G.R. No. L-14300; January 19, 1920
SAN MIGUEL BREWERY, plaintiff-appellee, vs. LAW UNION AND ROCK INSURANCE CO., (LTD.) ET AL., defendants-appellees. HENRY HARDING, defendant-appellant.

FACTS:
D.P. Dunn mortgaged his property to San Miguel Brewery to secure a debt. As required by the mortgage contract, Dunn authorized the Brewery to insure the property at his expense. The Brewery’s manager, Antonio Brias, applied for insurance, informing the agent that the Brewery’s interest was only that of a mortgagee. Two insurance companies, Law Union and Rock Insurance Co. and “Filipinas” Compania de Seguros, each issued a policy for P7,500, but both policies named only “San Miguel Brewery” as the assured without specifying its interest as mortgagee. Dunn later sold the property to Henry Harding. The property was subsequently destroyed by fire. The insurance companies settled with the San Miguel Brewery by paying the amount of its mortgage credit. Harding, as the new owner, claimed the balance of the insurance proceeds (the difference between the total insurance of P15,000 and the mortgage debt paid to the Brewery). The insurance companies denied liability to Harding.

ISSUE:
Whether Henry Harding, as the successor-in-interest of the original owner, has a right of action to recover the balance of the insurance proceeds from the insurance companies under the policies issued solely in the name of San Miguel Brewery.

RULING:
No. The Supreme Court affirmed the trial court’s decision absolving the insurance companies from liability to Harding.
1. Harding is not a party to the insurance contracts. The policies were issued exclusively in the name of San Miguel Brewery. As a stranger to the contracts, Harding cannot directly maintain an action thereon.
2. The Brewery’s recovery was limited to its insurable interest. Under the Insurance Act ( Act No. 2427 ), the measure of insurable interest is the extent of potential pecuniary loss. The Brewery, as mortgagee, could only recover an amount up to the value of its mortgage credit, which it did. The policies contained no clause making them payable to the Brewery as mortgagee with the remainder to the owner.
3. The change in ownership suspended the insurance. The Insurance Act provides that a transfer of the insured property without a corresponding transfer of the policy suspends the insurance until the same person owns both the policy and the property. Dunn sold the property to Harding without assigning the policies, thus suspending any coverage for the owner’s interest.
4. Reformation of the contracts is not warranted. Harding argued that the parties intended to insure the full value of the property, not just the mortgage interest. The Court found the evidence insufficient to prove a mutual mistake that would justify reforming the policies to reflect such an intent. The application clearly stated the Brewery’s interest was only as a mortgagee.

Therefore, the insurance companies’ liability was correctly limited to the insurable interest of the named assured, San Miguel Brewery.