had stipulated:

IT IS HEREBY DECLARED AND AGREED that not. withstanding anything to the

contrary contained in the within policy, this insurance will be deemed valid and
binding upon the Company only when the premium and documentary stamps
therefor 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.

Prior to the amendment, an insurance contract was effective even if the premium had
not been paid so that an insurer was obligated to pay indemnity in case of loss and
correlatively he had also the right to sue for payment of the premium. But the
amendment to Sec. 72 has radically changed the legal regime in that unless the
premium is paid there is no insurance.

Finally, his policy ceased to have effect when he failed to pay the premium.

Makati Tuscany Condominium v CA

Facts:
In early 1982, American Home Assurance Co. (AHAC), represented by American
International Underwriters (Phils.), Inc., issued in favor of petitioner Makati Tuscany
Condominium Corporation (TUSCANY) Insurance Policy No. AH-CPP-9210452 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.
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 AIU. On 10 February 1983, the
policy was renewed and the premiums were paid again in installments covering the
period of 1 March 1983 to 1 March 1984.
All payments were likewise accepted by AIU. On 20 January 1984, the policy was again
renewed and AIU issued to Tuscany Insurance Policy No. AH-CPP-9210651 for the
period 1 March 1984 to 1 March 1985.
On this renewed policy, Tuscany made two installment payments, both accepted by AIU,
the first on 6 February 1984 for P52,000.00 and the second, on 6 June 1984 for
P100,000.00.
Thereafter, Tuscany refused to pay the balance of the premium. Consequently, AIU filed
an action to recover the unpaid balance of P314,103.05 for Insurance Policy No. AHCPP-9210651.
In its answer with counterclaim, Tuscany admitted the issuance of Insurance Policy No.
AH-CPP-9210651. Tuscany explained that it discontinued the payment of premiums
because the policy did not contain a credit clause in its favor and the receipts for the
installment payments covering the policy for 1984-85, as well as the two (2) previous
policies, stated the following reservations:
2.Acceptance of this payment shall not waive any of the company rights to deny liability
on any claim under the policy arising before such payments or after the expiration of the
credit clause of the policy; and

3.Subject to no loss prior to premium payment. If there be any loss such is not covered.
TC dismissed both the complaint and the counterclaim. Both parties appealed to CA
which rendered judgment in favor of AIU and ordered Tuscany to pay the remaining
balance. Hence, this case.
Issue: WON 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?
Ruling: No. The court held 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 premiums but later denying its liability.
Truly, the judgment of CA was affirmed as it stated that the while the import of Section 77
is that prepayment of premiums is strictly required as a condition to the validity of the
contract, the courts are not prepared to rule that the request to make installment
payments duly approved by the insurer, would prevent the entire contract of insurance
from going into effect despite payment and acceptance of the initial premium or first
installment. Section 78 of the Insurance Code in effect allows waiver by the insurer of
the condition of prepayment by making an acknowledgment in the insurance policy of
receipt of premium as conclusive evidence of payment so far as to make the policy
binding despite the fact that premium is actually unpaid.
Section 77 merely precludes the parties from stipulating that the policy is valid even if
premiums are not paid, but does not expressly prohibit an agreement granting credit
extension, and such an agreement is not contrary to morals, good customs, public order
or public policy.
So is an understanding to allow insured to pay premiums in installments not so
proscribed. At the very least, both parties should be deemed in estoppel to question the
arrangement they have voluntarily accepted.
Hence, Tuscany may not be allowed to renege on its obligation to pay the balance of the
premium after the expiration of the whole term of the third policy (No. AH-CPP-9210651)
in March 1985.

