Pacific Timber v CA G.R. No.
L-38613 February 25, 1982
J. De Castro
Facts:
The plaintiff secured temporary insurance from the
defendant for its exportation of 1,250,000 board feet of
Philippine Lauan and Apitong logs to be shipped from
Quezon Province to Okinawa and Tokyo, Japan.
Workmen’s Insurance issued a cover note insuring the cargo
of the plaintiff subject to its terms and conditions.
The two marine policies bore the numbers 53 HO 1032 and
53 HO 1033. Policy No. 53 H0 1033 was for 542 pieces of
logs equivalent to 499,950 board feet. Policy No. 53 H0 1033
was for 853 pieces of logs equivalent to 695,548 board feet.
The total cargo insured under the two marine policies
consisted of 1,395 logs, or the equivalent of 1,195.498 bd. ft.
After the issuance of the cover note, but before the issuance
of the two marine policies Nos. 53 HO 1032 and 53 HO 1033,
some of the logs intended to be exported were lost during
loading operations in the Diapitan Bay.
While the logs were alongside the vessel, bad weather
developed resulting in 75 pieces of logs which were rafted
together co break loose from each other. 45 pieces of logs
were salvaged, but 30 pieces were verified to have been lost
or washed away as a result of the accident.
Pacific Timber informed Workmen’s about the loss of 32
pieces of logs during loading of SS woodlock.
Although dated April 4, 1963, the letter was received in the
office of the defendant only on April 15, 1963. The plaintiff
claimed for insurance to the value of P19,286.79.
Woodmen’s requested an adjustment company to assess the
damage. It submitted its report, where it found that the loss
of 30 pieces of logs is not covered by Policies Nos. 53 HO
1032 and 1033 but within the 1,250,000 bd. ft. covered by
Cover Note 1010 insured for $70,000.00.
The adjustment company submitted a computation of the
defendant's probable liability on the loss sustained by the
shipment, in the total amount of P11,042.04.
Woodmen’s wrote the plaintiff denying the latter's claim on
the ground they defendant's investigation revealed that the
entire shipment of logs covered by the two marine policies
were received in good order at their point of destination. It
was further stated that the said loss may be considered as
covered under Cover Note No. 1010 because the said Note
had become null and void by virtue of the issuance of Marine
Policy Nos. 53 HO 1032 and 1033.
The denial of the claim by the defendant was brought by the
plaintiff to the attention of the Insurance Commissioner. The
Insurance Commissioner ruled in favor of indemnifying
Pacific Timber. The company added that the cover note is
null and void for lack of valuable consideration. The trial
court ruled in petitioner’s favor while the CA dismissed the
case. Hence this appeal.
Issues:
WON the cover note was null and void for lack of valuable
consideration
WON the Insurance company was absolved from
responsibility due to unreasonable delay in giving notice of
loss.
Held: No. No. Judgment reversed.
Ratio:
1. The fact that no separate premium was paid on the Cover
Note before the loss occurred does not militate against the
validity of the contention even if no such premium was paid.
All Cover Notes do not contain particulars of the shipment
that would serve as basis for the computation of the
premiums. Also, no separate premiums are required to be
paid on a Cover Note.
The petitioner paid in full all the premiums, hence there was
no account unpaid on the insurance coverage and the cover
note. If the note is to be treated as a separate policy instead
of integrating it to the regular policies, the purpose of the
note would be meaningless. It is a contract, not a mere
application for insurance.
It may be true that the marine insurance policies issued
were for logs no longer including those which had been lost
during loading operations. This had to be so because the risk
insured against is for loss during transit, because the logs
were safely placed aboard.
The non-payment of premium on the Cover Note is,
therefore, no cause for the petitioner to lose what is due it as
if there had been payment of premium, for non-payment by
it was not chargeable against its fault. Had all the logs been
lost during the loading operations, but after the issuance of
the Cover Note, liability on the note would have already
arisen even before payment of premium. Otherwise, the note
would serve no practical purpose in the realm of commerce,
and is supported by the doctrine that where a policy is
delivered without requiring payment of the premium, the
presumption is that a credit was intended and policy is valid.
2. The defense of delay can’t be sustained. The facts show
that instead of invoking the ground of delay in objecting to
petitioner's claim of recovery on the cover note, the insurer
never had this in its mind. It has a duty to inquire when the
loss took place, so that it could determine whether delay
would be a valid ground of objection.
There was enough time for insurer to determine if petitioner
was guilty of delay in communicating the loss to respondent
company. It never did in the Insurance Commission. Waiver
can be raised against it under Section 84 of the Insurance
Act.
Great Pacific v CA G.R. No. L-31845 April 30, 1979
J. De Castro
Facts:
Ngo Hing filed an application with the Great Pacific for a
twenty-year endowment policy in the amount of P50,000.00
on the life of his one-year old daughter Helen. He supplied
the essential data which petitioner Mondragon, the Branch
Manager, wrote on the form. The latter paid the annual
premium the sum of P1,077.75 going over to the Company,
but he retained the amount of P1,317.00 as his commission
for being a duly authorized agent of Pacific Life.
Upon the payment of the insurance premium, the binding
deposit receipt was issued Ngo Hing. Likewise, petitioner
Mondragon handwrote at the bottom of the back page of the
application form his strong recommendation for the
approval of the insurance application. Then Mondragon
received a letter from Pacific Life disapproving the
insurance application. The letter stated that the said life
insurance application for 20-year endowment plan is not
available for minors below seven years old, but Pacific Life
can consider the same under the Juvenile Triple Action Plan,
and advised that if the offer is acceptable, the Juvenile Non-
Medical Declaration be sent to the company.
