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THE POLICY

HEIRS OF MARAMAG VS MARAMAGLessons Applicable: To whom insurance

proceeds payable (Insurance)

FACTS: Loreto Maramag designated as

beneficiary his concubine Eva de Guzman Maramag

Vicenta Maramag and Odessa, Karl Brian, and Trisha Angelie (heirs of Loreto Maramag) and his concubine Eva de Guzman Maramag, also suspected in the killing of Loreto and his illegitimate children are claiming for his insurance.

Vicenta alleges that Eva is disqualified from claiming

RTC: Granted - civil code does NOT apply

CA: dismissed the case for lack of jurisdiction for filing beyond reglementary period

ISSUE: W/N Eva can claim even though prohibited under the civil code against donation

HELD: YES. Petition is DENIED.  Any person who is forbidden from

receiving any donation under Article 739 cannot be named beneficiary of a life insurance policy of the person who cannot make any donation to him

If a concubine is made the beneficiary, it is believed that the insurance contract will still remain valid, but the indemnity must go to the legal heirs and not to the concubine, for evidently, what is prohibited under Art. 2012 is the naming of the improper beneficiary. 

SECTION 53. The insurance proceeds shall be applied exclusively to the proper interest of the person in whose name or for whose benefit it is made unless otherwise specified in the policy.

GR: only persons entitled to claim the insurance proceeds are either the insured, if still alive; or the beneficiary, if the insured is already deceased, upon the maturation of the policy.

EX: situation where the insurance contract was intended to benefit third persons who are not parties to the same in the form of favorable stipulations or indemnity. In such a case,

third parties may directly sue and claim from the insurer

It is only in cases where the insured has not designated any beneficiary, or when the designated beneficiary is disqualified by law to receive the proceeds, that the insurance policy proceeds shall redound to the benefit of the estate of the insured

Social Security System V. Davac (1966) FACTS: Petronilo Davac, a former employee of

Lianga Bay Logging Co., Inc. became a member of the Social Security System (SSS) he designated Candelaria Davac as his beneficiary and indicated his relationship to her as that of "wife"

Lourdes Tuplano his legal wife and their son Romeo Davac and Candelaria Davac and their minor daughter Elizabeth Davac filed their claims

Due to the conflicting claims, the SSS filed a petition praying that both of them be required to interplead and litigate the conflicting claims.

The death benefits were awarded to Candelaria Davac.

ISSUE: W/N Candelaria Davac can claim and New Civil Code 739 is not applicable

HELD: YES.  she was not guilty of concubinage,

there being no proof that she had knowledge of the previous marriage of her husband Petronilo

The amounts that may thus be received cannot be considered as property earned by the member during his lifetime

if there is a named beneficiary and the designation is not invalid (as it is not so in this case), it is not the heirs of the employee who are entitled to receive the benefits (unless they are the designated beneficiaries themselves). It is only when there is no designated beneficiaries or when the designation is void, that the laws of succession are applicable. And we have already held that the Social Security Act is not a law of succession.

Under the SSS Act, the beneficiary as recorded by the employee’s employer is the one entitled to the death benefits, hence they should go to Candelaria.  Lourdes contends that the designation made in the person of Candelaria who is party in a bigamous marriage is null and void for being against Art. 739 of the CC.  SC held that the disqualification mentioned in Art. 739 is NOT applicable to Candelaria, because she was not guilty of concubinage , there bieing NO proof that she had actual knowledge of the previous marriage of her husband.

Vda. De Consuegra v. GSIS

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Facts:>  Jose Consuegra was employed as a shop

foreman of the Office of the District Engineer in Surigao Del Norte.

>  When he was still alive, he contracted two marriages:

o    First – Rosario Diaz; 2 children = Jose Consuegra Jr. and Pedro but both predeceased him

o    2nd – Basilia Berdin; 7 children.  (this was contracted in GF while the first marriage subsisted)

>  Being a GSIS member when he died, the proceeds of his life insurance were paid by the GSIS to Berdin and her children who were the beneficiaries named in the policy.

