the nature of
mandamus. Its purpose is to compel the defendant Sun Life Assurance Co.
of Canada to change the beneficiary in the policy issued by the
defendant company on the life of the plaintiff Hilario Gercio, with one
Andrea Zialcita as beneficiary.

A default judgment was taken
in the lower court against the defendant Andrea Zialcita. The other
defendant, the Sun Life Assurance Co. of Canada, first demurred to the
complaint and when the demurrer was overruled, filed an answer in the
nature of a general denial. The case was then submitted for decision on
an agreed statement of facts. The judgment of the trial court was in
favor of the plaintiff without costs, and ordered the defendant company
to eliminate from the insurance policy the name of Andrea Zialcita as
beneficiary and to substitute therefor such name as the plaintiff might
furnish to the defendant for that purpose.

The Sun Life
Assurance Co. of Canada has appealed and has assigned three errors
alleged, to have been committed by the lower court. The appellee has
countered with a motion which asks the court to dismiss the appeal of
the defendant Sun Life Assurance Co. of Canada, with costs.

As the motion presented by the appellee and the first two errors
assigned by the appellant are preliminary in nature, we will pass upon
them first. Appellee argues that the “substantial defendant” was Andrea
Zialcita, and that since she was adjudged in default, the Sun Life
Assurance Co. of Canada has no interest in the appeal. It will be
noticed, however, that the complaint prays for affirmative relief
against the insurance company. It will be noticed further that it is
stipulated that the insurance company has persistently refused to
change the beneficiary as desired by the plaintiff. As the rights of
Andrea Zialcita in the policy are rights which are enforceable by her
only against the insurance company, the defendant insurance company
will only be fully protected if the question at issue is conclusively
determined. Accordingly, we have decided not to accede to the motion of
the appellee and not to order the dismissal of the appeal of the
appellant.

This brings us to the main issue. Before,
however, discussing its legal aspects, it is advisable to have before
us the essential facts. As they are stipulated, this part of the
decision can easily be accomplished.

On January 29, 1910,
the Sun Life Assurance Co. of Canada issued insurance policy No. 161481
on the life of Hilario Gercio. The policy was what is known as a
twenty-year endowment policy. By its terms, the insurance company
agreed to insure the life of Hilario Gercio for the sum of P2,000, to
be paid him on February 1, 1930, or if the insured should die before
said date, then to his wife, Mrs. Andrea Zialcita, should she survive
him; otherwise, to the executors, administrators, or assigns of the
insured. The policy also contained a schedule of reserves, amounts in
cash, paid-up policies, and renewed insurance, guaranteed. The policy
did not include any provision reserving to the insured the right to
change the beneficiary.

On the date the policy was issued,
Andrea Zialcita was the lawful wife of Hilario Gercio. Towards the end
of the year 4919, she was convicted of the crime of adultery. On
September 4, 1920, a decree of divorce was issued in civil case No.
17955, which had the effect of completely dissolving the bonds of
matrimony contracted by Hilario Gercio and Andrea Zialcita.

On March 4, 1922, Hilario Gercio formally notified the Sun Life
Assurance Co. of Canada that he had revoked his donation in favor of
Andrea Zialcita, and that he had designated in her stead his present
wife, Adela Garcia de Gercio, as the beneficiary of the policy. Gercio
requested the insurance-company to eliminate Andrea Zialcita as
beneficiary. This, the insurance company has refused and still refuses
to do.

With all of these introductory matters disposed of
and with the legal question to the forefront, it becomes our first duty
to determine what law should be applied to the facts. In this
connection, it should be remembered that the insurance policy was taken
out in 1910, that the Insurance Act, No. 2427, became effective in
1914, and that the effort to change the beneficiary was made in 1922.
Should the provisions of the Code of Commerce and the Civil Code in
force in 1910, or the provisions of the Insurance Act now in force, or
the general principles of law, guide the court in its decision?

On the supposition, first, that the Code of Commerce is applicable, yet
there can be found in it no provision either permitting or prohibiting
the insured to change the beneficiary.

