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.

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.