Malayan Insurance Co., Inc. V.

Arnaldo (1987)
G.R. No. L-67835 October 12, 1987
Lessons Applicable: Authority to Receive Payment/Effect of Payment (Insurance)
Laws Applicable: Article 64, Article 65, Section 77, Section 306 of the Insurance Code
FACTS:

June 7, 1981: Malayan insurance co., inc. (MICO) issued to Coronacion Pinca, Fire Insurance
Policy for her property effective July 22, 1981, until July 22, 1982

October 15,1981: MICO allegedly cancelled the policy for non-payment, of the premium and sent
the corresponding notice to Pinca

December 24, 1981: payment of the premium for Pinca was received by Domingo Adora, agent of
MICO

January 15, 1982: Adora remitted this payment to MICO,together with other payments

January 18, 1982: Pinca's property was completely burned

February 5, 1982: Pinca's payment was returned by MICO to Adora on the ground that her policy
had been cancelled earlier but Adora refused to accept it and instead demanded for payment

Under Section 416 of the Insurance Code, the period for appeal is thirty days from notice of the
decision of the Insurance Commission. The petitioner filed its motion for reconsideration on April 25,
1981, or fifteen days such notice, and the reglementary period began to run again after June 13, 1981,
date of its receipt of notice of the denial of the said motion for reconsideration. As the herein petition
was filed on July 2, 1981, or nineteen days later, there is no question that it is tardy by four days.

Insurance Commission: favored Pinca

MICO appealed
ISSUE: W/N MICO should be liable because its agent Adora was authorized to receive it
HELD: YES. petition is DENIED

SEC. 77. An insurer is entitled to 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.

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 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.

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 is
a discharge of the indebtedness owing to the principal.

SEC. 64. No policy of insurance other than life shall be cancelled by the insurer except upon prior
notice thereof to the insured, and no notice of cancellation shall be effective unless it is based on the
occurrence, after the effective date of the policy, of one or more of the following:
(a) non-payment of premium;
(b) conviction of a crime arising out of acts increasing the hazard insured against;
(c) discovery of fraud or material misrepresentation;
(d) discovery of willful, or reckless acts or commissions increasing the hazard insured against;
(e) physical changes in the property insured which result in the property becoming uninsurable;or
(f) a determination by the Commissioner that the continuation of the policy would violate or would
place the
insurer in violation of this Code.
As for the method of cancellation, Section 65 provides as follows:

SEC. 65. All notices of cancellation mentioned in the preceding section shall be in writing, mailed
or delivered to the named insured at the address shown in the policy, and shall state (a) which of the
grounds set forth in section sixty-four is relied upon and (b) that, upon written request of the named
insured, the insurer will furnish the facts on which the cancellation is based.
A valid cancellation must, therefore, require concurrence of the following conditions:
(1) There must be prior notice of cancellation to the insured;

(2)

The notice must be based on the occurrence, after the effective date of the policy, of one or
more of the grounds mentioned;
(3) The notice must be (a) in writing, (b) mailed, or delivered to the named insured, (c) at the
address shown in the policy;
(4) It must state (a) which of the grounds mentioned in Section 64 is relied upon and (b) that upon
written request of the insured, the insurer will furnish the facts on which the cancellation is based.

All MICO's offers to show that the cancellation was communicated to the insured is its employee's
testimony that the said cancellation was sent "by mail through our mailing section." without more

It stands to reason that if Pinca had really received the said notice, she would not have made
payment on the original policy on December 24, 1981. Instead, she would have asked for a new
insurance, effective on that date and until one year later, and so taken advantage of the extended
period.

Incidentally, Adora had not been informed of the cancellation either and saw no reason not to accept
the said payment

Although Pinca's payment was remitted to MICO's by its agent on January 15, 1982, MICO sought
to return it to Adora only on February 5, 1982, after it presumably had learned of the occurrence of the
loss insured against on January 18, 1982 make the motives of MICO highly suspicious
UCPB General Insurance Co. Inc. vs. Masagana Telemart Inc. [G.R. No. 137172, April 4, 2001]
Facts: Plaintiff obtained from defendant fire insurance policies on its property effective from May 1991 1992. On June 1992, plaintiff's properties were raged by fire. On the same date plaintiff tendered, and
defendant accepted five checks as renewal premium paymentsfor which a receipt was issued. Masagana
made a claim which was denied. the checks were then returned to plaintiff. According to defendant, the
claim cannot be entertained for properties were burned before the tender of premium.
Issue: Whether or not section 77 of the insurance code must be strictly applied to petitioners advantage
despite its practice of granting 60 to 70 day credit term for the payment of its premium
Held: 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:
SECTION 78. Any acknowledgment in a policy or contract ofinsurance of the receipt of premium is
conclusive evidence of itspayment, 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.
Tuscany case has provided a fourth exception to Section 77, namely, that the insurer may grant credit
extension for the paymentof 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 thepayment 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.