>  Since he was in the gov’t service for 22.5028 years, he was entitled to retirement insurance benefits, for which no beneficiary was designated.

>  Both families filed their claims with the GSIS, which ruled that the legal heirs were Diaz who is entitled to one-half or 8/16 of the retirement benefits and Berdin and her children were entitled to the remaining half, each to receive an equal share of 1/16.

>  Berdin went to CFI on appeal.  CFI affirmed GSIS decision.

Issue:To whom should the retirement insurance

benefits be paid?Held:Both families are entitled to half of the

retirement benefits.The beneficiary named in the life insurance

does NOT automatically become the beneficiary in the retirement insurance.  When Consuegra, during the early part of 1943, or before 1943, designated his beneficiaries in his life insurance, he could NOT have intended those beneficiaries of his life insurance as also the beneficiaries of his retirement insurance because the provisions on retirement insurance under the GSIS came about only when CA 186 was amended by RA 660 on June 18, 1951.

Sec. 11(b) clearly indicates that there is need for the employee to file an application for retirement insurance benefits when he becomes a GSIS member and to state his beneficiary.  The life insurance and the retirement insurance are two separate and distinct systems of benefits paid out from 2 separate and distinct funds.

In case of failure to name a beneficiary in an insurance policy, the proceeds will accrue to the estate of the insured.  And when there exists two marriages, each family will be entitled to one-half of the estate.

New Life Enterprises V. Court Of Appeals (1992)

Lesson Applicable: REQUISITES OF DOUBLE INSURANCE

FACTS: May 15, 1981: Western Guaranty

Corporation issued Fire Insurance Policy to New Life Enterprises foar P350,000

renewed on May, 13, 1982 July 30,1981: Reliance Surety and

Insurance Co., Inc. issued Fire Insurance Policy to New Life Enterprises for P300,000

November 12, 1981; Additional P700,000

February 8, 1982: Equitable Insurance Corporation issued Fire Insurance Policy to New Life Enterprises for P200,000

October 19, 1982 2 am: fire electrical in nature destroyed the stock in trade worth P1,550,000

Julian Sy went to Reliance to claim but he was refused.  Same thing happened with the others who were sister companies.

Sy violated the "Other Insurance Clause"

RTC: favored New Life and against the three insurance companies

CA: reversed -failure to state or endorse the other insurance coverage

ISSUE: W/N Sy can claim against the three insurance companies for violating the "Other Insurance Clause"

HELD: NO.The terms

of the contract are clear and unambiguous.The insured is specifically required to disclose 

to the insurer any other insurance and its particulars which he may have effected on the same subject matter. 

The knowledge of such insurance by the insurer's agents, even assuming the acquisition thereof by the former, is not the "notice" that would estop the insurers from denying the claim. 

conclusion of the trial court that Reliance and Equitable are "sistercompanies" is an unfounded conjecture drawn from the mere fact that Yap Kam Chuan was an agent for both companies which also had the same insurance claims adjuster

Availmentof the services of the same agents and adjusters by different companies is a common practice in the insurancebusiness and such facts do not warrant the speculative conclusion of the trial court.

The conformity of the insured to the terms of the policy isimplied from his failure to express any disagreement with what is provided for. 

a clear misrepresentation and a vital one because where the insured had been asked to reveal but did not, that was deception - guilty of clear fraud 

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total absence of such notice nullifies the policy

assuming arguendo that petitioners felt the legitimate need to be clarified as to the policy condition violated, there was a considerable lapse of time from their receipt of the insurer's clarificatory letter dated March 30, 1983, up to the time the complaint was filed in court on January 31, 1984. The one-year prescriptive period was yet to expire on November 29, 1983, or about eight (8) months from the receipt of the clarificatory letter, but petitioners let the period lapse without bringing their action in court

ACCFA VS ALPHAThe year for instituting action in court must

be reckoned from the time of appellee's refusal to comply with its bond

FACTS:Alpha Insurance & Surety Company had

issued a fidelity bond in favor or the Asingan Farmers' Cooperative Marketing Association, Inc. (FACOMA) against los on account of “personal dishonesty” of its Secretary Treasurer Ricardo Ladines. FACOMA then assigned its rights to Agricultural Credit Cooperative and Financing Administration with the approval of the principal and the surety.

