January 8, 2021

D. Premium

See: Sections 77-84, R.A. 10607

i. Payment

See:

Glaraga v. Sun Life (49 Phil 737)

FACTS:

On July 1924, Sun Life issued an insurance policy in favor of Jose Concepcion Juares.
The policy promised that it will pay the legal representatives of the insured upon his
death, provided that the policy has legal force and effect at the time death. It also
provided that:

A. The premiums are payable in two terms, particularly June 1 and December 1 or
within 30 days thereafter.

B. By the express terms of the policy, the failure of the insured to make the second
payment at maturity or within thirty days.

C. Failure to make such payment, the policy had lapsed and was of no legal force or
effect at the time of the death of the deceased.

D. No persons, except the President, Managing-Director or Secretary has power to alter

this contract, to extend the time for paying a premium, to bind the Company by making
any promise or by receiving any representation or information not contained in the
application for this policy. No payment made to any person, except in exchange for  the
Company's official receipt, will be recognized by the Company.  This policy does not
take effect until the first premium has been actually paid, during the life and good health
of the insured."

Jose Concepcion Juares died in January, 1925. The plaintiff,  Susana Glaraga,  was
duly  appointed as administratrix of his estate,  and a demand was made upon the
company for the amount of the policy and payment refused. 

As a special defense, the insurance company alleges that the insured paid the first
premium on June 1, 1924, but that he failed and neglected to pay the premium which
was due on December  1, 1924, or within thirty days thereafter, or at any other time, and
that  no payment of such premium was ever made by any one. That this defendant at
no  time authorized or empowered its codefendant O. O, Hanson or any other person, to
modify the terms of the policy, and that Hanson is  not  an official of the defendant
corporation. For a third special defense, the company alleges that it did not have any
knowledge of the alleged promise of its co-defendant Hanson to  pay  the  second
premium upon the policy, and that it never received from him any payment whatever on 
behalf  of the insured within the thirty-day period of grace or ever at all, and it prays that
the action be dismissed, and that this defendant go hence without day, with costs.

Issue:

Whether policy has legal force and effect at the time of the death of the deceased.

Ruing:

In the instant case, there was a written contract between the defendant company and
the insured, which was  duly signed and accepted  by both parties, and  it  specifically
defines how, when and to whom, and in what manner the premiums are to  be paid, and
specifies and limits the powers and duties of the agent to the delivery of the official
receipt of the company upon the payment to him of the amount of the premium.

All of such provisions in the policy are intended to prohibit the doing of the very thing
which was done in this case.  It might be true that, if Hanson was vested with all of
the powers of a general agent of the company, such a contract made by him would 
then  be  binding upon the company, but there is no claim or pretense that Hanson was
anything more than a special agent with limited powers and duties as to the receipt of
premiums which are  specifically defined by the express provisions  of the policy. 
Neither is there any allegation or proof of any established usage or custom  as to the
manner or method  by which Hanson collects premiums which would  be  binding upon
the company.

For all of such reasons, we are clearly of the opinion that the policy had lapsed, and
was of no legal force and effect at the time of the death of the deceased.

As to the defendant Hanson, the proof is conclusive that the deceased had the money
and was able, ready and willing to pay the premium at the time  he received Exhibit  D.
After its receipt, he relied upon Hanson to pay the premium, and for that reason, and
that reason only, the deceased failed to pay the premium.   Because of the fact  that
Hanson failed to keep his promise to pay the premium, it was never paid, which resulted
in the loss  to the deceased  of the full amount of the policy.   Hanson having promised
and agreed to pay the premium, and the  deceased having relied upon that promise,
and Hanson having failed to pay the premium, the judgment as to him must be affirmed,
with costs.

Arce v. Capital Insurance (117 SCRA 63)

FACTS:

The Petitioner (insured) is the owner of a residential house in Tondo, Manila, which had
been insured with the respondent insurance company since 1961. In November 1965,
the respondent sent to the petitioner a Renewal Certificate to cover the period from
December 5, 1965 to December 5,1966 and requested payment of the corresponding
premium. Anticipating that the premium could not be paid on time, the petitioner asked
for an extension which was granted by the respondent. After the lapse of the requested
extension, petitioner still failed to pay the premium.

Thereafter, the house of the petitioner was totally destroyed by fire. Upon petitioner’s
presentation of claim for indemnity, he was told that no indemnity was due because the
premium was not paid. Nonetheless the respondent tendered a check for P300.00 as
financial aid which was received by his daughter. The petitioner sued the respondent for
indemnity. The trial court held the respondent liable to indemnify the petitioner on the
ground that since the Insurance Company could have demanded payment of the
premium, mutuality of obligation required that it should be liable on the policy. Hence,
this appeal by the respondent on question of law.

