J.

PREMIUM PAYMENTS
Malayan Insurance Co. v. Cruz Arnaldo
FACTS:
Coronacion Pinca insured her property for Php 14,000 with Malayan
Insurance Company(MICO) for the period July 22, 1981 to July 22,
1982. On October 15, 1981, MICO cancelled the policy for nonpayment. On December 24, 1981, Domingo Adora, the agent
accepted Pinca's paymentand remitted to MICO. On January 18,
1982, Pinca's property was completely burned. She thendemanded
from MICO for payment of the insured but the latter declined on the
ground that the policyhad been cancelled due to non-payment.
Pinca went to the Insurance Commission, she was
ultimatelysustained by the public respondent, thus a petition was
filed before the SC.
ISSUE:
Whether or not MICO should be held liable to pay for the insured
property.
RULING:
MICO's acknowledgment of Adora as its agent defeats its contention
that he was not authorized toreceive the premium payment on its
behalf. It is clearly provided in Section 306 of the Insurance Code
that:
SEC. 306. xxx xxx xxx
Any insurance company which delivers to an insurance agant or
insurance broker a policy or contract of insurance shall be demmed
to have authorizedsuch agent or broker to receive on its behalf
payment of any premium whichis due on such policy or contract of
insurance at the time of its issuance or delivery or which becomes
due thereon.
And it is a well-known principle under the law of agency that:
Payment to an agent having authority to receive or collect payment
is equivalent to payment to the principal himself; such payment is
complete when the money delivered is into the agent's hands and
isa discharge of the indebtedness owing to the principal. The SC
denied the petition and affirmed the decision of the Insurance
Commission.

Makati Tuscany Condominium Corp. v. Court of Appeals, 215

SCRA 462

Facts:
The insurer issued a insurance policy for the properties of Makati
Tuscany, this insured policy was renewed 3 times and premiums
were paid in installments. On its 3rd year, Makati failed to pay the
subsequent premiums and they contended that they are no longer
required to pay for the subsequent premiums alleging that the
insurance policy never took effect and is not binding, because full
payment of the premiums must be paid in order for the insurance
policy to take effect.
Issue:
WON the insurance policy was valid and binding.

Ruling:
YES. 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. 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
prepaid in full.
Sec 77 of the Insurance code precludes the party from stipulating
that the policy is valid even if the premiums are not paid, but does
not prohibit an agreement granting credit extension, such an
agreement is not contrary to law, morals, good customs or public
policy. SC also said that the risk already attached upon payment of
the first installment or premium.
SOUTH
SEA
SURETY
G.R. No. 102253 June 2, 1995

AND

INSURANCE

COMPANY

vs.

CA

FACTS:
Valenzuela Hardwood and Industrial Supply, Inc. (Hardwood) entered into an
agreement with Seven Brothers Shipping Corporation whereby the latter
undertook to load on board its vessel M/V Seven Ambassador the former's lauan
round logs for shipment to Manila.

Hardwood insured the logs, against loss and/or, damage with defendant South
Sea Surety and Insurance Co., Inc.(South Sea) for P2,000,000.00 and the latter
issued the corresponding Marine Cargo Insurance Policy.
Hardwood gave the check in payment of the premium on the insurance policy to
Mr. Victorio Chua. In the meantime, the said vessel M/V Seven Ambassador sank
resulting in the loss of the plaintiffs insured logs. South Sea cancelled the
insurance policy it issued as of the date of inception for non-payment of the
premium due in accordance with Section 77 of the Insurance Code. Hardwood
demanded from defendant South Sea the payment of the proceeds of the policy
but the latter denied liability under the policy.
Trial court rendered judgment in favor of plaintiff Hardwood. CA affirmed the
judgment.
ISSUE: W/N Victorio Chua, in receiving the check for the insurance premium prior
to the occurrence of the risk insured against has so acted as an agent of
petitioner. YES
HELD:
Section 77 of the Insurance Code provides that no policy or contract of insurance
issued by an insurance company is valid and binding unless and until the
premium thereof has been paid.
Undoubtedly, the payment of the premium is a condition precedent to, and
essential for, the efficaciousness of the contract. The sole question raised in the
instant petition is really evidentiary in nature, i.e., whether or not Victorio Chua, in
receiving the check for the insurance premium prior to the occurrence of the risk
insured against has so acted as an agent of petitioner. The appellate court, like
the trial court, has found this query in the affirmative.
Second paragraph of Section 306 of the Insurance Code provide as follows:
Sec. 306. . . . Any insurance company which delivers to an insurance agent or
insurance broker a policy or contract of insurance 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 of contract of insurance at the time of its issuance or
delivery or which becomes due thereon.
When South Sea Surety and Insurance Co., Inc. delivered to Mr. Chua the marine
cargo insurance policy for the plaintiffs logs, he is deemed to have been
authorized by the South Sea to receive the premium which is due on its behalf.
When therefore the insured logs were lost, the insured had already paid the
premium to an agent of the South Sea, which is consequently liable to pay the
insurance proceeds under the policy it issued to the insured.
The SC sees no valid reason to discard the factual conclusions of the appellate
court. It is not the function of the SC to assess and evaluate all over again the
evidence, testimonial and documentary, adduced by the parties particularly
where, such as here, the findings of both the trial court and the appellate court on
the matter coincide.