Acme Shoe, Rubber & Plastic Corp. vs CA and Domestic Insurance Company of
the Philippines
G.R. No. L-56718; January 17, 1985
Ponente: Melencio-Herrera, J.
Facts:
Since 1946, petitioner Acme had been insuring yearly against fire, its building,
machines, and merchandise, with respondent Domestic Insurance (insurer).
Acme continued to insure its properties with the insurer in the amount of
P200,000, for the period of May 15, 1962 to May 15, 1963.
On May 14, 1963, a renewal receipt was issued covering May 15, 1963 to May
15, 1964.
In January 1964, Acme paid P3,331.26 as premium which the insurer applied as
renewal premium for the period May 1963 to May 1964.
On May 15, 1964, insurer issued a renewal receipt for the renewal premium of
P3,331.26 for May 1964-May 1965.
In said renewal receipt, a Receipt of Payment Clause and a Credit Agreement
clause were attached as riders.
The Receipt of Payment Clause provides that the insurance will be deemed
valid and binding upon the Company only when the premium and documentary
stamps therefor have actually been paid in full and duly acknowledged in an
official receipt signed by an authorized official/representative of the Company
The Credit Agreement provides that The premium corresponding to the first
ninety days of the term of this policy or any renewal thereof is hereby considered
paid for the purpose only of making this Policy valid and binding during said
portion of the term. Thereafter, this Policy shall automatically become void and
ineffective (without prejudice to the obligation of the Insured to pay the
corresponding short period premium for the said 90 days) unless prior to the
expiration of said period the Insured shall have actually paid to the Company the
total premium and the documentary stamps stipulated in this Policy.
In May 1964, Acme's President signed a promissory note stating that: within 90
days from the effective date of the policy (May 15, 1964), the premium and
documentary stamps amounting to P3,331.26 shall be paid. In case of failure to
do so, the policy shall be automatically cancelled, and Acme shall then be liable

to pay only the short period premium corresponding to 90 days.

A fire destroyed Acme's properties in October 1964, causing Acme to file its
insurance claim.
Domestic Insurance disclaimed liability, averring that as of the date of the loss,
said properties were not covered by insurance.
Trial Court ruled in favor of Acme, stating that there was a clear intention on
insurer's part to grant Acme a credit extension for the payment due; and that
there would be unjust enrichment on insurer's part if the premium paid is applied
to a policy which was automatically cancelled according to insurer's own theory.
CA reversed.
Acme's contention: Insurer accepted the 1-year premium on January 1964 and it
had no right to apply it to the payment of a period of coverage prior thereto when
under Republic Act 3540, the policy was void and respondent insurer could have
validly disclaimed liability for loss had one occurred then.

Issue/s: WON an insurance contract existed at the time of the fire, since insurer
accepted a 1-year premium in January 1964.
Held:
Appellate Court's ruling sustained. By the express terms of the promissory note,
Acme was fully aware that the policy shall be automatically cancelled on August 13,
1964 (the 90th day) if the premium was not paid before said date. Not having paid the
premium, and pursuant to RA 3540, the policy was cancelled, hence, there was no
insurance coverage to speak of as of the date of the fire.
Regarding the contention involving RA 3540 which took effect in October 1963,
Section 72 of said Act provides: An insurer is entitled to payment of the 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.
Since said Act took effect only in October 1963, it could not retroactively affect
the policy's renewal in May 1963. Thus, Acme's premium payment of January 1964 was
properly applied to the 1963-1964 premium.
Regarding the Trial Court's opinion of the existence of a clear agreement to grant
ACME credit extension for 1964-1965, such is negated by the promissory note.
Indubitably, the credit extension was only for 90 days.
As to the claim that the insurer would unjustly enrich itself if it were to be allowed
to apply the one-year premium it received to a past period when the policy was void and
the insurer had incurred no risk, such is flawed for the reason already stated that
Renewal Receipt for 1963-1964 had been issued on May 14,1963 before R.A. No. 3540
was implemented on October 1963. What became automatically cancelled by R.A.
No.3540 was the 1964-1965 policy for ACME's failure to pay the premium within the 90day extension granted, and in accordance with the express terms of the Promissory
Note that it had signed.

GSIS vs. PRUDENTIAL GUARANTEE AND ASSURANCE, INC., DEVELOPMENT

BANK OF THE PHILIPPINES & LAND BANK OF THE PHILIPPINES
G.R. No. 165585
November 20, 2013
GSIS vs. PRUDENTIAL GUARANTEE AND ASSURANCE, INC.
G.R. No. 176982
DOCTRINE: 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 (De
Leon, the Insurance Code, at p. 175). So is an understanding to allow insured to pay
premiums in installments not so proscribed. At the very least, both parties should be
deemed in estoppel to question the arrangement they have voluntarily accepted.

FACTS: Sometime in March 1999, the National Electrification Administration (NEA)

entered into a Memorandum of Agreement (MOA) with GSIS insuring all real and
personal properties mortgaged to it by electrical cooperatives under an Industrial All
Risks Policy (IAR policy). The total sum insured under the IAR policy was
P16,731,141,166.80, out of which, 95% or P15,894,584,108.40 was reinsured by GSIS
with PGAI for a period of one year or from March 5, 1999 to March 5, 2000. As reflected
in Reinsurance Request Note No. 99-150 (reinsurance cover) and the Reinsurance
Binder dated April 21, 1999 (reinsurance binder), GSIS agreed to pay PGAI reinsurance
premiums in the amount of P32,885,894.52 per quarter or a total
of P131,543,578.08. While GSIS remitted to PGAI the reinsurance premiums for the first
three quarters, it, however, failed to pay the fourth and last reinsurance premium due on
December 5, 1999 despite demands. This prompted PGAI to file, on November 15,
2001, a Complaint for sum of money (complaint) against GSIS before the RTC.

