UCPB V MASAGANA G.R. NO. 137172.
APRIL 4, 2001 make the policy binding, notwithstanding any stipulation therein that it shall not be binding until
C.J. Davide
Facts:
In our decision of 15 June 1999 in this case, we reversed and set aside the assailed decision[1]
of the Court of Appeals, which affirmed with modification the judgment of the trial court (a) allowing
Respondent to consign the sum of P225,753.95 as full payment of the premiums for the renewal
of the five insurance policies on Respondent’s properties; (b) declaring the replacement-renewal
policies effective and binding from 22 May 1992 until 22 May 1993; and (c) ordering Petitioner to
pay Respondent P18,645,000.00 as indemnity for the burned properties covered by the renewal-
replacement policies. The modification consisted in the (1) deletion of the trial court’s declaration
that three of the policies were in force from August 1991 to August 1992; and (2) reduction of the
award of the attorney’s fees from 25% to 10% of the total amount due the Respondent.
Masagana obtained from UCPB five (5) insurance policies on its Manila properties.
The policies were effective from May 22, 1991 to May 22, 1992. On June 13, 1992, Masagana’s
properties were razed by fire. On July 13, 1992, plaintiff tendered five checks for P225,753.45 as
renewal premium payments. A receipt was issued. On July 14, 1992, Masagana made its formal
demand for indemnification for the burned insured properties. UCPB then rejected Masagana’s
claims under the argument that the fire took place before the tender of payment.
Hence Masagana filed this case.
The Court of Appeals disagreed with UCPB’s argument that Masagana’s tender of payment of
the premiums on 13 July 1992 did not result in the renewal of the policies, having been made
beyond the effective date of renewal as provided under Policy Condition No. 26, which states:
26. Renewal Clause. -- Unless the company at least forty five days in advance of the end of the
policy period mails or delivers to the assured at the address shown in the policy notice of its
intention not to renew the policy or to condition its renewal upon reduction of limits or elimination
of coverages, the assured shall be entitled to renew the policy upon payment of the premium due
on the effective date of renewal.
Both the Court of Appeals and the trial court found that sufficient proof exists that Masagana,
which had procured insurance coverage from UCPB for a number of years, had been granted a
60 to 90-day credit term for the renewal of the policies. Such a practice had existed up to the time
the claims were filed. Most of the premiums have been paid for more than 60 days after the
issuance. Also, no timely notice of non-renewal was made by UCPB.
The Supreme Court ruled against UCPB in the first case on the issue of whether the fire insurance
policies issued by petitioner to the respondent covering the period from May 22, 1991 to May 22,
1992 had been extended or renewed by an implied credit arrangement though actual payment of
premium was tendered on a later date and after the occurrence of the risk insured against.
UCPB filed a motion for reconsideration.
The Supreme Court, upon observing the facts, affirmed that there was no valid notice of non-
renewal of the policies in question, as there is no proof at all that the notice sent by ordinary mail
was received by Masagana. Also, the premiums were paid within the grace period.
Issue: Whether Section 77 of the Insurance Code of 1978 must be strictly applied to Petitioner’s
advantage despite its practice of granting a 60- to 90-day credit term for the payment of premiums.
Held: No. Petition denied.
Ratio:
Section 77 of the Insurance Code provides: No policy or contract of insurance issued by an
insurance company is valid and binding unless and until the premium thereof has been paid…
An exception to this section is Section 78 which provides: Any acknowledgment in a policy or
contract of insurance of the receipt of premium is conclusive evidence of its payment, so far as to
premium is actually paid.
Makati Tuscany v Court of Appeals- 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.
Section 78 allows waiver by the insurer of the condition of prepayment and makes the policy
binding despite the fact that premium is actually unpaid. Section 77 does not expressly prohibit
an agreement granting credit extension. At the very least, both parties should be deemed in
estoppel to question the arrangement they have voluntarily accepted.
The Tuscany case has provided another exception to Section 77 that the insurer may grant
credit extension for the payment of the premium. 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.
It would be unjust if recovery on the policy would not be permitted against Petitioner, which had
consistently granted a 60- to 90-day credit term for the payment of premiums. Estoppel bars it
from taking refuge since Masagana relied in good faith on such practice. Estoppel then is
the fifth exception.
Jaime T. Gaisano Vs. Development Insurance and Surety Corporation
G.R. No. 190702
February 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.
Here, there is no dispute that the check was delivered to and was accepted by respondent's agent,
Trans-Pacific, only on September 28, 1996. No payment of premium had thus been made at the
time of the loss of the vehicle on September 27, 1996. Thus, at the time of loss, there was no
payment of premium yet to make the insurance policy effective.
It can be seen at once that Section 77 does not restate the portion of Section 72 expressly
permitting an agreement to extend the period to pay the premium. But are there exceptions to
Section 77?
In UCPB General Insurance Co., Inc., we summarized the exceptions as follows:
(1) in case of life or industrial life policy, whenever the grace period provision applies, as
expressly provided by Section 77 itself;
(2) where the insurer acknowledged in the policy or contract of insurance itself the receipt of
premium, even if premium has not been actually paid, as expressly provided by Section 78 itself;
(3) where the parties agreed that premium payment shall be in installments and partial payment
has been made at the time of loss, as held in Makati Tuscany Condominium Corp. v. Court of
Appeals;[53]
(4) where the insurer granted the insured a credit term for the payment of the premium, and loss
occurs before the expiration of the term, as held in Makati Tuscany Condominium Corp.; and
(5) where the insurer is in estoppel as when it has consistently granted a 60 to 90-day credit
term for the payment of premiums.
Petitioner argues that his case falls under the fourth and fifth exceptions because the parties
intended the contract of insurance to be immediately effective upon issuance, despite non-
payment of the premium. This waiver to a pre-payment in full of the premium places respondent
in estoppel.
We do not agree with petitioner.
The fourth and fifth exceptions to Section 77 operate under the facts obtaining in Makati
Tuscany Condominium Corp. and UCPB General Insurance Co., Inc. Both contemplate
situations where the insurers have consistently granted the insured a credit extension or term for
the payment of the premium. Here, however, petitioner failed to establish the fact of a grant by
respondent of a credit term in his favor, or that the grant has been consistent. While there was
mention of a credit agreement between Trans-Pacific and respondent, such arrangement was
not proven and was internal between agent and principal.
Thus, we find that petitioner is not entitled to the insurance proceeds because no insurance
policy became effective for lack of premium payment. The consequence of this declaration is
that petitioner is entitled to a return of the premium paid for the vehicle in the amount of
P55,620.60 under the principle of unjust enrichment.
WHEREFORE, the petition is DENIED.
UNITED MERCHANTS CORP VS CONTRY BANKERS INSURANCE GR NO. 198588
JULY 11, 2012
Petitioner United Merchants Corporation (UMC) is engaged in the business of buying, selling,
and manufacturing Christmas lights. UMC leased a warehouse at 19-B Dagot Street, San Jose
Subdivision, Barrio Manresa, Quezon City, where UMC assembled and stored its products.
On 6 September 1995, UMCs General Manager Alfredo Tan insured UMCs stocks in trade of
Christmas lights against fire with defendant Country Bankers Insurance Corporation (CBIC) for
P15,000,000.00. The Fire Insurance Policy No. F-HO/95-576 (Insurance Policy) and Fire Invoice
No. 12959A, valid until 6 September 1996.
On 7 May 1996, UMC and CBIC executed Endorsement F/96-154 and Fire Invoice No. 16583A
to form part of the Insurance Policy. Endorsement F/96-154 provides that UMCs stocks in trade
were insured against additional perils, to wit: typhoon, flood, ext. cover, and full earthquake. The
sum insured was also increased to P50,000,000.00 effective 7 May 1996 to 10 January 1997.
On 9 May 1996, CBIC issued Endorsement F/96-157 where the name of the assured was
changed from Alfredo Tan to UMC.
On 3 July 1996, a fire gutted the warehouse rented by UMC. CBIC designated CRM
Adjustment Corporation (CRM) to investigate and evaluate UMCs loss by reason of the fire.
CBICs reinsurer, Central Surety, likewise requested the National Bureau of Investigation (NBI) to
conduct a parallel investigation. On 6 July 1996, UMC, through CRM, submitted to CBIC its
Sworn Statement of Formal Claim, with proofs of its loss.
On 20 November 1996, UMC demanded for at least fifty percent (50%) payment of its claim from
CBIC. On 25 February 1997, UMC received CBICs letter, dated 10 January 1997, rejecting
UMCs claim due to breach of Condition No. 15 of the Insurance Policy. Condition No. 15
states:
If the claim be in any respect fraudulent, or if any false declaration be made or used in
support thereof, or if any fraudulent means or devices are used by the Insured or
anyone acting in his behalf to obtain any benefit under this Policy; or if the loss or
damage be occasioned by the willful act, or with the connivance of the Insured, all the
benefits under this Policy shall be forfeited.[6]
The Bureau further certifies that no evidence was gathered to prove that the establishment was
willfully, feloniously and intentionally set on fire. That the investigation of the fire incident is
already closed being ACCIDENTAL in nature.
The Ruling of the Regional Trial Court
On 16 June 2005, the RTC of Manila, Branch 3, rendered a Decision in favor of UMC.
Fraud is never presumed but must be proved by clear and convincing evidence. (see
Alonso v. Cebu Country Club, 417 SCRA 115 [2003]) Defendant failed to establish by clear and
convincing evidence that the documents submitted to the SEC and BIR were true.
The CRM Adjustment report found no arson and confirmed substantial stocks in the
burned warehouse. Absent convincing evidence to the contrary, the presumption of regularity
in the performance of official functions has to be upheld.
Hence, CBIC filed an appeal with the Court of Appeals (CA).
Thus, either amount in UMCs Income Statement or Financial Reports is twenty-five times the
claim UMC seeks to enforce.
It has long been settled that a false and material statement made with an intent to deceive
or defraud voids an insurance policy.