Spouses Tibay v. Court of Appeals

Facts:
Sps. Tibay insured their property with Fortune insurance. The
premium was for 2900, but only 600 were paid by the insured. The
building insured was razed by fire. Two days later Violeta Tibay paid
for the balance of the premium and on the same day filed a claim
against Fortune insurance.

Issue:
Is the policy valid and binding upon partial payment of premium?
Ruling: No, SC ruled that premium must be paid in full in order for
the policy to be valid and binding. Where the premium has only
been partially paid and the balance paid only after the peril
insuredagainst has occurred, the insurance contract did not take
effect and the insured cannot collect at all on the policy. The
Insurance Code which says that no policy or contract of insurance
issued by an insurance company is valid and binding unless and
until the premium has been paid.This case is different from Makati
Tuscany, because in the Makati, there was a practice that payment
shall be in installments. Neither is there any stipulation granting any
credit extension. Likewise, payment of premiums is the elixir vitae of
insurance business because the insurer must maintain a legal
reserve fund to meet its contingent liabilities.
Hence, in the absence of clear waiver of prepayment in full by the insurer,
the insured cannot collect on the proceeds of the policy.
The terms of the insurance policy constitute the measure of the insurers liability.
In the absence of statutory prohibition to the contrary, insurance companies have
the same rights as individuals to limit their liability and to impose whatever
conditions they deem best upon their obligations not inconsistent with public
policy.
Paulin vs. Insular
47 OG 3012
Facts:
This action was instituted by the minors Vicentita Antigua Paulin and
Silvina Paulin, who are sisters assisted by their guardian ad-litem, for the purpose
of collecting the amount of three life insurance policies issued by the defendant,
the Insular Life Assurance Co. ltd. In favor of their father, Estaban Paulin, who is
alleged to have been killed by the guerillas, on or about December 10, 1943.
The aforementioned policies are Policy no. 84029 in the sum of P 2,000,
issued on August 1, 1940, with premiums payable on the first day of August of
each year, for 20 years and the second Policy No. 84683, in the sum of P 2, 000,
issued on October 1, 1940, with premiums payable on the first day of October of
each year, for 20 years and Policy No. 85061, in the sum of P7, 000 issued on
October 1, 1940, with premiums payable on the first day of every month, for 20
years. The three policies carried an accidental death benefit clause, providing for
double indemnity in case of death, under the conditions therein set forth, and
named the plaintiffs as beneficiaries in such case.
Upon demand, made on behalf of the plaintiffs, the defendant refused to
pay the sums stated in said policies, on the ground that the same had lapsed,
prior to the date of death of Esteban Paulin, for non-payment of premiums. Hence
complaint herein, which, after due trial, was dismissed by the RTC.
Appellee admits having received, in connection with policy no 84029, the annual
premiums due on August 1, 1940 and August 1, 1941; in connection with policy
no. 84683, the annual premiums due on October 1, 1940, and October 1, 1941;