During the effectivity of the bond, the principal Ricardo Ladines misappropriated for personal benefit the funds of FACOMA, and part of which belonged to ACCFA. ACCFA then filed a claim for the loss to the surety company Alpha, but it refused and failed to pay. A suit then filed by the ACCFA. Defendant Alpha Insurance & Surety Co., Inc., moved to dismiss the complaint for the reason that the same was filed more than one year after plaintiff made claim for loss, contrary to the eighth condition of the bond.

The condition is as follow:EIGHT LIMITATION OF ACTIONNo action, suit or proceeding shall be had or

maintained upon this Bond unless the same be commenced within one year from the time of making claim for the loss upon which such action, suit or proceeding, is based, in accordance with the fourth section hereof.

ISSUE:Whether the ACCFA was already barred to file

a complaint because one year had been already elapsed from the claim of loss?

HELD:No, because the condition is null and void.

The condition of the bond in question, limiting the period for bringing action thereon, is subject to the provisions of Section 61-A of the Insurance Act (No.

2427), as amended by Act 4101 of the pre-Commonwealth Philippine Legislature, prescribing that —

SEC. 61-A — A condition, stipulation or agreement in any policy of insurance, limiting the time for commencing an action there under to a period of less than one year from the time when the cause of action accrues is void.

Since a "cause of action" requires, as essential elements, not only a legal right of the plaintiff and a correlative obligation of the defendant but also "an act or omission of the defendant in violation of said legal right" (Maao Sugar Central vs. Barrios, 79 Phil. 666), the cause of action does not accrue until the party obligated refuses, expressly or impliedly, to comply with its duty (in this case, to pay the amount of the bond). The year for instituting action in court must be reckoned, therefore, from the time of appellee's refusal to comply with its bond; it cannot be counted from the creditor's filing of the claim of loss, for that does not import that the surety company will refuse to pay.

As a consequence of the foregoing, condition eight of the Alpha bond is null and void, and action may be brought within the statutory period of limitation for written contracts (New Civil Code, Article 1144).

Ang v. Fulton Fire Insurance Co.- The condition contained in an insurance policy that claims must be presented within one year after rejection is not merely a procedural requirement but an important matter essential to a prompt settlement of claims against insurance companies as it demands that insurance suits be brought by the insured while the evidence as to the origin and cause of destruction have not yet disappeared.

Therefore, there was a necessity of bringing suits against the Insurer within one year from the rejection of the claim. (1984) The contention of the respondents that the one-year prescriptive period does not start to run until the petition for reconsideration had been resolved by the insurer (1985), runs counter to the doctrine.

The provision in the contract was pursuant to Sec. 63.   

A condition, stipulation or agreement in any policy of insurance, limiting the time for commencing an action thereunder to a period of less than one year from the time when the cause of action accrues, is void.

WARRANTIES

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(Ang Giok Chip vs. Springfield, 56 Phil 275.) A rider is an attachment to the policy that contains additional stipulations between the parties. It is issued after the policy is delivered and can modify the policy's conditions by either expanding/restricting its benefits or excluding certain conditions from the coverage. It isn't binding on the insured unless its descriptive title/name is written in the blank spaces provided for in the policy itself. If properly attached to the policy, it forms part of the contract with the effect that it has been embodied in the policy.

Gen. Insurance & Surety Corp v. NG Hua Misrepresentation

106 PHIL 1117Facts:>  In 1952, General issued a fire policy to Ng

Hua to cover the contents of the Central Pomade Factory owned by him.

>  There was a provision in the policy that should there be any insurance already effected or to be subsequently procured, the insured shall give notice to the insurer.

>  Ng Hua declared that there was non.  The very next day, the building and the goods stored therein burned.

>  Subsequently, the claim of Ng Hua for the proceeds was denied by General since it discovered that Ng Hua had obtained an insurance from General Indemnity for the same goods and for the same period of time.