The Ruling of the Court of Appeals
On 16 June 2011, the CA promulgated its Decision in favor of CBIC.
The CA ruled that UMCs claim under the Insurance Policy is void. The CA found that the
fire was intentional in origin, considering the array of evidence submitted by CBIC, particularly
the pictures taken and the reports of Cabrera and Lazaro, as opposed to UMCs failure to explain
the details of the alleged fire accident. In addition, it found that UMCs claim was overvalued
through fraudulent transactions.
We have meticulously gone over the entirety of the evidence submitted by the parties and have
come up with a conclusion that the claim of the plaintiff-appellee was indeed overvalued by
transactions which were fraudulently concocted so that the full coverage of the insurance policy
will have to be fully awarded to the plaintiff-appellee.
On UMCs allegation that it did not breach any warranty, it may be argued that the discrepancies
do not, by themselves, amount to a breach of warranty. However, the Insurance Code provides
that a policy may declare that a violation of specified provisions thereof shall avoid it.[49] Thus,
in fire insurance policies, which contain provisions such as Condition No. 15 of the Insurance
Policy, a fraudulent discrepancy between the actual loss and that claimed in the proof of loss
voids the insurance policy. Mere filing of such a claim will exonerate the insurer.[
Considering that all the circumstances point to the inevitable conclusion that UMC
padded its claim and was guilty of fraud, UMC violated Condition No. 15 of the Insurance
Policy. Thus, UMC forfeited whatever benefits it may be entitled under the Insurance
Policy, including its insurance claim.
WHEREFORE, we DENY the petition.