ISSUE:

Whether or not the petitioners are entitled to claim from their policy despite non-
payment of their premium.

RULING:

No. The parties in this case had stipulated that notwithstanding anything to the contrary
contained in the policy, the insurance will be deemed valid and binding upon the
Company only when the premium and documentary stamps therefore have actually
been paid in full and duly acknowledged in an official receipt signed by an authorized
official/representative of the Company.

It is obvious from both the Insurance Act, as amended, and the stipulation of the parties
that time is of the essence in respect of the payment of the insurance premium so that if
it is not paid the contract does not take effect unless there is still another stipulation to
the contrary. In the instant case, the INSURED was given a grace period to pay the
premium but the period having expired with no payment made, he cannot insist that the
COMPANY is nonetheless obligated to him.

Makati Tuscany Condo Corp. vs. CA (215 SCRA 462)

FACTS:

In 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 on the latter’s
building and premises, for a period beginning 1 March 1982 and ending 1 March 1983.
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.

The policy was renewed the following year and payments 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.

American Home Assurance Co.,consequently filed an action to recover the unpaid

balance 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.

The Trial Court dismissed the complaint and counterclaim. The Court of Appeals
rendered a decision modifying the that of the trial court by 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:

The Supreme Court ruled 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 prepared in full.

The Supreme Court sustained the decision of Court of Appeals that while Section 77
which states that prepayment of premiums is strictly required as a condition to the
validity of the contract, It was 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, and such an agreement is not contrary to morals, good customs, public order
or public policy.

At the very least, both parties should be deemed in estoppel to question the
arrangement they have voluntarily accepted

Areola vs. CA (236 SCRA 643)

FACTS:

December 17, 1984: Prudential Guarantee And Assurance, Inc. issued collector's

provisional receipt amounting to P1,609.65.

June 29, 1985: 7 months after the issuance of petitioner Santos Areola's Personal
Accident Insurance Policy, Prudential Guarantee And Assurance, Inc. unilaterally
cancelled it for failing to pay his premiums through its manager Teofilo M. Malapit.

Shocked by the cancellation of the policy, Santos approached Carlito Ang, agent of

Prudential and demanded the issuance of an official receipt.  Ang told Santos that it was
a mistake and assured its rectification.

July 15, 1985: Santos demanded the same terms and same rate increase as when he
paid the provincial receipt but Malapit insisted that the partial payment he made was
exhausted and that he should pay the balance or his policy will cease to operate

July 25, 1985 : Assistant Vice-President Mariano M. Ampil III apologized.

August 6, 1985 had filed a complaint for breach of contract with damages before the
lower court.

August 13, 1985: Santos received through Carlito Ang the leeter of Assistant Vice-
President Mariano M. Ampil III finding error on their part since premiums were not
remitted Malapit, proposed to extend its lifetime to December 17, 1985.

RTC: favored Santos - Prudential in Bad Faith. CA: Reversed - not motivated by
negligence, malice or bad faith in cancelling subject policy.
ISSUE:

Whether the Areolas can file against damages despite the effort to rectify the
cancellation

RULING:

YES. RTC ruling reinstated. Malapit's fraudulent act of misappropriating the premiums
paid is beyond doubt directly imputable to Prudential. Art. 1910.  The principal must
comply with all the obligations which the agent may have contracted within the scope of
his authority.

As for any obligation wherein the agent has exceeded his power, the principal is not
bound except when he ratifies it expressly or tacitly. Subsequent reinstatement could
not possibly absolve Prudential there being an obvious breach of contract.

A contract of insurance creates reciprocal obligations for both insurer and insured.

Nominal damages are "recoverable where a legal right is technically violated and must
be vindicated against an invasion that has produced no actual present loss of any kind,
or where there has been a breach of contract and no substantial injury or actual
damages whatsoever have been or can be shown.

Tibay vs. CA (257 SCRA 126)

FACTS:

On 22 January 1987 private respondent Fortune Life and General Insurance Co., Inc.
(FORTUNE) issued Fire Insurance Policy in favor of Violeta R. Tibay and/or Nicolas
Roraldo on their two-storey residential building located 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. In a letter dated 11 June
1987 FORTUNE denied the claim of Violeta for violation of Policy Condition No. 2 and
of Sec. 77 of the Insurance Code.

On 3 March 1988 Violeta and the other petitioners 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, P 100,000.00 moral damages, and attorney’s fees equivalent
to 20% of the total claim.