Issue:Whether or not General Insurance can refuse

to pay the proceeds.Held:Yes.Violation of the statement which is to be

considered a warranty entitles the insurer to rescind the contract of insurance.  Such misrepresentation is fatal.

THE PREMIUM

American Home v Chua G.R. No. 130421. June 28, 1999

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.

Issues: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 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

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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. 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. 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.

American Home v Chua G.R. No. 130421. June 28, 1999

Lessons Applicable: Acknowledgement receipt (Insurance)

Laws Applicable: Section 29, Section 66,Section 75, Section 77,Section 78, Section 306 of the Insurance Code

FACTS:  April 5, 1990: Antonio Chua renewed

the fire insurance for its stock-in-trade of his business, Moonlight Enterprises with American Home Assurance Companyby issuing a check of P2,983.50 to its agent James Uy who delivered the RenewalCertificate to him.

April 6, 1990: Moonlight Enterprises was completely razed by fire with an est. loss of P4,000,000 to P5,000,000

April 10, 1990: An official receipt was issued and subsequently, a policy was issued covering March 25 1990 to March 25 1991

Antonio Chua filed an insurance claim with American Home and 4 other co-insurers (Pioneer Insurance and Surety Corporation, Prudential Guarantee andAssurance, Inc. and Filipino Merchants Insurance Co)

American Home refused alleging the no premium was paid

RTC: favored Antonio Chua for paying by way of check a day before the fire occurred

CA: Affirmed ISSUE: 

1. W/N there was a valid payment of premium considering that the check was cashed after the occurrence of the fire since the renewal certificate issued containing the acknowledgement receipt2. W/N Chua violated the policy by his submission of fraudulent documents and non-disclosure of the other existing insurance contracts or “other insurance clause"

HELD: petition is partly GRANTED modified by deleting the awards of P200,000 for loss of profit, P200,000 as moral damages and P100,000 as exemplary damages, and reducing the award of attorney’s fees from P50,000 to P10,000

1. YES.  Section 77 of the Insurance Code 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

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unless and until the premium thereof has been paid, except in the case of life or an industrial life policy whenever the grace period provision applies

Section 66 of the Insurance Code - not applicable since not termination butrenewal

renewal certificate issued contained the acknowledgment that premium had been paid 

Section 306 of the Insurance Code provides that any insurance company which delivers a policy or contract of insurance to an insurance agent or insurance broker 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 or contract of insurance at the time of its issuance or delivery or which becomes due thereon

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 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.

This Section establishes a legal fiction of payment and should be interpreted as an exception to Section 77 

2. NO. purpose for the “other insurance

clause”  is to prevent an increase in the moral hazard

failure to disclose was not intentional and fraudulent

Section 75 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.

American Home is estopped because its loss adjusters had previous knowledge of the co-insurers 

The loss adjuster, being an employee of petitioner, is deemed a representative of the latter whose awareness of the other insurance contracts binds petitioner

no legal and factual basis for the award of P200,000 for loss of profit

no such fraud or bad faith = no moral damages

grant of attorney’s fees as part of damages is the exception rather than the rule

award attorney’s fees where it deems just and equitable that it be so granted

reduced to P10,000

Philippine Pryce Assurance Corp. V. CA (1994)

Lessons Applicable: Acceptance by obligee by surety bond Laws Applicable: Sec. 177 of the Insurance Code

FACTS:  Gegroco, Inc filed for a collection of

the issued surety bond for P500K and P1M by Interworld Assurance Corporation (now Philippine Pryce Assurance Corporation) in behalf of its principal Sagum General Merchandise 

RTC: favored Gegroco, Inc CA: affirmed RTC Interworld: checks issued by its

principal which were supposed to pay for thepremiums bounced and it was not yet authorized by the Insurance Commissionto issue surety bonds

ISSUE: W/N Interworld Assurance Corp. should be liable for the surety bond that it issued as payment for the premium