ISSUE: Whether UMC is entitled to claim from CBIC the full coverage of its fire insurance
policy.

The Ruling of the Court

An insurer who seeks to defeat a claim because of an exception or limitation in the policy
has the burden of establishing that the loss comes within the purview of the exception or
limitation.[23] If loss is proved apparently within a contract of insurance, the burden is upon the
insurer to establish that the loss arose from a cause of loss which is excepted or for which it is
not liable, or from a cause which limits its liability.[24] In the present case, CBIC failed to
discharge its primordial burden of establishing that the damage or loss was caused by arson, a
limitation in the policy.

In the present case, arson and fraud are two separate grounds based on two different sets of
evidence, either of which can void the insurance claim of UMC. The absence of one does not
necessarily result in the absence of the other. Thus, on the allegation of fraud, we affirm the
findings of the Court of Appeals.

CBICs evidence did not prove that the fire was intentionally caused by the insured. First, the
findings of CBICs witnesses, Cabrera and Lazaro, were based on an investigation conducted
more than four months after the fire. The Sworn Statement of Formal Claim submitted by UMC,
through CRM, states that the cause of the fire was faulty electrical wiring/accidental in
nature.

Condition No. 15 of the Insurance Policy provides that all the benefits under the policy shall be
forfeited, if the claim be in any respect fraudulent, or if any false declaration be made or used in
support thereof.

In the present case, as proof of its loss of stocks in trade amounting to P50,000,000.00.
However, the charges for assembling the Christmas lights and delivery receipts could not
support its insurance claim. The Insurance Policy provides that CBIC agreed to insure UMCs
stocks in trade. UMC defined stock in trade as tangible personal property kept for sale or
traffic.[33] Applying UMCs definition, only the letters of credit and invoices for raw materials,
Christmas lights and cartons may be considered.