On 19 July 1990 the trial court ruled for petitioners 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 plaintiff-appellees therein but ordering defendant-appellant
to return to the former the premium of P2,983.50 plus 12% interest from 10 March 1987
until full payment.
Hence this petition for review with petitioners contending mainly that contrary to the
conclusion of the appellate court, FORTUNE remains liable under the subject fire
insurance policy inspite of the failure of petitioners to pay their premium in full.

ISSUE:

Whether a fire insurance policy is valid, binding and enforceable upon mere partial
payment of premium?

RULING:

The Supreme Court finds no merit in the petition. Hence, it affirms the decision of the
Court of Appeals.
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.

Clearly the Policy entered into between Sps. Antonio and Violeta Tibay and Fortune Life
and General Insurance Co. 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 Sec. 77 of the Insurance
Code which provides:

SEC. 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.

Thus, no vinculum juris whereby the insurer bound itself to indemnify the assured
according to law ever resulted from the fractional payment of premium. The insurance
contract itself expressly provided that the policy would be effective only when the
premium was paid in full. It would have been altogether different were it not so
stipulated. Ergo, petitioners had absolute freedom of choice whether or not to be
insured by FORTUNE under the terms of its policy and they freely opted to adhere
thereto.

American Home Ass. vs. Chua (309 SCRA 250)

FACTS:

Chua obtained from American Home a fire insurance covering the stock-in-trade of his
business. The insurance was due to expire on March 25, 1990.

On April 5, 1990, Chua issued a check for P2,983.50 to American Home’s agent, James
Uy, as payment for the renewal of the policy.

The official receipt was issued on April 10. In turn, the latter a renewal certificate. A new
insurance policy was issued where petitioner undertook to indemnify respondent for any
damage or loss arising from fire up to P200,000 March 20, 1990 to March 25, 1991.

On April 6, 1990, the business was completely razed by fire. Total loss was estimated
between P4,000,000 and P5,000,000. Respondent filed an insurance claim with
petitioner and four other co-insurers, namely, Pioneer Insurance, Prudential
Guarantee,Filipino Merchants and Domestic Insurance. Petitioner refused to honor the
claim hence, the respondent filed an action in the trial court.

American Home claimed there was no existing contract because respondent did not pay
the premium. Even with a contract, they contended that he was ineligible bacue of his
fraudulent tax returns, his failure to establish the actual loss and his failure to notify to
petitioner of any insurance already effected. The trial court ruled in favor of respondent
because the respondent paid by way of check a day before the fire occurred and that
the other insurance companies promptly paid the claims. American homes was made to
pay 750,000 in damages.

The Court of Appeals found that respondent’s claim was substantially proved and
petitioner’s unjustified refusal to pay the claim entitled respondent to the award of
damages.

American Home filed the petition reiterating its stand that there was no existing
insurance contract between the parties. It invoked Section 77 of the Insurance Code,
which 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 and the case of
Arce v. Capital Insurance that until the premium is paid there is no insurance.

ISSUE:

1. Whether there was a valid payment of premium, considering that respondent’s check
was cashed after the occurrence of the fire

2. Whether respondent violated the policy by his submission of fraudulent documents

and non-disclosure of the other existing insurance contract

3. Whether respondent is entitled to the award of damages.

RULING:

Yes. No. Yes, but not all damages valid. Petition granted. Damages modified.
1. Yes. The trial court found, as affirmed by the Court of Appeals, that there was a valid
check payment by respondent to petitioner. The court respected this. The renewal
certificate issued to respondent contained the acknowledgment that premium had been
paid. In the instant case, the best evidence of such authority is the fact that petitioner
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: 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.

2. NO. Submission of the alleged fraudulent documents pertained to respondent’s

income tax returns for 1987 to 1989. Respondent, however, presented a BIR
certification that he had paid the proper taxes for the said years. Since this is a question
of fact, the finding is conclusive. Ordinarily, where the insurance policy specifies as a
condition the disclosure of existing co-insurers, non-disclosure is a violation that entitles
the insurer to avoid the policy. The purpose for the inclusion of this clause is to prevent
an increase in the moral hazard. The relevant provision is Section 75, which provides
that: A policy may declare that a violation of specified provisions thereof shall avoid it,
otherwise the breach of an immaterial provision does not avoid the policy. Respondent
acquired several co-insurers and he failed to disclose this information to petitioner.
Nonetheless, petitioner is estopped from invoking this argument due to the loss
adjuster’s admission of previous knowledge of the co-insurers. 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. The loss
adjuster, being an employee of petitioner, is deemed a representative of the latter
whose awareness of the other insurance contracts binds petitioner.