HELD: YES. RTC and CA: confirmed Interworld did not and never

attempted to pay the requisite docket fee and was not present during the scheduled pre-trial so it is as if third-party complaint was never filed

Sec. 177.   The surety is entitled to payment of the premium as soon as the contract of suretyship or bond is perfected and delivered to the obligor. No contract of suretyship or bonding shall be valid and binding unless and until the premium therefor has been paid, except where the obligee has accepted the bond, in which case the bond becomes valid and enforceable irrespective of whether or not the premium has been paid by the obligor to the surety

Interworld's defense that it did not have authority to issue a Surety Bond when it did is an admission of fraud committed against Gegroco.  No person can claim benefit from the wrong he himself committed.  A representation made is rendered conclusive upon the person making it and cannot be denied or disproved as against the person relying thereon.

Pacific Timber V. CA (1982)Lessons Applicable: Rules on cover notes (if

premium CANNOT yet be computed) (Insurance)

Laws Applicable: Section 84 of the Insurance Code

FACTS:  March 19, l963: Pacific Timber secured

temporary insurance from Workmen's

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Insurance Company, Inc. for its exportation of 1,250,000 board feet of Philippine Lauan and Apitong logs to be shipped from the Diapitan Bay, Quezon Province to Tokyo, Japan.

Workmen's  issued Cover Note insuring the cargo "Subject to the Terms and Conditions of the Workmen's Insurance Company, Inc."

April 2, 1963: regular marine cargo policies were issued for a total of 1,195.498 bd. ft.  Due to the bad weather some of the logs were lost during loading operations.  45 pieces of logs were salvaged, but 30 pieces were lost.  Pacific informed Workmen's who refused stating that the logs covered in the 2 marine policies were received in good order at the point of destination and that the cover note was null and void upon the issuance of the Marine Policies

CFI: cover note is valid CA:  reversedISSUE: W/N the cover note is valid despite the

absence of premium payment upon itHELD: YES. CA set aside. CFI reinstated it was not necessary to ask for

payment of the premium on the Cover Note , for the loss insured against having already occurred, the more practical procedure is simply to deduct the premium from the amount due on the Cover Note

Had all the logs been lost during the loading operations, but after the issuance of the Cover Note, liability on the note would have already arisen even before payment of premium

cover note as a "binder" supported by the doctrine that

where a policy is delivered without requiring payment of the premium, the presumption is that a credit was intended and policy is valid

it sent its adjuster to investigate and assess the loss to determine if petitioner was guilty of delay in communicating the loss but there was none

Section 84 Delay in the presentation to an

insurer of notice or proof of loss is waived if caused by any act of his or if he omits to take objection promptly and specifically upon that ground

Held:It was with consideration.SC upheld Pacific’s contention that said cover

not was with consideration.  The fact that no separate premium was paid on the cover note before the loss was insured against occurred does not militate against the validity of Pacific’s contention, for no such premium could have been paid, since by the nature of the cover note, it did not contain, as all cover notes do not contain, particulars of the shipment that would

serve as basis for the computation of the premiums.  As a logical consequence, no separate premiums are required to be paid on a cover note.

If the note is to be treated as a separate policy instead of integrating it to the regular policies subsequently issued, its purpose would be meaningless for it is in a real sense a contract, not a mere application.

Makati Tuscany Condominium Corporation v CA

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

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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.

Philippine Phoenix Surety & Insurance Co. V. Woodworks Inc (1979)

Lessons Applicable: Estoppel and credit extension (Insurance)

Laws Applicable: Section 77 of the Insurance Code

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 insurancecontract and rendered the policy unenforceable

CFI: favored Philippine PhoenixISSUE: W/N there was a valid insurance

contract despite no premium payment was paid

HELD: NO. Reversed 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. 

Arce v. The Capital Insurance and Surety Unless premium is paid, an insurance

contract does not take effect. Delgado (Capital Insurance & Surety

Co., Inc. v. Delgado) was decided in the light of the Insurance Act before Sec. 72 was amended by the underscored portion. 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.