and in connection with policy no. 85061, fifteen monthly premiums which fell due
from October 1, 9140 to December 1, 1941, inclusive.
Issue:
Whether or not the policies have lapsed for the non-payment of premium
Ruling:
Despite appellants assertion to the contrary, no evidence whatsoever of such
payment, in relation to the policies nos. 84029 and 84683, has been introduced.
Despite appellants testimonial and documentary evidence, they do not bear any
contention.
Exhibit B only showed a provisional receipt for the initial premium paid on October
11, 1940 and the acceptance letter by Esteban Paulin were only submitted in
connection with Policy No. 84683.
Exhibit c, with reference to Policy no. 85061, were letters written by Esteban
Paulin to the defendant on the first day of May, July and November 1942 and
March, April, June and July 1943, respectively, each stating that it enclosed a post
office money order for P36.12, which, presumably represented the monthly
premiums falling due in the months already mentioned. But these were not part of
the records of the defendant company but found among the personal belongings
of the deceased Esteban Paulin. Each of the letters in the exhibit bore the
signature of Esteban which the Court finds them to be originals. Having remained
in the possession of its writer, it tends to show that the premiums for the months
specified were not forwarded to the defendant.
It is urged also that, in view of the Executive Order No. 25, series of 1944, as
amended by Executive Order No. 32, series of 1945, providing for a moratorium in
the enforcement of payment of all debts or monetary obligations contracted prior
to the liberalization of the Philippines by the American forces, the policies could
not and did not lapse for non-payment of the premiums. This contention is
untenable, for an insured is not under the obligation to pay premiums. The same
do not constitute a debt and the insurance company cannot compel payment
thereof, which is one only of the conditions for the subsistence or effectivity of an
insurance policy.
While the payment of premiums or assessments as specified in the insurance
contract is necessary to bind the insurer to discharge its obligations imposed by
the contract, it is generally true in the case of life insurance contracts that there is
no absolute undertaking to pay the premiums or assessment and, consequently,
no personal liability of the insurer, and the insured, if he has not expressly
promised to pay, is at liberty to refuse to make the payment.

UCPB vs. MASAGANA

Facts:
UCPB insured Masaganas properties. Two months
before expiration of the policy, UCPB gave written
notice to Masagana for non renewal of the policies.
Then the property insured was razed by fire. A month
after Masagana gave a check for payment of the
premium and the following day filed a complaint to

clam the proceeds of the policy.

ISSUE:
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?

Ruling:1991 The SC ruled that the insurance policies

had expired. Because 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 the credit time to pay the premium and
consider the policy binding before actual payment.

UCPB vs. MASAGANA

Facts:
UCPB insured Masaganas properties. Two months
before expiration of the policy, UCPB gave written
notice to Masagana for non renewal of the policies.
Then the property insured was razed by fire. A month
after Masagana gave a check for payment of the
premium and the following day filed a complaint to
clam the proceeds of the policy.
ISSUE:
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?

1992- The SC ruled that SECTION 77 merely precludes

that the policy is valid even if premiums are not paid.
But it does not expressly prohibit an agreement
granting credit extension. Likewise this case mentions
about the exceptions to SECTION 77, that the policy is
valid and binding notwithstanding non-payment of the
premium. They are: 1.) Granting credit extension
and 2.) estoppel.

AMERICAN HOME ASSURANCE CO. VS CHUA, 309 SCRA 250

FACTS:
On April 6, 1990, Moonlight Enterprises, respondent's business
establishment, was razed by fire. Respondent then filed an insurance claim with
petitioner and four other co-insurers. Petitioner refused to honor the claim, thus
prompting respondent to file an action. In its defense, petitioner claimed that
there was no existing insurance contract when the fire occurred since respondent
did not pay the premium. It alleged that even assuming there was a contract,
respondent violated several conditions of the policy. The trial court ruled in favor
of respondent. This was affirmed in toto by the Court of Appeals. Its motion for
reconsideration having been denied, petitioner filed this petition.
ISSUE:

Whether there was a valid payment of premium, considering that

respondent's check was cashed after the occurrence of the fire?
RULING:
Petitioner accepted the check and issued an official receipt for the
payment. Its agent acknowledged receipt of payment. An acknowledgment of the
receipt of premium is conclusive evidence of its payment, so far as to make the
policy binding.It cannot be said that petitioner was deceived by respondent by the
latter's non-disclosure of the other insurance contracts when petitioner actually
had prior knowledge thereof.However, loss of profit cannot be shouldered by
petitioner whose obligation is limited to the object of insurance, which was the
stock-in-trade and not the expected loss in income or profit. The awards of moral
and exemplary damages were also deleted. Moral damages may be awarded in
breaches of contracts where the defendant acted in bad faith. The Court found no
such fraud or bad faith. Exemplary damages may be awarded if the defendant
acted in a wanton, fraudulent, reckless, oppressive or malevolent manner. Nothing
thereof can be attributed to petitioner. The award of attorney's fees was reduced
to a reasonable level

K. DOUBLE INSURANCE
Pioneer Insurance and Surety v. Yap
FACTS: Respondent Oliva Yap was the owner of a store in a twostorey building located in Manila. On April 19, 1962, respondent Yap
took out a fire policy from Pioneer Insurane for 25,000.00 covering
her stocks, officer furniture, fixtures and fittings of every kind and
description Amongthe conditions in the policy was:
The insured shall give notice to the company of any insurance or
insurance already effected, or which may subsequently be effected,
covering any of the property hereby insured and unlesssuch notice
be given and the particulars of such insurance be stated in or
indorsed on this policyby or on behalf of the company before the
occurrence of any loss or damage, all benefits under
this policy shall be forfeited.
At the time of the insurance, an insurance for 20,000.00 issued by
the
Great AmericanInsurance Company covering the same properties
was noted on said policy as co-insurance.