3. Yes. Petitioner is liable to pay the loss. But there is merit in petitioner’s grievance
against the damages and attorney’s fees awarded. There was no basis for an award for
loss of profit. This cannot be shouldered by petitioner whose obligation is limited to the
object of insurance. There was no fraud to justify moral damages. Exemplary damages
can’t be awarded because the defendant never acted in a reckless manner to claim
insurance. Attorney’s fees can’t be recovered as part of damages because no premium
should be placed on the right to litigate.

UCPB General Insurance v. Masagana Telemart (G.R. No. 137172, June 1999)

UCPB General Insurance vs. Masagana Telamart (356 SCRA 307)

FACTS:

On April 15, 1991, petitioner issued five (5) insurance policies covering respondent’s
various property described therein against fire, for the period from May 22, 1991 to May
22, 1992. In March 1992, petitioner evaluated the policies and decided not to renew
them upon expiration of their terms on May 22, 1992. Petitioner advised respondent’s
broker, Zuellig Insurance Brokers, Inc. of its intention not to renew the policies. On April
6, 1992, petitioner gave written notice to respondent of the non-renewal of the policies
at the address stated in the policies. On June 13, 1992, fire razed respondent’s property
covered by three of the insurance policies petitioner issued. On July 13, 1992,
respondent presented to petitioner’s cashier at its head office five (5) manager’s checks
in the total amount of P225,753.95, representing premium for the renewal of the policies
from May 22, 1992 to May 22, 1993. No notice of loss was filed by respondent under
the policies prior to July 14, 1992. On July 14, 1992, respondent filed with petitioner its
formal claim for indemnification of the insured property razed by fire. On the same day,
July 14, 1992, petitioner returned to respondent the five (5) manager’s checks that it
tendered, and at the same time rejected respondent’s claim for the reasons (a) that the
policies had expired and were not renewed, and (b) that the fire occurred on June 13,
1992, before respondent’s tender of premium payment.

ISSUE:

Whether or not respondent is entitled to compensation despite the renewal of the

insurance policy after the occurrence of the event insured.

RULING:

No. An insurance policy, other than life, issued originally or on renewal, is not valid and
binding until actual payment of the premium. Any agreement to the contrary is void. 11
The parties may not agree expressly or impliedly on the extension of creditor time to
pay the premium and consider the policy binding before actual payment.
Here, the payment of the premium for renewal of the policies was tendered on July 13,
1992, a month after the fire occurred on June 13, 1992. The assured did not even give
the insurer a notice of loss within a reasonable time after occurrence of the fire.

South Sea Surety vs. CA (244 SCRA 744)

FACTS:

On January 16, 1984, plaintiff, Valenzuela Hardwood and Industrial Supply, Inc. entered
into an agreement with the defendant Seven Brothers whereby the latter undertook to
load on board its vessel M/V Seven Ambassador the former’s lauan round logs
numbering 940 at the port of Maconacon, Isabela for shipment to Manila.
On 20 January 1984, plaintiff insured the logs, against loss and/or, damage with
defendant South Sea Surety and Insurance Co., Inc. for P2,000,000.00 and the latter
issued its Marine Cargo Insurance Policy No. 84/24229 for P2,000,000.00 on said date.
On 24 January 1984, the plaintiff gave the check in payment of the premium on the
insurance policy to Mr. Victorio Chua.
On 25 January 1985, the said vessel M/V Seven Ambassador sank resulting in the loss
of the plaintiffs insured logs.
On 30 January 1984, a check for P5,625.00 to cover payment of the premium and
documentary stamps due on the policy was tendered to the insurer but was not
accepted. Instead, the South Sea Surety and Insurance Co., Inc. 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.
On 2 February 1984, plaintiff demanded from defendant South Sea Surety and
Insurance Co., Inc. the payment of the proceeds of the policy but the latter denied
liability under the policy. Plaintiff likewise filed a formal claim with defendant Seven
Brothers Shipping Corporation for the value of the lost logs but the latter denied the
claim.1
The trial court rendered judgment in favor of plaintiff Hardwood.
Court of Appeals affirmed the judgment of the trial court only against the insurance
corporation and absolved the shipping entity from liability.
In this petition for review on certiorari brought by South Sea Surety and Insurance Co.,
Inc., argues that it likewise should have been freed from any liability to Hardwood. It
faults the appellate court for having supposedly disregarded Section 77 of the insurance
Code and (b) for holding Victorio Chua to have been an authorized representative of the
insurer.