On the supposition,
next, that the Civil Code regulates insurance contracts, it would be
most difficult, if indeed it is practicable, to test a life insurance
policy by its provisions. Should the insurance contract, whereby the
husband names the wife as the beneficiary, be denominated a donation inter vivos, a donation causa mortis,
a contract in favor of a third person, or an aleatory contract? The
subject is further complicated by the fact that if an insurance
contract should be considered a donation, a husband may then never
insure his life in favor of his wife and vice versa, inasmuch
as article 1334 prohibits all donations between spouses during
marriage. It would seem, therefore, that this court was right when in
the case of Del Val vs. Del Val ([1915], 29 Phil., 534), it
declined to consider the proceeds of the insurance policy as a donation
or gift, saying “the contract of life insurance is a special contract
and the destination of the proceeds thereof is determined by special
laws which deal exclusively with that subject. The Civil Code has no
provisions which relate directly and specifically to life-insurance
contracts or to the destination of life-insurance proceeds. * * *” Some
satisfaction is gathered from the perplexities of the Louisiana Supreme
Court, a civil law jurisdiction, where the jurists have disagreed as to
the classification of the insurance contract, but have agreed in their
conclusions as we will hereafter see. (Re Succession of Leonce Desforges [1914], 52 L. R. A. [N. S.], 689; Lambert vs. Penn Mutual Life Insurance Company of Philadelphia and L’Hote & Co. [1898], 50 La. Ann., 1027.)

On the further supposition that the Insurance Act applies, it will be
found that in this Law, there is likewise no provision either
permitting or prohibiting the insured to change the beneficiary.

We must perforce conclude that whether the case be considered as of
1910, or 1914, or 1922, and whether the case be considered in the light
of the Code of Commerce, the Civil Code, or the Insurance Act, the
deficiencies in the law will have to be supplemented by the general
principles prevailing on the subject. To that end, we have gathered the
rules which follow from the best considered American authorities. In
adopting these rules, we do so with the purpose of having the
Philippine Law of Insurance conform as nearly as possible to the modern
Law of Insurance as found in the United States proper.

The
wife has an insurable interest in the life of her husband. “The
beneficiary has an absolute vested interest in the policy from the date
of its issuance and delivery. So when a policy of life insurance is
taken out by the husband in. which the wife is named as beneficiary,
she has a subsisting interest in the policy. And this applies to a
policy to which there are attached the incidents of a loan value, cash
surrender value, an automatic extension by premiums paid, and to an
endowment policy, as well as to an ordinary life insurance policy. If
the husband wishes to retain to himself the control and ownership of
the policy, he may so provide in the policy. But if the policy contains
no provision authorizing a change of beneficiary without the
beneficiary’s consent, the insured cannot make such change.
Accordingly, it is held that a life insurance policy of a husband made
payable to the wife as beneficiary, is the separate property of the
beneficiary and beyond the control of the husband.

As to the
effect produced by the divorce, the Philippine Divorce Law, Act No.
2710, merely provides in section 9 that the decree of divorce shall
dissolve the community property as soon as such decree becomes final.
Unlike the statutes of a few jurisdictions, there is no provision in
Philippine Law permitting the beneficiary in a policy for the benefit
of the wife of the husband to be changed after a divorce. It must
follow, therefore, in the absence of a statute to the contrary, that if
a policy is taken out upon a husband’s life and the wife is named as
beneficiary therein, a subsequent divorce does not destroy her rights
under the policy.

These are some of the pertinent principles
of the Law of Insurance. To reinforce them, we would, even at the
expense of clogging the decision with unnecessary citation of
authority, bring to notice certain decisions which seem to us to have
controlling influence.

To begin with, it is said that our
Insurance Act is mostly taken from the statute of California. It should
prove of interest, therefore, to know the stand taken by the Supreme
Court of that State. A California decision oft cited in the Cyclopedias
is Yore vs. Booth ([1395], 110 Cal., 238; 52 Am. St. Rep., 81), in which we find the following:

”
* * * It seems to be the settled doctrine, with but slight dissent in
the courts of this country, that a person who procures a policy upon
his own life, payable to a designated beneficiary, although he pays the
premiums himself, and keeps the policy in his exclusive possession, has
no power to change the beneficiary, unless the policy itself, or the
charter of the insurance company, so provides. In other words, it is
held that the beneficiary named in the policy, although he has parted
with nothing, and is simply the object of another’s bounty, has
acquired a vested and irrevocable interest in the policy, which he may
keep alive for his own benefit by paying the premiums or assessments if
the person who effected the insurance fails or refuses to do so.”