The non-acceptance of the insurance plan by Pacific Life was
allegedly not communicated by petitioner Mondragon to
private respondent Ngo Hing. Instead, on May 6, 1957,
Mondragon wrote back Pacific Life again strongly
recommending the approval of the 20-year endowment
insurance plan to children, pointing out that since the
customers were asking for such coverage.
Helen Go died of influenza. Ngo Hing sought the payment of
the proceeds of the insurance, but having failed in his effort,
he filed the action for the recovery before the Court of First
Instance of Cebu, which ruled against him.
Issues:
1. Whether the binding deposit receipt constituted a
temporary contract of the life insurance in question
2. Whether Ngo Hing concealed the state of health and
physical condition of Helen Go, which rendered void the
policy
Held: No. Yes. Petition dismissed.
Ratio:
The receipt was intended to be merely a provisional
insurance contract. Its perfection was subject to compliance
of the following conditions: (1) that the company shall be
satisfied that the applicant was insurable on standard rates;
(2) that if the company does not accept the application and
offers to issue a policy for a different plan, the insurance
contract shall not be binding until the applicant accepts the
policy offered; otherwise, the deposit shall be refunded; and
(3) that if the company disapproves the application, the
insurance applied for shall not be in force at any time, and
the premium paid shall be returned to the applicant.
The receipt is merely an acknowledgment that the latter's
branch office had received from the applicant the insurance
premium and had accepted the application subject for
processing by the insurance company. There was still
approval or rejection the same on the basis of whether or
not the applicant is "insurable on standard rates." Since
Pacific Life disapproved the insurance application of
respondent Ngo Hing, the binding deposit receipt in
question had never become in force at any time. The binding
deposit receipt is conditional and does not insure outright.
This was held in Lim v Sun.
The deposit paid by private respondent shall have to be
refunded by Pacific Life.
2. Ngo Hing had deliberately concealed the state of health of
his daughter Helen Go. When he supplied data, he was fully
aware that his one-year old daughter is typically a
mongoloid child. He withheld the fact material to the risk
insured.
“The contract of insurance is one of perfect good faith
uberrima fides meaning good faith, absolute and perfect
candor or openness and honesty; the absence of any
concealment or demotion, however slight.”
The concealment entitles the insurer to rescind the contract
of insurance.
18 Philippine American Life and General Insurance
Company vs. Valencia-Bagalacsa [GR 139776, 1 August
2002]
Facts: On 20 June 1995, Eduardo, Celso and Ruben Z.
Lumaniog, as legitimate children and forced heirs of their
late father, Faustino Lumaniog, filed with the Regional Trial
Court of Libmanan, Camarines Sur, a complaint for recovery
of sum of money against the Philippine American Life and
General Insurance Company (Philamlife) alleging that: their
father was insured by Philamlife under Life Insurance Policy
1305486 with a face value of P50,000.00; their father died of
"coronary thrombosis" on 25 November 1980; on 22 June
1981, they claimed and continuously claimed for all the
proceeds and interests under the life insurance policy in the
amount of P641,000.00, despite repeated demands for
payment and/or settlement of the claim due from Philamlife,
the last of which is on 1 December 1994, Philamlife finally
refused or disallowed said claim on 14 February 1995; and
so, they filed their complaint. Philamlife filed an Answer
with Counterclaim and Motion to Dismiss, contending that
the cause of action had prescribed and that the Lumaniogs
are guilty of laches; that it had denied the latter's claim in a
letter dated 12 March 1982, signed by its then Assistant Vice
President, Amado Dimalanta, on ground of concealment on
the part of the deceased insured Faustino when he asserted
in his application for insurance coverage that he had not
been treated for indication of "chest pain, palpitation, high
blood pressure, rheumatic fever, heart murmur, heart attack
or other disorder of the heart or blood vessel" when in fact
he was a known hypertensive since 1974; that the
Lumaniogs sent a letter dated 25 May 1983 requesting for
reconsideration of the denial; in a letter dated 11 July 1983,
it reiterated its decision to deny the claim for payment of the
proceeds; more than 10 years later, or on 1 December 1994,
it received a letter from Jose C. Claro, a provincial board
member of the province of Camarines Sur, reiterating the
early request for reconsideration which it denied in a letter
dated 14 February 1995. The Lumaniogs opposed the
motion to dismiss. On 7 June 1996, the RTC issued an Order
as to the necessity of trial on merits. Philamlife's motion for
reconsideration was denied by the RTC in its Order dated 22
December 1997 upholding however in the same Order the
claim of the Lumaniogs' counsel that the running of the 10-
year period was "stopped" on 25 May 1983 when they
requested for a reconsideration of the denial and it was only
on 14 February 1995 when Philamlife finally decided to
deny their claim that the 10- year period began to run.
Philamlife filed a petition for certiorari (CA-GR 47885) in the
Court of Appeals and after the comment of the Lumaniogs
and reply of Philamlife, the appellate court rendered its
Decision, dated 30 April 1999, dismissed the petition for
lack of merit. Philamlife filed the petition for review on
certiorari.