On September 26, 1962, Yap took out another Fire Policy for
20,000.00 covering the same properties, from the Federal Insurance
Company, Inc. which new policy was however procuredwithout
notice to and without the written consent of Pioneer Ins. and
therefore, was not noted asa co-insurance in Policy No. 4219.
On December 19, 1962, a fire broke out in the building housing
Yaps above
-mentioned store,and the said store was burned. Yap filed an
insurance claim, but the same was denied on the ground of breach
and/or violative of any/or all terms and conditions of Policy No. 4219.
ISSUE:Whether or not petitioner should be absolved from liability on
the policy.
HELD:Yes. By the plain terms of the policy, other insurance without
the consent of petitioner would ipsofacto avoid the contract. It
required no affirmative act of election on the part of the company
tomake operative the clause avoiding the contract, wherever the
specified conditions should occur.Its obligations ceased, unless,
being informed of the fact, it consented to the additional
insurance.The obvious purpose of the aforesaid requirement in the
policy is to prevent over-insurance andthus avert the perpetration of
fraud. The public, as well as the insurer, is interested in
preventingthe situation in which a fire would be profitable to the
insured.

UNION MANUFACTURING CO., INC. VS. PHILIPPINE

GUARANTYCO., INC.47 SCRA 271
FACTS:On January 12, 1962, the Union Manufacturing Co., Inc.
obtained certainloans from the Republic Bank in the total sum of
415,000.00. To secure the payment thereof, UMC executed real and
chattel mortgageon certain properties.The Republic Bank procured
from the defendant Philippine GuarantyCo., Inc. an insurance
coverage on loss against fire for 500,000.00 over the properties of
the UMC, as described in defendants cover notedated September
25, 1962, with the annotation that loss or damage, if any, under said
cover note is payable to Republic Bank as its interestmay appear,
subject however to the printed conditions of saiddefendants Fire
Insurance Policy Form.On September 6, 1964, a fire occurred in the
premises of UMC and onOctober 6, 1964, UMC filed its fire claim
with the PGC Inc., thru itsadjuster, H.H. Bayne Adjustment Co.,
which was denied by saiddefendant in its letter dated November 26,
1964 on the following ground:Policy Condition No. 3 and/or the
Other Insurance Clause of the policywas violated because you did
not give notice to us of the other insurancewhich you had taken

from New India for 80,000.00. Sincere Insurance for 25,000.00 and
Manila Insurance for 200,000.00 with the result that these
insurances of which we became aware of only after the fire,were not
endorsed on our policy.
ISSUE:Whether Republic Bank can recover.
HELD:Without deciding- whether notice of other insurance upon the
sameproperty must be given in writing, or whether a verbal notice is
sufficientto render an insurance valid which requires such notice,
whether oral or written, we hold that in the absolute absence of
such notice when it isone of the conditions specified in the fire
insurance policy, the policy isnull and void. (Santa Ana vs.
Commercial Union Ass. Co., 55 Phil. 128).
If the insured has violated or failed to perform the conditions of
thecontract, and such a violation or want of performance has not
beenwaived by the insurer, then the insured cannot recover. Courts
are notpermitted to make contracts for the parties. The functions
and duty of thecourts consist simply in enforcing and carrying out
the contracts actuallymade.
While it is true, as a general rule, that contracts of insurance
areconstrued most favorably to the insured, yet contracts of
insurance, likeother contracts, are to be construed according to the
sense and meaningof the terms which the parties themselves have
used. If such terms areclear and unambiguous they must be taken
and understood in their plain,ordinary and popular sense.
The annotation then, must be deemed to be a warranty that the
propertywas not insured by any other policy. Violation thereof
entitles the insurer to rescind. The materiality of non-disclosure of
other insurance policies isnot open to doubt.
The insurance contract may be rather onerous, but that in itself
does not justify the abrogation of its express terms, terms which the
insuredaccepted or adhered to and which is the law between the
contractingparties.