As carrying great weight, there should also be taken into account two
decisions coming from the Supreme Court of the United States. The first
of these decisions, in point of time, is Connecticut Mutual Life
Insurance Company vs. Schaefer ([1877], 94 U. S., 457). There, Mr. Justice Bradley, delivering the opinion of the court, in part said:

“This
was an action on a policy of life assurance issued July 25, 1868, on
the joint lives of George F. and Francisca Schaefer, then husband and
wife, payable to the survivor on the death of either. In. January,
1870, they were divorced, and alimony was decreed and paid to the wife,
and there was never any issue of the marriage. They both subsequently
married again, after which, in February, 1871, George F. Schaefer died.
This action was brought by Francisca, the survivor.

* * * * * * *

“The
other point, relating to the alleged cessation of insurable interest by
reason of the divorce of the parties, is entitled to more serious
consideration, although we have very little difficulty in disposing of
it.

“It will be proper, in the first place, to ascertain
what is an insurable interest. It is generally agreed that mere wager
policies, that is, policies in which the insured party has no interest
whatever in the matter insured, but only an interest in its loss or
destruction, are void, as against public policy. * * * But precisely
what interest is necessary, in order to take a policy out of the
category of mere wager, has been the subject of much discussion. In
marine and fire insurance the difficulty is not so great, because there
insurance is considered as strictly an indemnity. But in life insurance
the loss can seldom be measured by pecuniary values. Still, an interest
of some sort in the insured life must exist. A man cannot take out
insurance on the life of a total stranger, nor on that of one who is
not so connected with him as to make the continuance of the life a
matter of some real interest to him.

“It is well settled
that a man has an insurable interest in his own life and in that of his
wife and children; a woman in the life of her husband; and the creditor
in the life of his debtor. Indeed it may be said generally that any
reasonable expectation of pecuniary benefit or advantage from the
continued life of another creates an insurable interest in such life.
And there is no doubt that a man may effect an insurance on his own
life for the benefit of a relative or friend; or two or more persons,
on their joint lives, for the benefit of the survivor or survivors. The
old tontines were based substantially on this principle, and their
validity has never been called in question.

*******

“The
policy in question might, in our opinion, be sustained as a joint
insurance, without reference to any other interest, or to the question
whether the cessation of interest avoids a policy good at its
inception. We do not hesitate to say, however, that a policy taken out
in good faith and valid at its inception, is not avoided by the
cessation of the insurable interest, unless such be the necessary
effect of the provisions of the policy itself. * * *

” * *
* In our judgment a life policy, originally valid, does not cease to be
so by the cessation of the assured party’s interest in the life
insured.”

Another controlling decision of the United States Supreme Court is that of Central National Bank of Washington City vs. Hume ([1888], 128 U. S., 134). Therein, Mr. Chief Justice Fuller, as the organ of the court, announced the following doctrines:

“We
think it cannot be doubted that in the instance of contracts of
insurance with a wife or children, or both, upon their insurable
interest in the life of the husband or father, the latter, while they
are living, can exercise no power of disposition over the same without
their consent, nor has he any interest therein of which he can avail
himself; nor upon his death have his personal representatives or his
creditors any interest in the proceeds of such contracts, which belong
to the beneficiaries to whom they are payable.

“It is
indeed the general rule that a policy, and the money to become due
under it, belong, the moment it is issued, to the person or persons
named in it as the beneficiary or beneficiaries, arid that there is no
power in the person procuring the insurance, by any act of his, by deed
or by will, to transfer to any other person the interest of the person
named.”

A jurisdiction which found itself
in somewhat the same situation as the Philippines, because of having to
reconcile the civil law with the more modern principles of insurance,
is Louisiana. In a case coming before the Federal Courts, In re
Dreuil & Co. ([1915], 221 Fed., 796), the facts were that an
endowment insurance policy provided for payment of the amount thereof
at the expiration of twenty years to the insured, or his executors,
administrators, or assigns, with the proviso that, if the insured die
within such period, payment was to be made to his wife if she survive
him. It was held that the wife has a vested interest in the policy, of
which she cannot be deprived without her consent. Foster, District
Judge, announced:

“In so far as the law of
Louisiana is concerned, it may also be considered settled that where a
policy is of the semitoritine variety, as in this case, the beneficiary
has a vested right in the policy, of which she cannot be deprived
without her consent, (Lambert vs. Penn Mutual Life Ins. Co., 50
La. Ann., 1027; 24 South., 16,)” (See in same connection a leading
decision of the Louisiana Supreme Court, Re Succession of Leonce Desforges, [1914], 52 L. R. A. [N. S.], 689.)