Issue: Whether the complaint filed by the Lumaniogs for
payment of life insurance proceeds is already barred by
prescription of action, or whether an extrajudicial demand
made after an action has prescribed shall cause the revival
of the action
Held: NO DETERMINATION. Philamlife had specifically
alleged in the Answer that it had denied the Lumaniogs'
claim per its letter dated 11 July 1983. Hence, due process
demands that it be given the opportunity to prove that the
Lumaniogs had received said letter. Said letter is crucial to
Philamlife's defense that the filing of the complaint for
recovery of sum of money in June 1995 is beyond the 10-
year prescriptive period. The RTC committed a grave abuse
of discretion when, in resolving the motion for
reconsideration of Philamlife, it arbitrarily ruled in its Order
dated 12 December 1997, that the period of 10 years had
not yet lapsed. It based its finding on a mere explanation of
the Lumaniogs' counsel and not on evidence presented by
the parties as to the date when to reckon the prescriptive
period. The ruling of the RTC that the cause of action of the
Lumaniogs had not prescribed, is arbitrary and patently
erroneous for not being founded on evidence on record, and
therefore, the same is void. Consequently, while the Court of
Appeals did not err in upholding the 7 June 1986 Order of
the RTC, it committed a reversible error when it declared
that the RTC did not commit any grave abuse of discretion in
issuing the Order dated 12 December 1997. The Supreme
Court thus partially granted the petition, setting aside the
decision of the Court of Appeals dated 30 April 1999 insofar
only as it upheld the RTC Order dated 12 December 1997. A
new judgment was entered reversing and setting aside the
Order dated 12 December 1997 of the Regional Trial Court
of Libmanan, Camarines Sur (Branch 56) and affirming its
Order dated 20 June 1995. Said RTC was directed to proceed
with dispatch with Civil Case L787.
PREMIUM
Makati Tuscany Condominium Corporation v CA
(Insurance)
G.R. No. 95546 November 6, 1992
MAKATI TUSCANY CONDOMINIUM
CORPORATION, petitioner, vs. THE COURT OF APPEALS,
AMERICAN HOME ASSURANCE CO., represented by
American International Underwriters (Phils.),
Inc., respondent.
FACTS:
Sometime in early 1982, private respondent American Home
Assurance Co. (AHAC), represented by American
International Underwriters (Phils.), Inc., issued in favor of
petitioner Makati Tuscany Condominium Corporation
(TUSCANY) Insurance Policy No. AH-CPP-9210452 on the
latter's building and premises, for a period beginning 1
March 1982 and ending 1 March 1983, with a total premium
of P466,103.05. The premium was paid on installments on
12 March 1982, 20 May 1982, 21 June 1982 and 16
November 1982, all of which were accepted by private
respondent.
Successive renewals of the policies were made in the same
manner. On 1984, the policy was again renewed and
petitioner made two installment payments, both accepted by
private respondent, the first on 6 February 1984 for
P52,000.00 and the second, on 6 June 1984 for P100,000.00.
Thereafter, petitioner refused to pay the balance of the
premium.
Private respondent filed an action to recover the unpaid
balance of P314,103.05 for Insurance Policy. Petitioner
explained that it discontinued the payment of premiums
because the policy did not contain a credit clause in its favor.
Petitioner further claimed that the policy was never binding
and valid, and no risk attached to the policy. It then pleaded
a counterclaim for P152,000.00 for the premiums already
paid for 1984-85, and in its answer with amended
counterclaim, sought the refund of P924,206.10
representing the premium payments for 1982-85.
DECISION OF LOWER COURTS:
(1) Trial Court: dismissed the complaint and counterclaim
(2) CA: ordering herein petitioner to pay the balance of the
premiums due
ISSUE:
Whether payment by installment of the premiums due on an
insurance policy invalidates the contract of insurance, in
view of Sec. 77 of P.D. 612, otherwise known as the
Insurance Code, as amended, which provides:
Sec. 77. An insurer is entitled to the payment of the premium
as soon as the thing is exposed to the peril insured against.
Notwithstanding any agreement to the contrary, no policy or
contract of insurance issued by an insurance company is valid
and binding unless and until the premium thereof has been
paid, except in the case of a life or an industrial life policy
whenever the grace period provision applies.
RULING:
No, the contract remains valid even if the premiums were
paid on installments. Certainly, basic principles of equity and
fairness would not allow the insurer to continue collecting
and accepting the premiums, although paid on installments,
and later deny liability on the lame excuse that the
premiums were not prepared in full.
At the very least, both parties should be deemed in estoppel
to question the arrangement they have voluntarily accepted.
Moreover, as correctly observed by the appellate court,
where the risk is entire and the contract is indivisible, the
insured is not entitled to a refund of the premiums paid if
the insurer was exposed to the risk insured for any period,
however brief or momentary. The obligation to pay
premiums when due is ordinarily as indivisible obligation to
pay the entire premium.
Makati Tuscany v CA G.R. No. 95546 November 6, 1992
J. Bellosillo
Facts:
American International Underwriters issued a policy in
favor of Makati Tuscany Condominium Corporation with a
total premium of P466,103.05. The company issued a
replacement policy. Premium was again paid. In 1984, the
policy was again renewed and private respondent issued to
petitioner another policy. The petitioner paid 152,000 pesos
then refused to furnish the balance.
The company filed an action to recover the unpaid balance
of P314,103.05.
The condominium administration explained that
it discontinued the payment of premiums because the policy
did not contain a credit clause in its favor and that the
acceptance of premiums didn’t waive any of the company
rights to deny liability on any claim under the policy arising
before such payments or after the expiration of
the credit clause of the policy and prior to premium
payment, loss wasn’t covered.