LOSSParis-Manila Perfume Co. V. Phoenix Assurance Co.(1926)

Lessons Applicable: Loss, the immediate cause of which was the peril insured against,

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if the proximate cause thereof was NOT excepted in the contract (Insurance)

Facts:  May 22, 1924: A fire insurance policy

was issued by Phoenix Assurance Company, Limited to Messrs. Paris-Manila Perfumery Co. (Peter Johnson, Prop.) for P13,000 

also insured with other insurance companies for P1,200 and P5,000 respectively

July 4, 1924: The Perfumery was burned unknown of the cause totalling a loss of P38.025.56

Phoenix refused to pay nor to appoint an arbitrator stating that the policy did not cover any loss or damage occasioned by explosion and stating that the claim was fraudulent

RTC: ordered Phoenix to pay P13,000 Phoenix appealed

The insurance policy contains: Unless otherwise expressly stated in the policy the insurance does not cover (h)    Loss or damage occasioned by the explosion; but loss or damage by explosion of gas for illuminating or domestic purposes in a building in which gas is not generated and which does not form a part of any gas works, will be deemed to be loss by fire within the meaning of this policy.ISSUE: W/N Phoenix should be liable for the loss because there was no explosion which is an exemption from the policy

HELD: YES. If it be a fact that the

fire resulted from an explosion that fact, if proven, would be a complete defense, the burden of the proof of that fact is upon the defendant, and upon that point, there is a failure of proof

lower court found as a fact that there was no fraud in the insurance, and that the value of the property destroyed by the fire was more than the amount of the insurance.

FGU Insurance Corporation V. CA (2005)

Lessons Applicable: Loss caused by negligence of the insured (Insurance)

FACTS:

Anco Enterprises Company (ANCO), a partnership between Ang Gui and Co To, was engaged in the shipping business operating two common carriers

M/T ANCO tugboat 

D/B Lucio barge - no engine of its own, it could not maneuver by itself and had to be towed by a tugboat for it to move from one place to another.

September 23 1979: San Miguel Corporation (SMC) shipped from Mandaue City, Cebu, on board the D/B Lucio, for towage by M/T ANCO:

25,000 cases Pale Pilsen and 350 cases Cerveza Negra - consignee SMC’s Beer MarketingDivision (BMD)-Estancia Beer Sales Office, Estancia, Iloilo

15,000 cases Pale Pilsen and 200 cases Cerveza Negra - consignee SMC’s BMD-San Jose Beer Sales Office, San Jose, Antique

September 30, 1979: D/B Lucio was towed by the M/T ANCO arrived and M/T ANCO left the barge immediately

The clouds were dark and the waves were big so SMC’s District Sales Supervisor, Fernando Macabuag, requested ANCO’s representative to transfer the barge to a safer place but it refused so around the midnight, the barge sunk along with 29,210 cases of Pale Pilsen and 500 cases of Cerveza Negra totalling to P1,346,197

When SMC claimed against ANCO it stated that they agreed that it would not be liable for any losses or damages resulting to the cargoes by reason of fortuitous event and it was agreed to be insured with FGU for 20,000 cases or P858,500

ANCO filed against FGU

FGU alleged that ANCO and SMC failed to exercise ordinary diligence or the diligence of a good father of the family in the care and supervision of the cargoes

RTC: ANCO liable to SMC and FGU liable for 53% of the lost cargoes

CA affirmed

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ISSUE: W/N FGU should be exempted from liability to ANCO for the lost cargoes because of a fortuitous event and negligence of ANCO 

HELD: YES. Affirmed with modification.  Third-party complainant is dismissed.

Art. 1733.  Common carriers, from the nature of their business and for reasons of public policy are bound to observe extraordinary diligence in the vigilance over the goods and for the safety of the passengers transported by them, according to all the circumstances of each case.

Such extraordinary diligence in vigilance over the goods is further expressed in Articles 1734, 1735, and 1745 Nos. 5, 6, and 7 . . .

Art. 1734. Common carriers are responsible for the loss, destruction, or deterioration of the goods, unless the same is due to any of the following causes only:

(1)     Flood, storm, earthquake, lightning, or other natural disaster or calamity;

.  .  .