ISSUE:

Whether there is a valid contract of insurance between Valenzuela Hardwood and

South Sea Security and Insurance Corp?
Whether Mr. Chua has acted as an agent of the surety company when he received the
check for insurance premiums?

RULING:

The Supreme Court affirmed the decision of the Court of Appeals. The contract of
insurance between Valenzuela Hardwood and South Sea Security and Insurance Corp.
is valid as the insurance policy is considered paid when Mr. Chua receive the check as
payment, the latter acting as agent by South Sea Security.

Undoubtedly, the payment of the premium is a condition precedent to, and essential for,
the efficaciousness of the contract. The only two statutorily provided exceptions are (a)
in case the insurance coverage relates to life or industrial life (health) insurance when a
grace period applies and (b) when the insurer makes a written acknowledgment of the
receipt of premium, this acknowledgment being declared by law to be then conclusive
evidence of the premium payment (Secs. 77-78, Insurance Code).

It is therefore important to determine whether at the time of the loss, the premium was
already paid as when on the plaintiff on January 24, 1984 gave the check in payment of
the premium on the insurance policy to Mr. Victorio Chua.

Sec. 306. Which states that 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 the appellant 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 Surety and Insurance Co., Inc. 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 Surety and Insurance Co., Inc., which is consequently liable
to pay the insurance proceeds under the policy it issued to the insured.

Gaisano v. Development Insurance (G.R. No. 190702, Feb. 27, 2017)

Facts:

Petitioner was the registered owner of a 1992 Mitsubishi Montero with plate number
GTJ-777 (vehicle), while respondent is a domestic corporation engaged in the insurance
business. On September 27, 1996, respondent issued a comprehensive commercial
vehicle policy to petitioner in the amount of Pl,500,000.00 over the vehicle for a period
of one year commencing on September 27, 1996 up to September 27, 1997.
Respondent also issued two other commercial vehicle policies to petitioner covering two
other motor vehicles for the same period. To collect the premiums and other charges on
the policies, respondent's agent, Trans-Pacific Underwriters Agency (Trans-Pacific),
issued a statement of account to petitioner's company, Noah's Ark

Merchandising (Noah's Ark). Noah's Ark immediately processed the payments and
issued a Far East Bank check dated September 27, 1996 payable to Trans-Pacific on
the same day. The check bearing the amount of Pl40,893.50 represents payment for
the three insurance policies, with P55,620.60 for the premium and other charges over
the vehicle. However, nobody from Trans-Pacific picked up the check that day
(September 27) because its president and general manager, Rolando Herradura, was
celebrating his birthday. Trans-Pacific informed Noah's Ark that its messenger would get
the check the next day, September 28. In the evening of September 27, 1996, while
under the official custody of Noah's Ark marketing manager Achilles Pacquing
(Pacquing) as a service company vehicle, the vehicle was stolen in the vicinity of SM
Megamall at Ortigas, Mandaluyong City. Pacquing reported the loss to the Philippine
National Police Traffic Management Command at Camp Crame in Quezon City. Despite
search and retrieval efforts, the vehicle was not recovered. Oblivious of the incident,
Trans-Pacific picked up the check the next day, September 28. It issued an official
receipt numbered 124713 dated September 28, 1996, acknowledging the receipt of
P55,620.60 for the premium and other charges over the vehicle. The check issued to
Trans Pacific for Pl40,893.50 was deposited with Metrobank for encashment on October
1, 1996.

Issue:

Whether there is a binding insurance contract between petitioner and respondent.

Ruling:

The court deny the petition. 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. Just like any other contract, it requires a cause or
consideration. The consideration is the premium, which must be paid at the time and in
the way and manner specified in the policy. If not so paid, the policy will lapse and be
forfeited by its own terms. The law, however, limits the parties' autonomy as to when
payment of premium may be made for the contract to take effect. The general rule in
insurance laws is that unless the premium is paid, the insurance policy is not valid and
binding.
Section 77 of the Insurance Code, applicable at the time of the issuance of the policy,
provides: Sec. 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.

ii. Acknowledgment

iii. Return

See:

Phoenix v. Woodworks (20 SCRA 1270)

FACTS:

July 21, 1960: Woodworks, Inc. was issued a fire policy for its building machinery and
equipment by Philippine Phoenix Surety & Insurance Co. for P500K covering July 21,
1960 to July 21, 1961.  Woodworks did not pay the premium totalling to P10,593.36.