Petitioner sought for a refund. The trial court dismissed the
complaint and counterclaim owing to the argument that
payment of the premiums of the policies were made during
the lifetime or term of said policies, so risk attached under
the policies.
The Court of Appeals ordered petitioner to pay the balance
of the premiums owing to the reason that it was part of an
indivisible obligation.
Petitioner now asserts that its payment by installment of the
premiums for the insurance policies invalidated them
because of the provisions of Sec. 77 of the Insurance Code
disclaiming liability for loss for occurring before payment of
premiums.
Issue: Whether payment by installment of the premiums due
on an insurance policy invalidates the contract of insurance,
in view of Sec. 77 of P.D. 612
Held: Judgment affirmed.
Ratio:
Sec. 77. An insurer is entitled to the payment of the premium
as soon as the thing is exposed to the peril insured against.
Notwithstanding any agreement to the contrary, no policy or
contract of insurance issued by an insurance company is
valid and binding unless and until the premium thereof has
been paid, except in the case of a life or an industrial life
policy whenever the grace period provision applies.
Petitioner concluded that there cannot be a perfected
contract of insurance upon mere partial payment of the
premiums because under Sec. 77 of the Insurance Code, no
contract of insurance is valid and binding unless the
premium thereof has been paid, notwithstanding any
agreement to the contrary. As a consequence, petitioner
seeks a refund of all premium payments made on the alleged
invalid insurance policies.
We hold that the subject policies are valid even if the
premiums were paid on installments. The records
clearly show that petitioner and private respondent
intended subject insurance policies to be binding and
effective notwithstanding the staggered payment of the
premiums. The initial insurance contract entered into in
1982 was renewed in 1983, then in 1984. In those three (3)
years, the insurer accepted all the installment payments.
Such acceptance of payments speaks loudly of the insurer's
intention to honor the policies it issued to petitioner.
Quoting the CA decision:
“While the import of Section 77 is that prepayment of
premiums is strictly required as a condition to the validity of
the contract, we are not prepared to rule that the request to
make installment payments duly approved by the insurer,
would prevent the entire contract of insurance from going
into effect despite payment and acceptance of the initial
premium or first installment. Section 78 of
the Insurance Code in effect allows waiver by the insurer
of the condition of prepayment by making an
acknowledgment in the insurance policy of receipt of
premium as conclusive evidence of payment so far as to
make the policy binding despite the fact that premium is
actually unpaid. Section 77 merely precludes the parties
from stipulating that the policy is valid even if premiums are
not paid, but does not expressly prohibit an agreement
granting credit extension. So is an understanding to allow
insured to pay premiums in installments not so proscribed.
The reliance by petitioner on Arce vs. Capital Surety
and Insurance Co. is unavailing because the facts therein are
substantially different from those in the case at bar. In Arce,
no payment was made by the insured at all despite the grace
period given. Here, petitioner paid the initial installment and
thereafter made staggered payments resulting in full
payment of the 1982 and 1983 insurance policies. For the
1984 policy, petitioner paid two (2) installments although it
refused to pay the balance.
It appearing from the peculiar circumstances that the parties
actually intended to make three (3) insurance contracts
valid, effective and binding, petitioner may not be allowed to
renege on its obligation to pay the balance of the premium
after the expiration of the whole term. Moreover,
as correctly observed by the appellate court, where the risk
is entire and the contract is indivisible, the insured is not
entitled to a refund of the premiums paid if the insurer was
exposed to the risk insured for any period, however brief or
momentary.
UCPB General Insurance v. Masagana Telamart (1999)
UCPB GENERAL INSURANCE [UCPB] v. MASAGANA
TELAMART [Masagana]
1999 / Pardo
FACTS
In 1991, UCPB issued 5 fire insurance policies covering
Masagana Telamart’s various properties for the period
from 22 May 1991 to 22 May 1992.
On March 1992[~2 months before policy
expiration], UCPB evaluated the policies and decided not
to renew them upon expiration of their terms on 22 May
1992. UCPB advised Masagana’s broker of its intention
not to renew the policies. On April 1992 [~1 month before
policy expiration], UCPB gave written notice to Masagana
of the non-renewal of the policies. On June 1992 [policy
already expired], Masagana’s propertycovered by 3 UCPB-
issued policies was razed by fire.
 On 13 July 1992, Masagana presented to UCPB’s
cashier 5 manager’s checks, representing premium for the
renewal of the policies for another year.
It was only on the following day, 14 July 1992, when
Masagana filed with UCPB a formal claim for
indemnification of the insured property razed by fire. On
the same day, UCPB returned the 5 manager’s checks,
and rejected Masagana’s claim since the policies had
expired and were not renewed, and the fire occurred on
13 June 1992 (or before tender of premium payment).
Masagana filed a civil complaint for recovery of the
face value of the policies covering the insured property
razed by fire. RTC ruled in favor of Masagana, as it found it
to have complied with the obligation to pay the premium;
hence, the replacement-renewal policy of these policies
are effective and binding for another year [22 May 1992 – 22
May 1993].
CA affirmed RTC, holding that following previous
practice, Masagana was allowed a 60-90 day credit term
for the renewal of its policies, and that the acceptance of
the late premium payment suggested that payment
could be made later.