PGAI alleged, in its complaint, among others that: xxx (b) the first three reinsurance
premiums were paid to PGAI by GSIS and, in the same vein, NEA paid the first three
reinsurance premiums due to GSIS; (c) GSIS failed to pay PGAI the fourth and last
reinsurance premium due on December 5, 1999 xxx
GSIS admitted that: xxx (b) it remitted to PGAI the first three reinsurance premiums
which were paid by NEA; and (c) it failed to remit the fourth and last reinsurance
premium to PGAI. It, however, denied, inter alia, that: (a) it had acknowledged its
obligation to pay the last quarters reinsurance premium to PGAI xxx
On January 11, 2002, the RTC observed that the admissions of GSIS that it paid the first
three quarterly reinsurance premiums to PGAI affirmed the validity of the contract of
reinsurance between them. As such, GSIS cannot now renege on its obligation to remit
the last and remaining quarterly reinsurance premium. It further pointed out that while it
is true that the payment of the premium is a requisite for the validity of an insurance
contract as provided under Section 77 of Presidential Decree No. (PD) 612, otherwise
known as "The Insurance Code," it was held in Makati Tuscany Condominium Corp. v.
CA that insurance policies are valid even if the premiums were paid in installments, as in
this case. Thus, in view of the foregoing, the RTC ordered GSIS to pay PGAI the last
quarter reinsurance premium.
CA sustained RTCs order with modification and GSIS motion for reconsideration.

ISSUE: WON PGAI has a right to be paid by GSIS the amount of the fourth and last
reinsurance premium

RULING: YES. GSIS affirmative defense that the non-payment of the last reinsurance
premium merely rendered the contract ineffective pursuant to Section 77 of PD 612 no
longer involves any factual issue, but stands solely as a mere question of law in the light
of the foregoing admissions hence allowing for a judgment on the pleadings. Besides, in
the case of Makati Tuscany, the Court already ruled that the non-payment of subsequent
installment premiums would not prevent the insurance contract from taking effect; that
the parties intended to make the insurance contract valid and binding is evinced from the
fact that the insured paid and the insurer received several reinsurance premiums due
thereon, although the former refused to pay the remaining balance, viz:
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 insurers
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.

We therefore sustain the Court of Appeals. We quote with approval the well-reasoned
findings and conclusion of the appellate court contained in its Resolution denying the
motion to reconsider its Decision
While the import of Section 77 is that prepayment of premiums is strictly required as a
condition to the validity of the contract, We are not prepared to rule that the request to
make installment payments duly approved by the insurer, would prevent the entire
contract of insurance from going into effect despite payment and acceptance of the initial
premium or first installment . Section 78 of the Insurance Code in effect allows waiver by
the insurer of the condition of prepayment by making an acknowledgment in the
insurance policy of receipt of premium as conclusive evidence of payment so far as to
make the policy binding despite the fact that premium is actually unpaid. Section 77
merely precludes the parties from stipulating that the policy is valid even if premiums are
not paid, but does not expressly prohibit an agreement granting credit extension, and
such an agreement is not contrary to morals, good customs, public order or public policy
(De Leon, the Insurance Code, at p. 175). So is an understanding to allow insured to pay
premiums in installments not so proscribed. At the very least, both parties should be
deemed in estoppel to question the arrangement they have voluntarily accepted.
[I]n the case before Us, petitioner paid the initial installment and thereafter made
staggered payments resulting in full payment of the 1982 and 1983 insurance policies.
For the 1984 policy, petitioner paid two (2) installments although it refused to pay the
balance.
It appearing from the peculiar circumstances that the parties actually intended to make
three (3) insurance contracts valid, effective and binding, petitioner may not be allowed
to renege on its obligation to pay the balance of the premium after the expiration of the
whole term of the third policy (No. AH-CPP-9210651) in March 1985. Moreover, as
correctly observed by the appellate court, where the risk is entire and the contract is
indivisible, the insured is not entitled to a refund of the premiums paid if the insurer was
exposed to the risk insured for any period, however brief or momentary.