UCPB General Insurance V Masagana Telemart

UCPB GENERAL INSURANCE CO., INC.
, petitioner, vs. MASAGANA TELAMART,

INC., respondent.
Sec. 77 of the Insurance Code 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.” The exceptions to Sec. 77 of
the Insurance Code are the following:
1. In case of life/industrial life policy where the grace period provision applies;
2. When the parties agreed to pay the payment of premium in installments;
3. When the insurer grants credit extension for payment of premium;
4. Estoppel.
FACTS:
 Masagana obtained from UCPB 5 insurance on its properties in Pasay City and Manila.
 All five (5) policies reflect on their face the effectivity term from May 22, 1991 to May
22, 1992.
 On July 13, 1992, the properties located at Taft Avenue, Pasay City were razed by fire.
Masagana tendered, and UCPB accepted, 5 Equitable Bank Manager's Checks in the total
amount of P225,753.45 as renewal premium payments
 Masagana made its formal demand for indemnification for the burned insured properties.
On the same day, defendant returned the five (5) manager's checks stating in its letter that
it was rejecting Masagana's claim on the ground that said policies expired and were not
renewed for another term.
 The Court of Appeals disagreed with Petitioner's stand that Respondent'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.
 Both the Court of Appeals and the trial court found that sufficient proof exists that
Respondent, which had procured insurance coverage from Petitioner 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.
 In a previous decision, the court on whether the fire insurance policies issued by
petitioner to the respondent 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 (fire) risk insured against, the issue was ruled in the negative in
view of Section 77 of the Insurance Code. This prompted the respondent to file a
motion for reconsideration.
ISSUE: Whether Section 77 of the Insurance Code of 1978 (P.D. No. 1460) 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 – YES.
RULING:
Section 77 of the Insurance Code of 1978 provides:
SECTION 77. 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.
This Section is a reproduction of Section 77 of P.D. No. 612 (The Insurance Code) promulgated
on 18 December 1974. In turn, this Section has its source in Section 72 of Act No. 2427
otherwise known as the Insurance Act as amended by R.A. No. 3540, approved on 21 June 1963,
which read:
SECTION 72. An insurer is entitled to payment of premium as soon as the thing insured
is exposed to the peril insured against, unless there is clear agreement to grant the insured
credit extension of the premium due. No policy issued by an insurance company is valid
and binding unless and until the premium thereof has been paid. (Emphasis supplied)
It can be seen at once that Section 77 does not restate the portion of Section 72 expressly
permitting an agreement to extend the period to pay the premium. But are there exceptions to
Section 77?
The answer is in the affirmative.
The first exception is provided by Section 77 itself, and that is, in case of a life or
industrial life policy whenever the grace period provision applies.
The second is that covered by Section 78 of the Insurance Code, 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.”
A third exception was laid down in Makati Tuscany Condominium Corporation vs. Court
of Appeals, wherein we ruled that 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.
By the approval of the aforequoted findings and conclusion of the Court of
Appeals, Tuscany has provided a fourth exception to Section 77, namely, that the insurer may
grant credit extension for the payment of the premium. This simply means that 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. Article 1306 of the Civil Code provides:
ARTICLE 1306. The contracting parties may establish such stipulations
clauses, terms and conditions as they may deem convenient, provided they are
not contrary to law, morals, good customs, public order, or public policy.
Finally in the instant case, it would be unjust and inequitable 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 despite its full awareness of Section 77. Estoppel bars it from
taking refuge under said Section, since Respondent relied in good faith on such practice.
Estoppel then is the fifth exception to Section 77.

UCPB General Insurance V Masagana Telemart

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What are the exceptions to Section 77 of the Insurance Code?

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UCPB GENERAL INSURANCE CO., INC.

, petitioner, vs. MASAGANA TELAMART,

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