April 19, 1961: It was alleged that Woodworks notified Philippine Phoenix the

cancellation of the Policy so Philippine Phoenix credited P3,110.25 for the unexpired
period of 94 days and demanded in writing the payment of P7,483.11 

Woodworks refused stating that it need not pay premium "because the Insurer did not
stand liable for any indemnity during the period the premiums were not paid." 

Philippine Phoenix filed with the CFI to recover its earned premium of P7,483.11

Woodworks: to pay the premium after the issuance of the policy put an end to the
insurance contract and rendered the policy unenforceable

CFI: favored Philippine Phoenix.

ISSUE:
Whether there was a valid insurance contract despite no premium payment was paid

RULING:

NO.

Policy provides for pre-payment of premium. To constitute an extension of credit there

must be a clear and express agreement therefor and there nust be acceptance of the
extension - none here.

Since the premium had not been paid, the policy must be deemed to have lapsed.

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.

Explicit in the Policy itself is plaintiff's agreement to indemnify defendant 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. 

Capital Insurance v. Plastic Era (65 SCRA 135)

FACTS:

December 17, 1960: Capital Insurance & Surety Co., Inc. delivered to the respondent
Plastic Era Manufacturing Co., Inc. its open Fire Policy insuring its building, equipments,
raw materials, products and accessories located at Sheridan Street, Mandaluyong,
Rizal between December 15, 1960 1 pm - December 15, 1961 1 pm up to P100,000
but Plastic Era did not pay the premium.

January 8, 1961: Plastic Era delivered to Capital Insurance its partial payment through
check P1,000 postdated January 16, 1961.
February 20, 1961: Capital Insurance tried to deposit the check but it was dishonored
due to lack of funds.  According to the records, on January 19, 1961 Plastic Era has had
a bank balance of P1,193.41.

January 18, 1961: Plastic Era's properties were destroyed by fire amounting to a loss

of P283,875.  The property was also insured to Philamgen Insurance Company for
P200K.

Capital Insurance refused Plastic Era's claim for failing to pay the insurance premium.

CFI: favored Capital Insurance.

CA: affirmed.

ISSUE:

Whether there was a valid insurance contract because there was an extention of credit
despite failing to encash the check payment.

RULING:

YES. Affirmed

Article 1249 of the New Civil Code applies.

The delivery of promissory notes payable to order, or bills of exchange or other

mercantile documents shall produce the effect of payment only when they have been
cashed, or when through the fault of the creditor they have been impaired.

Capital Insurance accepted the promise of Plastic Era to pay the insurance premium
within 30 days from the effective date of policy. Considering that the insurance policy is
silent as to the mode of payment, Capital Insurance is deemed to have accepted the
promissory note in payment of the premium. This rendered the policy immediately
operative on the date it was delivered.

By accepting its promise to pay the insurance premium within thirty (30) days from the
effectivity date of the policy — December 17, 1960 Capital Insurance had in effect
extended credit to Plastic Era.

Where credit is given by an insurance company for the payment of the premium it has
no right to cancel the policy for nonpayment except by putting the insured in default and
giving him personal notice.
Having held the check for such an unreasonable period of time, Capital Insurance was
estopped from claiming a forfeiture of its policy for non-payment even if the check had
been dishonored later.

E. The Policy

See: Sections 49-52, R.A. 10607

Section 59-62, R.A. 10607

Section 232, R.A. 10607

Gulf Resort Inc. vs. Phil. Charter (458 SCRA 550)

FACTS:

Gulf Resorts, Inc at Agoo, La Union was insured with American Home Assurance
Company which includes loss or damage to shock to any of the property insured by this
Policy occasioned by or through or in consequence of earthquake. On July 16, 1990, an
earthquake struck Central Luzon and Northern Luzon so the properties and 2 swimming
pools in its Agoo Playa Resort were damaged. On August 23, 1990, Gulf’s claim was
denied on the ground that its insurance policy only afforded earthquake shock coverage
to the two swimming pools of the resort. Petitioner contends that pursuant to this rider,
no qualifications were placed on the scope of the earthquake shock coverage. Thus, the
policy extended earthquake shock coverage to all of the insured properties. The RTC
Favored American Home endorsement rider means that only the two swimming pools
were insured against earthquake shock the CA, affirmed RTC.

ISSUE:

W/N Gulf can claim for its properties aside from the 2 swimming pools

HELD:

YES. Affirmed.