ISSUE & HOLDING
WON the fire insurance policies had expired on 22 May
1992, or had been extended or renewed by an implied credit
arrangement though actual payment of premium was
tendered on a later date after the occurrence of the risk
insured against [fire]. FIRE INSURANCE POLICIES HAD
EXPIRED
RATIO
An insurance policy, other than life is not valid and
binding until actual payment of the premium. Any
agreement to the contrary is void.The parties may not
agree expressly or impliedly on the extension of credit or
time to pay the premium and consider the policy binding
before actual payment.
The case of Malayan Insurance v. Cruz-Arnaldocited by the
CA is not applicable. In that case, payment of the premium
was made on before the occurrence of the fire. In the
present case, the payment of the premium for renewal of the
policies was tendered a month after the fire
occurred. Masagana did not even give UCPB a notice of loss
within a reasonable time after occurrence of the fire.
CA DECISION REVERSED
UCPB v Masagana G.R. No. 137172. April 4, 2001
C.J. Davide
Facts:
In our decision of 15 June 1999 in this case, we reversed and
set aside the assailed decision[1] of the Court of Appeals,
which affirmed with modification the judgment of the trial
court (a) allowing Respondent to consign the sum of
P225,753.95 as full payment of the premiums for the
renewal of the five insurance policies on Respondent’s
properties; (b) declaring the replacement-renewal policies
effective and binding from 22 May 1992 until 22 May 1993;
and (c) ordering Petitioner to pay Respondent
P18,645,000.00 as indemnity for the burned properties
covered by the renewal-replacement policies. The
modification consisted in the (1) deletion of the trial court’s
declaration that three of the policies were in force from
August 1991 to August 1992; and (2) reduction of the award
of the attorney’s fees from 25% to 10% of the total amount
due the Respondent.
Masagana obtained from UCPB five (5) insurance policies on
its Manila properties.
The policies were effective from May 22, 1991 to May 22,
1992. On June 13, 1992, Masagana’s properties were razed
by fire. On July 13, 1992, plaintiff tendered five checks for
P225,753.45 as renewal premium payments. A receipt was
issued. On July 14, 1992, Masagana made its formal demand
for indemnification for the burned insured properties. UCPB
then rejected Masagana’s claims under the argument that
the fire took place before the tender of payment.
Hence Masagana filed this case.
The Court of Appeals disagreed with UCPB’s argument that
Masagana’s tender of payment of the premiums on 13 July
1992 did not result in the renewal of the policies, having
been made beyond the effective date of renewal as provided
under Policy Condition No. 26, which states:
26. Renewal Clause. -- Unless the company at least forty five
days in advance of the end of the policy period mails or
delivers to the assured at the address shown in the policy
notice of its intention not to renew the policy or to condition
its renewal upon reduction of limits or elimination of
coverages, the assured shall be entitled to renew the policy
upon payment of the premium due on the effective date of
renewal.
Both the Court of Appeals and the trial court found that
sufficient proof exists that Masagana, which had procured
insurance coverage from UCPB for a number of years, had
been granted a 60 to 90-day credit term for the renewal of
the policies. Such a practice had existed up to the time the
claims were filed. Most of the premiums have been paid for
more than 60 days after the issuance. Also, no timely notice
of non-renewal was made by UCPB.
The Supreme Court ruled against UCPB in the first case on
the issue of whether the fire insurance policies issued by
petitioner to the respondent covering the period from May
22, 1991 to May 22, 1992 had been extended or renewed by
an implied credit arrangement though actual payment of
premium was tendered on a later date and after the
occurrence of the risk insured against.
UCPB filed a motion for reconsideration.
The Supreme Court, upon observing the facts, affirmed that
there was no valid notice of non-renewal of the policies in
question, as there is no proof at all that the notice sent by
ordinary mail was received by Masagana. Also, the
premiums were paid within the grace period.
Issue: Whether Section 77 of the Insurance Code of 1978
must be strictly applied to Petitioner’s advantage despite its
practice of granting a 60- to 90-day credit term for the
payment of premiums.

Held: No. Petition denied.
Ratio:
Section 77 of the Insurance Code provides: No policy or
contract of insurance issued by an insurance company is
valid and binding unless and until the premium thereof has
been paid…
An exception to this section is Section 78 which
provides: Any acknowledgment in a policy or contract of
insurance of the receipt of premium is conclusive evidence
of its payment, so far as to make the policy binding,
notwithstanding any stipulation therein that it shall not be
binding until premium is actually paid.
Makati Tuscany v Court of Appeals- Section 77 may not
apply if the parties have agreed to the payment in
installments of the premium and partial payment has been
made at the time of loss.
Section 78 allows waiver by the insurer of the condition of
prepayment and makes the policy binding despite the fact
that premium is actually unpaid. Section 77 does not
expressly prohibit an agreement granting credit extension.
At the very least, both parties should be deemed in estoppel
to question the arrangement they have voluntarily accepted.
The Tuscany case has provided another exception to Section
77 that the insurer may grant credit extension for the
payment of the premium. If the insurer has granted the
insured a credit term for the payment of the premium and
loss occurs before the expiration of the term, recovery on
the policy should be allowed even though the premium is
paid after the loss but within the credit term.
Moreover, there is nothing in Section 77 which prohibits the
parties in an insurance contract to provide a credit term
within which to pay the premiums. That agreement is not
against the law, morals, good customs, public order or public
policy. The agreement binds the parties.
It would be unjust if recovery on the policy would not be
permitted against Petitioner, which had consistently granted
a 60- to 90-day credit term for the payment of
premiums. Estoppel bars it from taking refuge since
Masagana relied in good faith on such practice. Estoppel
then is the fifth exception.