Some question has arisen as to the power of the insured to destroy the
vested interest of the beneficiary in the policy. That point is well
covered in the case of Entwistle vs. Travelers Insurance Company ([1902], 202 Pa. St., 141). To quote:

“*
* * The interest of the wife was wholly contingent upon her surviving
her husband, and she could convey no greater interest in the policy
than she herself had. The interest of the children of the insured,
which was created for them by the contract when the policy was issued;
vested in them at the same time that the interest of the wife became
vested in her. Both interests were contingent. If the wife die before
the insured, she will take nothing under the policy. If the insured
should die before the wife, then the children take nothing under the
policy. We see no reason to discriminate between the wife and the
children. They are all payees, under the policy, and together
constitute the ‘assured.’

“The contingency which will
determine whether the wife, or the children as a class will take the
proceeds, has not as yet happened; all the beneficiaries are living,
and nothing has occurred by which the rights of the parties are in any
way changed. The provision that the policy may be converted into cash
at the option of the holder does not change the relative rights of the
parties. We agree entirely with the suggestion that ‘holder’ or
‘holders,’ as used in this connection, means those who in law are the
owners of the policy, and are entitled to the rights and benefits which
may accrue under it; in other words, all the beneficiaries; in the
present case, not only the wife, but the children of the insured. If
for any reason, prudence required the conversion of the policy into
cash, a guardian would have no special difficulty in reasonably
protecting the interest of his wards. But however that may be, it is
manifest that the option can only be exercised by those having the full
legal interest in the policy, or by their assignee. Neither the
husband, nor the wife, nor both together had power to destroy the
vested interest of the children in the policy.”

The case most nearly on all fours with the one at bar is that of Wallace vs.
Mutual Benefit Life Insurance Co. ([1906], 97 Minn., 27; 3 L. R. A. [N.
S.], 478). The opinion there delivered also invokes added interest when
it is noted that it was written by Mr. Justice Elliott, the author of a
text on insurance, later a member of this court. In the Minnesota case
cited, one Wallace effected a “twenty-year endowment” policy of
insurance on his life, payable in the event of his death within twenty
years to Emma G. Wallace, his wife, but, if he lived, to himself at the
end of twenty years. If Wallace died before the death of his wife,
within the twenty years, the policy was payable to the personal
representatives of the insured. During the pendency of divorce
proceedings, the parties signed a contract by which Wallace agreed
that, if a divorce was granted to Mrs. Wallace, the court might award
her certain specified property as alimony, and Mrs. Wallace agreed to
relinquish all claim to any property arising out of the relation of
husband and wife. The divorce was granted. An action was brought by
Wallace to compel Mrs. Wallace to relinquish her interest in the
insurance policy. Mr. Justice Elliott said:

“As
soon as the policy was issued Mrs. Wallace acquired a vested interest
therein, of which she could not be deprived without her consent, except
under the terms of the contract with the insurance company. No right to
change the beneficiary was reserved. Her interest in the policy was her
individual property, subject to be divested only by her death, the
lapse of time, or by the failure of the insured to pay the premiums.
She could keep the policy alive by paying the premiums, if the insured
did not do so. It was contingent upon these events, but it was free
from the control of her husband. He had no interest in her property in
this policy, contingent or otherwise. Her interest was free from any
claim on the part of the insured or his creditors. He could deprive her
of her interest absolutely in but one way, by living more than twenty
years. We are unable to see how the plaintiffs interest in the policy
was primary or superior to that of the husband. Both interests were
contingent, but they were entirely separate and distinct, the one from
the other. The wife’s interest was not affected by the decree of court
which dissolved the marriage contract between the parties. It remains
her separate property, after the divorce as before. * * *

”
* * * The fact that she was his wife at the time the policy was issued
may have been, and undoubtedly was, the reason why she was named as
beneficiary in the event of his death. But her property interest in the
policy after it was issued did not in any reasonable sense arise out of
the marriage relation.”