It is basic that all the provisions of the insurance policy should be examined and
interpreted in consonance with each other. All its parts are reflective of the true intent of
the parties. Under Section 2 (1), contract of insurance as an agreement whereby one
undertakes consideration to indemnify another against loss damages or liability arising
from unknown or contingent events. An insurance premium is the consideration paid an
insurer for undertaking to indemnify the insured against a specified peril. In the subject
policy, no premium payments were made with regard to earthquake shock coverage,
except on the two swimming pools.

Pineda vs. CA (226 SCRA 754)

FACTS:

Prime Marine Services, Inc. (PMSI) procured Group Policy from respondent-appellant
Insular Life Assurance Co., Ltd. to provide life insurance coverage to its sea-based
employees enrolled under the plan. Six covered employees of the PMSI perished at sea
when their vessel sunk. They were survived by complainants-appellees, the
beneficiaries under the policy.

Complainants-appellees sought to claim death benefits due them and, for this purpose,
they approached the President and General Manager of PMSI, Capt. Roberto Nuval
who evinced willingness to assist complainants-appellees to recover benefits. They
were thus made to execute special powers of attorney authorizing Capt. Nuval to,
among others ‘follow up, ask, demand, collect and receive’ for their benefit indemnities
of sums of money due them relative to the sinking of M/V Nemos.

Unknown to them, however, the PMSI, in its capacity as employer and policyholder of
the life insurance of its deceased workers, filed with respondent-appellant formal claims
for and in behalf of the beneficiaries, through its President, Capt. Nuval. Among the
documents submitted by the latter for the processing of the claims were the five special
powers of attorney executed by complainants-appellees. Respondent-appellant drew
against its account six (6) checks. Capt. Nuval deposited the checks in his own account.

Upon learning that they were entitled to life insurance benefits under a group policy,
complainants-appellees sought to recover these benefits from Insular Life but the latter
denied their claim on the ground that the liability to them was already extinguished upon
delivery to and receipt by PMSI of the six (6) checks.

The Insurance Commission ruled that the special powers of attorney “do not contain in
unequivocal and clear terms authority to Capt. Nuval to obtain, receive, receipt from
respondent company insurance proceeds arising from the death of the seaman-insured.
On the contrary, the said powers of attorney are couched in terms which could easily
arouse suspicion of an ordinary man. The RULING is principally premised on its opinion
that there is nothing in the law which mandates a specific or special power of attorney to
be executed to collect insurance proceeds. Such authority is not included in the
enumeration of art. 1878 of the New Civil Code. Neither do we perceive collection of
insurance claims as an act of strict dominion as to require a special power of attorney.
ISSUE:

Whether Insular Life should still be liable to the complainants when they relied on the
special powers of attorney, which Capt. Nuval presented as documents, when they
released the checks to the latter.

RULING:

Yes.

PMSI, through its President and General Manager, Capt. Nuval, acted as the agent of
Insular Life. The latter is thus bound by the misconduct of its agent.

Insular Life, however, likewise recognized Capt. Nuval as the attorney-in-fact of the
petitioners. Unfortunately, through its official, it acted imprudently and negligently in the
premises by relying without question on the special power of attorney. In Strong v.
Repide, this Court ruled that it is among the established principles in the civil law of
Europe as well as the common law of America that third persons deal with agents at
their peril and are bound to inquire as to the extent of the power of the agent with whom
they contract. And in Harry E. Keller Electric Co. v. Rodriguez, this Court, quoting
Mechem on Agency, stated that:

“The person dealing with an agent must also act with ordinary prudence and reasonable
diligence. Obviously, if he knows or has good reason to believe that the agent is
exceeding his authority, he cannot claim protection. So if the suggestions of probable
limitations be of such a clear and reasonable quality, or if the character assumed by the
agent is of such a suspicious or unreasonable nature, or if the authority which he seeks
to exercise is of such an unusual or improbable character, as would suffice to put an
ordinarily prudent man upon his guard, the party dealing with him may not shut his eyes
to the real state of the case, but should either refuse to deal with the agent at all, or
should ascertain from the principal the true condition of affairs.”

Even granting for the sake of argument that the special powers of attorney were in due
from, Insular Life was grossly negligent in delivering the checks, drawn in favor of the
petitioners, to a party who is not the agent mentioned in the special power of attorney.

i. Form

ii. Delivery

See: Vda. De Sindayen vs. Insular (62 Phil 51)

Facts:
Sindayen, employed in the Bureau of Printing at Manila went to Tarlac, to spend the
Christmas vacation with his aunt. There he applied for for life insurance in the sum of
P1,000 and paid to the agent P15 cash as part of the first premium. It was agreed with
the agent that the policy, when and if issued, should be delivered to his aunt with whom
he left sum of P26.06 to complete the payment of the first annual premium of P40.06.
Sindayen returned to Manila and resumed his work a linotype operator. The company
accepted the risk after examining Sindayen and issued a policy and to the same agent
for delivery to the insured. Sindayen abruptly passed away.