American Home Assurance Company vs. Chua [GR 130421,
28 June 1999]
Facts: American Home Assurance Company (AHAC) is a
domestic corporation engaged in the insurance business.
Sometime in 1990, Antonio Chua obtained from AHAC a fire
insurance covering the stock-in-trade of his business,
Moonlight Enterprises, located at Valencia, Bukidnon. The
insurance was due to expire on 25 March 1990. On 5 April
1990 Chua issued PCIBank Check 352123 in the amount of
P2,983.50 to AHAC’s agent, James Uy, as payment for the
renewal of the policy. In turn, the latter delivered Renewal
Certificate 00099047 to Chua. The check was drawn against
a Manila bank and deposited in AHAC’s bank account in
Cagayan de Oro City. The corresponding official receipt was
issued on 10 April. Subsequently, a new insurance policy,
Policy 206-4234498-7, was issued, whereby AHAC
undertook to indemnify Chua for any damage or loss arising
from fire up to P200,000 for the period 25 March 1990 to 25
March 1991. On 6 April 1990 Moonlight Enterprises was
completely razed by fire. Total loss was estimated between
P4,000,000 and P5,000,000. Chua filed an insurance claim
with AHAC and four other co-insurers, namely, Pioneer
Insurance and Surety Corporation, Prudential Guarantee and
Assurance, Inc., Filipino Merchants Insurance Co. and
Domestic Insurance Company of the Philippines. AHAC
refused to honor the claim notwithstanding several
demands by Chua, thus, the latter filed an action against
AHAC before the trial court. In its defense, AHAC claimed
there was no existing insurance contract when the fire
occurred since Chua did not pay the premium. It also alleged
that even assuming there was a contract, Chua violated
several conditions of the policy, particularly: (1) his
submission of fraudulent income tax return and financial
statements; (2) his failure to establish the actual loss, which
AHAC assessed at P70,000; and (3) his failure to notify to
AHAC of any insurance already effected to cover the insured
goods. These violations, AHAC insisted, justified the denial of
the claim. The trial court ruled in favor of Chua. It found that
Chua paid by way of check a day before the fire occurred.
The check, which was deposited in AHAC’s bank account,
was even acknowledged in the renewal certificate issued by
AHAC’s agent. It declared that the alleged fraudulent
documents were limited to the disparity between the official
receipts issued by the Bureau of Internal Revenue (BIR) and
the income tax returns for the years 1987 to 1989. All the
other documents were found to be genuine. Nonetheless, it
gave credence to the BIR certification that Chua paid the
corresponding taxes due for the questioned years. As to
Chua’s failure to notify AHAC of the other insurance
contracts covering the same goods, the trial court held that
AHAC failed to show that such omission was intentional and
fraudulent. Finally, it noted that AHAC’s investigation of
Chua's claim was done in collaboration with the
representatives of other insurance companies who found no
irregularity therein. In fact, Pioneer Insurance and Surety
Corporation and Prudential Guarantee and Assurance, Inc.
promptly paid the claims filed by Chua. The trial court
ordered AHAC to pay Chua P200,000.00, representing the
amount of the insurance, plus legal interest from the date of
filing of the case; P200,000.00 as moral damages;
P200,000.00 as loss of profit; P100,000.00 as exemplary
damages; P50,000.00 as attorney’s fees; and Cost of suit. On
appeal, the assailed decision was affirmed in toto by the
Court of Appeals. The Court of Appeals found that Chua’s
claim was substantially proved and AHAC’s unjustified
refusal to pay the claim entitled Chua to the award of
damages. Its motion for reconsideration of the judgment
having been denied, AHAC filed the petition for review on
certiorari
Issue: Whether there was a valid payment of premium,
considering that Chua’s check was cashed after the
occurrence of the fire.
Held: YES. The general rule in insurance laws is that unless
the premium is paid the insurance policy is not valid and
binding. The only exceptions are life and industrial life
insurance. Whether payment was indeed made is a question
of fact which is best determined by the trial court. The trial
court found, as affirmed by the Court of Appeals, that there
was a valid check payment by Chua to AHAC. Well-settled is
the rule that the factual findings and conclusions of the trial
court and the Court of Appeals are entitled to great weight
and respect, and will not be disturbed on appeal in the
absence of any clear showing that the trial court overlooked
certain facts or circumstances which would substantially
affect the disposition of the case. The Supreme Cpurt sees no
reason to depart from this ruling. According to the trial court
the renewal certificate issued to Chua contained the
acknowledgment that premium had been paid. It is not
disputed that the check drawn by Chua in favor of AHAC and
delivered to its agent was honored when presented and
AHAC forthwith issued its official receipt to Chua on 10 April
1990. Section 306 of the Insurance Code provides that any
insurance company which delivers a policy or contract of
insurance to an insurance agent or insurance broker shall be
deemed to have authorized such agent or broker to receive
on its behalf payment of any premium which is due on such
policy or contract of insurance at the time of its issuance or
delivery or which becomes due thereon. Herein, the best
evidence of such authority is the fact that AHAC accepted the
check and issued the official receipt for the payment. It is, as
well, bound by its agent’s acknowledgment of receipt of
payment. Section 78 of the Insurance Code explicitly
provides that "An acknowledgment in a policy or contract of
insurance of the receipt of premium is conclusive evidence
of its payment, so far as to make the policy binding,
notwithstanding any stipulation therein that it shall not be
binding until the premium is actually paid." This Section
establishes a legal fiction of payment and should be