Makati Tuscany V. CA
G.R. No. 95546 November 6, 1992
Lessons Applicable:

Installments and partial payment (Insurance)

Grounds on Return of Premium: No exposed to peril insured against (Insurance)

FACTS:
Early 1982: American Home Assurance Co. (AHAC), represented by American
InternationalUnderwriters (Phils.), Inc., issued in favor of Makati Tuscany Condominium Corporation
(Tuscany) 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.

Premium were paid on installments on:

March 12 1982

May 20 1982

June 21 1982

November 16 1982

February 10 1983: AHAC replaced and renewed the previous policy, for a term covering 1 March
1983 to 1 March 1984

premium of P466,103.05 was again paid on installments on:

April 13 1983

July 13 1983

August 3 1983

September 9 1983

November 21 1983

January 20 1984: policy was again renewed for the period March 1 1984 to March 1 1985

Tuscany only paid two installment payments

February 6 1984 for P52k

June 6 1984 for P100k

AHAC filed an action to recover the unpaid balance of P314,103.05

RTC: dismissed the complaint

While it is true that the receipts issued to the defendant contained the
aforementioned reservations, it is equally true that payment of the premiums of the three aforementioned
policies (being sought to be refunded) were made during the lifetime or term of said policies, hence, it
could not be said, inspite of the reservations, that no risk attached under the policies

counterclaim for refund is not justified

CA: ordered Tuscany to pay premiums when due is ordinarily as indivisible obligation to pay the
entire premium; insurance contract became valid and binding upon payment of the first premium

ISSUE:
1. W/N payment by installment of the premiums due on an insurance policy invalidates the contract of
insurance on the basis of:
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.
2. W/N there is risk attached to the insurance so it cannot be refunded
HELD:
1. NO
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.

It 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 2 installments although it refused
to pay the balance. - appearing that they actually intended to make 3 insurance contracts valid
2. NO.

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

Tibay v. CA Digest
Tibay, et. al v Court of Appeals
GR No. 119655, 24 May 1996

Bellosillo, [J.]
Facts:
1.

In January 22 1987, the Petitioner Violeta Tibay (and Nicolas Roralso) obtained a fire insurance policy for
their 2-storey from the Private Respondent Fortune Life Insurance Co. The said policy covers the period from
January 23, 1987 until January 23, 1988 or one year for P600, 000 and at the agreed premium of P2, 983.50.
On January 23 or the next day, petitioner made a partial payment of the premium with P600.

2.

Unfortunately, on March 8 1987, the said building was burned to the ground. It was only two days after the
fire that Petitioner Violeta advanced the full payment of the policy premium which was accepted by the
insurer. On this same day, petitioner likewise filed the claim that was then referred to the insurer's adjuster.
Investigation of the cause of fire commenced and the petitioner submitted the required proof of loss.

3.

Despite that, the private respondent Fortune refused to pay the insurance claim saying it as not liable due
to the non-payment by petitioner of the full amount of the premium as stated in the policy.

4.

The petitioner then brought the matter to the Insurance Commission but nothing good came out. Hence this
case filed.

5.

The trial court rule in favor of the petitioner. Upon appeal, the Court of Appeals reversed the lower court's
decision and held that Fortune is not liable but ordered it to return the premium paid with interest to the
petitioner. Hence, this petition for review.

Issue: W/N the partial payment of the premium rendered the insurance policy ineffective?

1.

2.

YES.
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, way and manner as stated in the policy, and if not so paid as in this case, the policy is therefore
forfeited by its own terms. In this case, the policy taken out by the petitioner provides for payment of premium in
full. Since the petitioner only made partial payment with the remaining balance paid only after the fire or peril
insured against has occurred, the insurance contract therefore did not take effect barring the insured from
claiming or collecting from the loss of her building.
Under Section 77 of the Insurance Code (Philippine), it provides therein 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." Herein case, the controversy is on the payment of the premium. It
cannot be disputed that premium is the elixir vitae of the insurance business because the insurer is required by
law to maintain a reserve fund to meet its contingent obligations to the public. Due to this, it is imperative that the
premium is paid fully and promptly. To allow the possibility of paying the premium even after the peril has ensued
will surely undermine the foundation of the insurance business.