The policy which the company issued was received by its agent in Tarlac. The agent
delivered the policy to Felicidad Estrada upon her payment of the balance of the first
year’s annual premium. The agent asked Felicidad Estrada if her nephew was in good
health and she replied that she believed so. He gave her the policy. The agent learned
of the death of Arturo Sindayen and the aunt to return the policy. He did not return or
offer to return the premium paid. The aunt gave him the policy.

The company obtained from the beneficiary, the widow of Arturo Sindayen, her

signature to a legal document entitled “ACCORD, SATISFACTION AND RELEASE” In
consideration of the sum of P40.06 paid to her by a check of the company, she
discharged the company for all claims . The said check for P40.06 was never cashed
but returned to the company. The widow brought action to enforce payment of the
policy. The first premium was already paid by the insured covering the period from
December 1, 1932. It is to December 1, 1933. Hence, this appeal.

Issue:

Whether the said policy never took effect because of paragraph 3 of the application for
at the time of its delivery by the agent the insured was not in good health.

Ruling:
No. Petition granted.

The application which the insured signed in Tarlac, contained among others the
following provisions:

3. That the said policy shall not take effect until the first premium has been paid and the
policy has been delivered to and accepted by me, while I am in good health.

There is one line of cases which holds that the stipulation contained in paragraph 3 is in
the nature of a condition precedent, that is to say, that there can be no valid delivery to
the insured unless he is in good health at the time. A number of these cases, on the
other hand, go to the of holding that the delivery of the policy by the agent to the insured
consummates the contract even though the agent knew that the insured was not in
good health at the time, the theory being that his knowledge is the company’s
knowledge and his delivery of the policy is the company’s delivery.
We are inclined to the view that it is more consonant with the well known practice of life
insurance companies and the evidence in the present case to rest our decision on the
proposition that Mendoza was authorized by the company to make the delivery of the
policy when he received the payment of the first premium and he was satisfied that the
insured was in good health.

In the case of MeLaurin vs. Mutual Life Insurance Co. -It is plain, therefore, that upon
the facts it is not necessarily a case of waiver or of estoppel, but a case where the
local agents, in the exercise of the powers lodged in them, accepted the premium and
delivered the policy. That act binds their principal, the defendant.

The evidence in the record shows that Mendoza had the authority, given him by the
company, to withhold the delivery of the policy to the insured “until the first premium has
been paid and the policy has been delivered to and accepted by me (the insured) while I
am in good health. Mendoza’s decision that the condition had been met by the insured
and that it was proper to make a delivery of the policy to him is just as binding on the
company as if the decision had been made by its board of directors.

It is the interest not only the applicant but of all insurance companies as well that there
should be some act which gives the applicant the definite assurance that the contract
has been consummated. A cloud will be thrown over the entire insurance business if the
condition of health of the insured at the time of delivery of the policy may be required
into years afterwards with the view to avoiding the policy on the ground that it never
took effect because of an alleged lack of good health, at the time of delivery.

When the policy is issued and delivered it is plainly not within the intention of the parties
that there should be any questions held in abeyance or reserved for future
determination. It would be a most serious handicap to business if the very existence of
the contract remains in doubt even though the policy has been issued and delivered
with all the formalities required by the law. The delivery of the policy to the insured by an
agent is the final act which binds the company and insured in the absence of fraud or
other legal ground for rescission. The fact that the agent to whom it has entrusted this
duty is derelict or negligent or even dishonest in the performance of the duty which has
been entrusted to him would create a liability of the agent to the company but does not
resolve the company’s obligation based upon the authorized acts of the agent toward a
third party who was not in collusion with the agent.

“4. That the agent taking this application has no authority to make, modify
or discharge contracts, or to waive any of the Company’s right or requirements.”

Paragraph 4 of the application to the effect is not in point. Mendoza neither waived nor
pretended to waive any right or requirement of the company. In fact, his inquiry as to the
state of health of the insured discloses that he was endeavoring to assure himself that
this requirement of the company had been satisfied. In doing so, he acted within the
authority conferred on him by his agency and his acts within that authority bind the
company. The company therefore having decided that all the conditions precedent to
the taking effect of the policy had been complied with, it is now estopped to assert that it
never intended that the policy should take effect. 

iii. Rider/Encashment

iv. Required Clauses

v. Cover Notes

vi. Kinds of Policie