interpreted as an exception to Section
Tibay vs. Court of Appeals [GR 119655, 24 May 1996]
Facts: On 22 January 1987, Fortune Life and General
Insurance Co., Inc. (Fortune) issued Fire Insurance Policy
136171 in favor of Violeta R. Tibay and/or Nicolas Roraldo
on their two-storey residential building located at 5855
Zobel Street, Makati City, together with all their personal
effects therein. The insurance was for P600,000.00 covering
the period from 23 January 1987 to 23 January 1988. On 23
January 1987, of the total premium of P2,983.50, petitioner
Violeta Tibay only paid P600.00 thus leaving a considerable
balance unpaid. On 8 March 1987 the insured building was
completely destroyed by fire. Two days later or on 10 March
1987 Violeta Tibay paid the balance of the premium. On the
same day, she filed with Fortune a claim on the fire
insurance policy. Her claim was accordingly referred to its
adjuster, Goodwill Adjustment Services, Inc. (GASI), which
immediately wrote Violeta requesting her to furnish it with
the necessary documents for the investigation and
processing of her claim. Petitioner forthwith complied. On
28 March 1987 she signed a non-waiver agreement with
GASI to the effect that any action taken by the companies or
their representatives in investigating the claim made by the
claimant for his loss which occurred at 5855 Zobel Roxas,
Makati on 8 March 1987, or in the investigating or
ascertainment of the amount of actual cash value and loss,
shall not waive or invalidate any condition of the policies of
such companies held by said claimant, nor the rights of
either or any of the parties to this agreement, and such
action shall not be, or be claimed to be, an admission of
liability on the part of said companies or any of them. In a
letter dated 11 June 1987 Fortune denied the claim of
Violeta for violation of Policy Condition 2 and of Section 77
of the Insurance Code. Efforts to settle the case before the
Insurance Commission proved futile. On 3 March 1988
Violeta and the other petitioners (Antonio Tibay, Ofelia M.
Roraldo, Victorina M. Roraldo, Virgilio M. Roraldo, Myrna M.
Roraldo, and Rosabella M. Roraldo) sued Fortune for
damages in the amount of P600,000.00 representing the
total coverage of the fire insurance policy plus 12% interest
per annum, P100,000.00 moral damages, and attorney's fees
equivalent to 20% of the total claim. On 19 July 1990 the
trial court ruled for Tibay, et al. and adjudged Fortune liable
for the total value of the insured building and personal
properties in the amount of P600,000.00 plus interest at the
legal rate of 6% per annum from the filing of the complaint
until full payment, and attorney's fees equivalent to 20% of
the total amount claimed plus costs of suit. On 24 March
1995 the Court of Appeals reversed the court a quo by
declaring Fortune not to be liable to Tibay et al. but ordering
Fortune to return to the former the premium of P2,983.50
plus 12% interest from 10 March 1987 until full payment.
Tibay, et al. filed the petition for review.
Issue: Whether a fire insurance policy be valid, binding and
enforceable upon mere partial payment of premium.
Held: NO. Insurance is a contract whereby one undertakes
for a consideration to indemnify another against loss,
damage or liability arising from an unknown or contingent
event. The consideration is the premium, which must be
paid at the time and in the way and manner specified in the
policy, and if not so paid, the policy will lapse and be
forfeited by its own terms. The Policy provides for payment
of premium in full. Accordingly, where the premium has only
been partially paid and the balance paid only after the peril
insured against has occurred, the insurance contract did not
take effect and the insured cannot collect at all on the policy.
This is fully supported by Section 77 of the Insurance Code
which provides that "An insurer is entitled to payment of the
premium as soon as the thing insured is exposed to the peril
insured against. Notwithstanding any agreement to the
contrary, no policy or contract of insurance issued by an
insurance company is valid and binding unless and until the
premium thereof has been paid, except in the case of a life or
an industrial life policy whenever the grace period provision
applies." Apparently the crux of the controversy lies in the
phrase "unless and until the premium thereof has been
paid." This leads us to the manner of payment envisioned by
the law to make the insurance policy operative and binding.
For whatever judicial construction may be accorded the
disputed phrase must ultimately yield to the clear mandate
of the law. The principle that where the law does not
distinguish the court should neither distinguish assumes
that the legislature made no qualification on the use of a
general word or expression. It cannot be disputed that
premium is the elixir vitae of the insurance business because
by law the insurer must maintain a legal reserve fund to
meet its contingent obligations to the public, hence, the
imperative need for its prompt payment and full satisfaction.
It must be emphasized here that all actuarial calculations
and various tabulations of probabilities of losses under the
risks insured against are based on the sound hypothesis of
prompt payment of premiums. Upon this bedrock insurance
firms are enabled to offer the assurance of security to the
public at favorable rates. But once payment of premium is
left to the whim and caprice of the insured, as when the
courts tolerate the payment of a mere P600.00 as partial
undertaking out of the stipulated total premium of
P2,983.50 and the balance to be paid even after the risk
insured against has occurred, as Tibay et al. have done in
this case, on the principle that the strength of the vinculum
juris is not measured by any specific amount of premium
payment, we will surely wreak havoc on the business and
set to naught what has taken actuarians centuries to devise
to arrive at a fair and equitable distribution of risks and
benefits between the insurer and the insured.
Philippine Phoenix Surety & Insurance Company vs.