Somewhat the same question came before the Supreme Court of Kansas in the leading case of Filley vs.
Illinois Life Insurance Company ([1914], 91 Kansas, 220; L. R. A, [1915
D], 130). It was held, following consideration extending to two motions
for rehearing, as follows:

“The benefit
accruing from a policy of life insurance upon the life of a married
man, payable upon his death to his wife, naming her, is payable to the
surviving beneficiary named, although she may have years thereafter
secured a divorce from her husband, and he was thereafter again married
to one who sustained the relation of wife to him at the time of his
death.

“The rights of a beneficiary in an ordinary life
insurance policy become vested, upon the issuance of the policy, and
can thereafter, during the life of the beneficiary, be defeated only as
provided by the terms of the policy.”

If
space permitted, the following corroborative authority could also be
taken into account: Joyce, The Law of Insurance, second edition, vol.
2, pp. 1649 et seq.; 37 Corpus Juris, pp. 394 et seq.; 14 R. C. L., pp. 1376 et seq.; Green vs. Green ([1912], 147 Ky., 608; 39 L. R. A. [N. S.], 370); Washington Life Insurance Co. vs. Berwald ([1903], 97 Tex., 111); Begley vs. Miller ([1907], 137 Ill., App., 278); Blum vs. New York L. Ins. Co. ([1906], 197 Mo., 513; 8 L, R. A, [N. S.], 923); Union Central Life Ins. Co. vs. Buxer ([1900], 62 Ohio St., 385; 49 L. R. A., 737); Griffith vs. New York Life Ins. Co. ([1894], 101 Cal., 627; 40 Am. St. Rep., 96); Preston vs. Conn. Mut. L. Ins. Co. of Hart- ford ([1902], 95 Md., 101); Snyder vs. Supreme Ruler of Fraternal Mystic Circle ([1909], 122 Tenn., 248; 45 L. R. A. [N. S.], 209); Llyod vs. Royal Union Mut. L. Ins. Co. ([1917], 245 Fed., 162); Phoenix Mut. L. Ins. Co. vs. Dunham ([1878], 46 Conn., 79; 33 Am. Rep., 14); McKee vs. Phoenix Ins. Co. ([1859], 28 Mo., 383; 75 Am. Rep., 129); Supreme Council American Legion of Honor vs. Smith and Smith ([1889], 45 N. J. Eq., 466); Overhiser vs. Overhiser ([1900], 63 Ohio St., 77; 81 Am. St. Rep., 612; 50 L. R. A., 552); Condon vs. New York Life Insurance Co. ([1918], 183 Iowa, 658); with which compare Foster vs. Gile ([1880], 50 Wis., 603) and Hatch vs. Hatch ([1904], 35 Tex. Civ. App., 373).

On the admitted facts and the authorities supporting the nearly
universally accepted principles of insurance, we are irresistibly led
to the conclusion that the question at issue must be answered in the
negative.

The judgment appealed from will be reversed and
the complaint ordered dismissed as to the appellant, without special
pronouncement as to the costs in either instance. So ordered.

Street, Villamor, Ostrand, Johns, and Villa-Real, JJ., concur.
Avanceña, C. J., concurs in the result.

---

 

CONCURRING IN THE RESULT

JOHNSON, J.:

I agree with the majority of the court, that the judgment of the lower
court should be revoked, but for a different reason. In my judgment,
the question presented by the plaintiff is purely an academic one. The
purpose of the petition is to have declared the rights of certain
persons in an insurance policy which is not yet due and payable. It may
never become due and payable. The premiums may not be paid, thereby
rendering the contract of insurance of non effect, and many other
things may occur, before the policy becomes due, which would render it
non effective. The plaintiff and the other parties who are claiming an
interest in said policy should wait until there is something due them
under the same. For the courts to declare now who are the persons
entitled to receive the amounts due, if they ever become due and
payable, is impossible, for the reason that nothing may ever become
payable under the contract of insurance, and for many reasons such
persons may never have a right to receive anything when the policy does
become due and payable. In my judgment, the action is premature and
should have been dismissed.

Romualdez, J., did not take part.