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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
indemnification of the insured property razed by fire.
its
formal
claim
for
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.
On July 21, 1992, respondent filed with the Regional Trial Court, Branch 58, Makati
City, a civil complaint against petitioner for recovery of P18,645,000.00,
representing the face value of the policies covering respondent's insured property
razed by fire, and for attorney's fees. 2
On October 23, 1992, after its motion to dismiss had been denied, petitioner filed an
answer to the complaint. It alleged that the complaint "fails to state a cause of
action"; that petitioner was not liable to respondent for insurance proceeds under
the policies because at the time of the loss of respondent's property due to fire, the
policies had long expired and were not renewed. 3
After due trial, on March 10, 1993, the Regional Trial Court, Branch 58, Makati,
rendered decision, the dispositive portion of which reads:
WHEREFORE, premises considered, judgment is hereby rendered in
favor of the plaintiff and against the defendant, as follows:
(1) Authorizing and allowing the plaintiff to consign/deposit with this
Court the sum of P225,753.95 (refused by the defendant) as full
payment of the corresponding premiums for the replacement-renewal
policies for Exhibits A, B, C, D and E;
(2) Declaring plaintiff to have fully complied with its obligation to pay
the premium thereby rendering the replacement-renewal policy of
Exhibits A, B, C, D and E effective and binding for the duration May 22,
1992 until May 22, 1993; and, ordering defendant to deliver forthwith
to plaintiff the said replacement-renewal policies;
(3) Declaring Exhibits A & B, in force from August 22, 1991 up to
August 23, 1992 and August 9, 1991 to August 9, 1992, respectively;
and
(4) Ordering the defendant to pay plaintiff the sums of: (a)
P18,645,000.00 representing the latter's claim for indemnity under
Exhibits A, B & C and/or its replacement-renewal policies; (b) 25% of
the total amount due as and for attorney's fees; (c) P25,000.00 as
necessary litigation expenses; and, (d) the costs of suit.
All other claims and counterclaims asserted by the parties are denied
and/or dismissed, including plaintiff's claim for interests.
SO ORDERED.
Makati, Metro-Manila, March 10, 1993.
ZOSIMO Z. ANGELES.
Judge. 4
In due time, petitioner appealed to the Court of Appeals.
The answer is easily found in the Insurance Code. 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. 11The 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.
The case of Malayan Insurance Co., Inc. vs. Cruz-Arnaldo, 12 cited by the Court of
Appeals, is not applicable. In that case, payment of the premium was in fact actually
made on December 24, 1981, and the fire occurred on January 18, 1982. 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.
WHEREFORE, the Court hereby REVERSES and SETS ASIDE the decision of the Court
of Appeals in CA-G.R. CV No. 42321. In lieu thereof the Court renders judgment
dismissing respondent's complaint and petitioner's counterclaims thereto filed with
the Regional Trial Court, Branch 58, Makati City, in Civil Case No. 92-2023. Without
costs.1wphi1.nt
SO ORDERED.
Davide, Jr., C.J., Melo, Kapunan and Ynares-Santiago, JJ., concur.
G.R. No. 95546 November 6, 1992
MAKATI TUSCANY CONDOMINIUM CORPORATION, petitioner,
vs.
THE COURT OF APPEALS, AMERICAN HOME ASSURANCE CO., represented
by American International Underwriters (Phils.), Inc., respondent.
BELLOSILLO, J.:
This case involves a purely legal question: 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.
Sometime in early 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
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 private respondent.
On 10 February 1983, private respondent issued to petitioner Insurance Policy No.
AH-CPP-9210596, which replaced and renewed the previous policy, for a term
covering 1 March 1983 to 1 March 1984. The premium in the amount of
P466,103.05 was again paid on installments on 13 April 1983, 13 July 1983, 3
August 1983, 9 September 1983, and 21 November 1983. All payments were
likewise accepted by private respondent.
On 20 January 1984, the policy was again renewed and private respondent issued to
petitioner Insurance Policy No. AH-CPP-9210651 for the period 1 March 1984 to 1
March 1985. On this renewed policy, 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.
Consequently, private respondent filed an action to recover the unpaid balance of
P314,103.05 for Insurance Policy No. AH-CPP-9210651.
In its answer with counterclaim, petitioner admitted the issuance of Insurance Policy
No. AH-CPP-9210651. It 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.
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.
After some incidents, petitioner and private respondent moved for summary
judgment.
On 8 October 1987, the trial court dismissed the complaint and the counterclaim
upon the following findings:
While it is true that the receipts issued to the defendant contained the
aforementioned reservations, it is equally true that payment of the
It argues that where the premiums is not actually paid in full, the policy would only
be effective if there is an acknowledgment in the policy of the receipt of premium
pursuant to Sec. 78 of the Insurance Code. The absence of an express
acknowledgment in the policies of such receipt of the corresponding premium
payments, and petitioner's failure to pay said premiums on or before the effective
dates of said policies rendered them invalid. Petitioner thus concludes that there
cannot be a perfected contract of insurance upon mere partial payment of the
premiums because under 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.
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 prepared in full.
We therefore sustain the Court of Appeals. We quote with approval the wellreasoned 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. 4
The reliance by petitioner on Arce vs. Capital Surety and Insurance
Co. 5 is unavailing because the facts therein are substantially different from those in
the case at bar. In Arce, no payment was made by the insured at all despite the
grace period given. In 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.
WHEREFORE, finding no reversible error in the judgment appealed from, the same is
AFFIRMED. Costs against petitioner.
SO ORDERED.
FACTS:
Sometime in early 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 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 private respondent.
Successive renewals of the policies 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.
Private respondent filed an action to recover the unpaid balance of P314,103.05 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.
DECISION OF LOWER COURTS:
(1) Trial Court: dismissed the complaint and counterclaim
(2) CA: 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:
No, the contract remains valid even if the premiums were paid on installments. 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.
At the very least, both parties should be deemed in estoppel to question the arrangement
they have voluntarily accepted.
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. The
obligation to pay premiums when due is ordinarily as indivisible obligation to pay the entire
premium.
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 respondents claim was substantially proved and
petitioners 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.
Issues:
1. Whether there was a valid payment of premium, considering that respondents
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 contracts
3. Whether respondent is entitled to the award of damages.
Held: Yes. No. Yes, but not all damages valid. Petition granted. Damages modified.
Ratio:
1. 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 agents 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. Submission of the alleged fraudulent documents pertained to respondents
income tax returns for 1987 to 1989.
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.