Woodworks Inc. [GR L-25317, 6 August 1979]
Facts: On 21 July 1960, upon Woodworks Inc.'s application,
Philippine Phoenix Surety & Insurance Company (Phoenix)
issued in its favor Fire Insurance Policy 9749 for
P500,000.00 whereby Phoenix insured Woodworks Inc.'s
building, machinery and equipment for a term of one year
from 21 July 1960 to 21 July 1961 against loss by fire. The
premium and other charges including the margin fee
surcharge of P590.76 and the documentary stamps in the
amount of P156.60 affixed on the Policy, amounted to
P10,593.36. Woodworks Inc. did not pay the premium
stipulated in the Policy when it was issued nor at any time
thereafter. On 19 April 1961, or before the expiration of the
one-year term, Phoenix notified Woodworks Inc., through its
Indorsement F-6963/61, of the cancellation of the Policy
allegedly upon request of Woodworks Inc. The latter has
denied having made such a request. In said Indorsement,
Phoenix credited Woodworks Inc. with the amount of
P3,110.25 for the unexpired period of 94 days, and claimed
the balance of P7,483.11 representing "earned premium
from 21 July 1960 to 18 April 1961 or, say 271 days. On 6
July 1961, Phoenix demanded in writing for the payment of
said amount. Woodworks Inc., through counsel, disclaimed
any liability in its reply-letter of 15 August 1961,
contending, in essence, that it need not pay premium
"because the Insurer did not stand liable for any indemnity
during the period the premiums were not paid." On 30
January 1962, Phoenix commenced action in the Court of
First Instance of Manila, Branch IV (Civil Case 49468), to
recover the amount of P7,483.11 as "earned premium."
Woodworks Inc. controverted basically on the theory that its
failure "to pay the premium after the issuance of the policy
put an end to the insurance contract and rendered the policy
unenforceable." On 13 September 1962, judgment was
rendered in Phoenix's favor "ordering Woodworks Inc. to
pay Phoenix the sum of P7,483.11, with interest thereon at
the rate of 6% per annum from 30 January 1962, until the
principal shall have been fully paid, plus the sum of P700.00
as attorney's fees of the Phoenix, and the costs of the suit."
From this adverse Decision, Woodworks Inc. appealed to the
Court of Appeals which certified the case to the Supreme
Court on a question of law.
Issue: Whether the Fire Insurance Policy was a binding
contract even if the premium stated in the policy has not
been paid.
Held: Insurance is "a contract whereby one undertakes for a
consideration to indemnify another against loss, damage or
liability arising from an unknown or contingent event." The
consideration is the "premium". "The premium must be paid
at the time and in the way and manner specified in the policy
and, if not so paid, the policy will lapse and be forfeited by
its own terms." The Policy provides for pre-payment of
premium. Accordingly, "when the policy is tendered the
insured must pay the premium unless credit is given or
there is a waiver, or some agreement obviating the necessity
for prepayment." To constitute an extension of credit there
must be a clear and express agreement therefor. From the
Policy provisions, there was no clear agreement that a credit
extension was accorded Woodworks Inc. And even if it were
to be presumed that Phoenix had extended credit from the
circumstances of the unconditional delivery of the Policy
without prepayment of the premium, yet it is obvious that
Woodworks Inc. had not accepted the insurer's offer to
extend credit, which is essential for the validity of such
agreement. An acceptance of an offer to allow credit, if one
was made, is as essential to make a valid agreement for
credit, to change a conditional delivery of an insurance
policy to an unconditional delivery, as it is to make any other
contract. Such an acceptance could not be merely a mental
act or state of mind, but would require a promise to pay
made known in some manner to Woodworks Inc. In this
respect, the present case differs from that involving the
same parties where recovery of the balance of the unpaid
premium was allowed inasmuch as in that case "there was
not only a perfected contract of insurance but a partially
performed one as far as the payment of the agreed premium
was concerned." This is not the situation obtaining here
where no partial payment of premiums has been made
whatsoever. Since the premium had not been paid, the
policy must be deemed to have lapsed. The nonpayment of
premiums does not merely suspend but puts an end to an
insurance contract, since the time of the payment is
peculiarly of the essence of the contract. The rule is that
under policy provisions that upon the failure to make a
payment of a premium or assessment at the time provided
for, the policy shall become void or forfeited, or the
obligation of the insurer shall cease, or words to like effect,
because the contract so prescribes and because such a
stipulation is a material and essential part of the contract.
This is true, for instance, in the case of life, health and
accident, fire and hail insurance policies. In fact, if the peril
insured against had occurred, Phoenix, as insurer, would
have had a valid defense against recovery under the Policy it
had issued. Explicit in the Policy itself is Phoenix's
agreement to indemnify Woodworks Inc. for loss by fire only
"after payment of premium. Compliance by the insured with
the terms of the contract is a condition precedent to the
right of recovery. The burden is on an insured to keep a
policy in force by the payment of premiums, rather than on
the insurer to exert every effort to prevent the insured from
allowing a policy to elapse through a failure to make
premium payments. The continuance of the insurer's
obligation is conditional upon the payment of premiums, so
that no recovery can be had upon a lapsed policy, the
contractual relation between the parties having ceased.
Moreover, an insurer cannot treat a contract as valid for the
purpose of collecting premiums and invalid for the purpose
of indemnity. The foregoing findings are buttressed by
section 77 of the Insurance Code (Presidential Decree No.
612, promulgated on December 18, 1974), which now
provides that no contract of insurance issued by an
insurance company is valid and binding unless and until the
premium thereof has been paid, notwithstanding any
agreement to the contrary.