Art. 1739. In order that the common carrier may be exempted from responsibility, the natural disaster must have been the proximate and only cause of the loss.  However, the common carrier must exercise due diligence to prevent or minimize loss before, during and after the occurrence of flood, storm, or other natural disaster in order that the common carrier may be exempted from liability  for the loss, destruction, or deterioration of the goods . . . 

Caso fortuito or force majeure 

extraordinary events not foreseeable or avoidable, events that could not be foreseen, or which though foreseen, were inevitable

not enough that the event should not have been foreseen or anticipated, as is commonly believed but it must be one impossible to foresee or to avoid - not in this case

other vessels in the port of San Jose, Antique, managed to transfer to another place

To be exempted from responsibility, the natural disaster should have been the proximate and only cause of the loss. There must have been no contributory negligence on the part of the common carrier.  

there was blatant negligence on the part of M/T ANCO’s crewmembers, first in leaving the engine-less barge D/B Lucio at the mercy of the storm without the assistance of the tugboat, and again in failing to heed the request of SMC’s representatives to have the barge transferred to a safer place

When evidence show that the insured’s negligence or recklessness is so gross as to be sufficient to constitute a willful act, the insurer must be exonerated.

ANCO’s employees is of such gross character that it amounts to a wrongful act which must exonerate FGU from liability under the insurance contract

both the D/B Lucio and the M/T ANCO were blatantly negligent

Pacific Banking Corporation vs. CA & Oriental Assurance

Facts: An open Fire Policy issued to Paramount Shirt Manufacturing for Php61,000 on the following: stocks, materils, supplies, furniture, fixture, machinery, equipment contained on the 1st to 3rd floors. Insurance is for a year starting  21 OCTOBER 1964. 

Paramount Shirt is debtor of Pacific Banking amounting to Php800,000. Goods in policy were held in trust by Paramount for Pacific under thrust receipts. Fire broke out on 4 January 1964. 

Pacific sent letter of demand to Oriental. Insurance Adjuster of Oriental notified Pacific to submit proof of loss pursuant to Policy Condition 11. Pacific did not accede but asked Insurance Adjuster toverify records form Bureau of Customs. 

Pacific filed for sum of money against Oriental. Oriental alleged that Pacific prematurely filed a suit, for neither filing a formal claim over loss pursuant to policy nor submitting any proof of loss. 

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Trial court decided in favor of Pacific. Decision based on technicality. The defense of lack of proof of loss and defects were raised for the 1st time. (On presentation of evidences by Pacific, it was revealed there was violation of Condition No.3, there were undeclared co-insurances under same property –Wellington, Empire, Asian. The only declared co-insurances were Malayan, South Sea, and Victory) 

CA reversed decision. Concealment of other co-insurances is a misrepresentation and can easily be fraud. 

Issues: 

(1) Whether or not unrevealed con-insurances is a violation of Policy Condition No.3 

(2)  Whether or not there was premature filing of action 

Held: 

(1) Yes. Policy Condition 3 provides that the insured must give notice of any insurance already in effect or subsequently be in effect covering same property being insured. Failure to do so, the policy shall be forfeited. 

Failure to reveal before the loss of the 3 other insurances is a clear misrepresentation or a false declaration. The material fact was asked for but was not revealed. Representations of facts are the foundations of the contract. Pacific itself provided for the evidences in trial court that proved existence of misrepresentation. 

(2) Yes. Policy Condition 11 is a sine qua non requirement for maintaining action. It requires that documents necessary to prove and estimate the loss should be included with notice of loss. Pacific failed to submit formal claim of loss with supporting documents but shifted the burden to the insurance company. Failing to submit claim is failure for insurance company to reject claim. Thus, a lack ofcause of action to file suit. 

Furthermore, the mortgage clause in the policy specifically provides that the policy is invalidated by reasons of FRAUD, MISREPRESENTATION and FRAUD. Concealment can easily be fraud or misrepresentation. 

The insured – PARAMOUNT is not entitled to proceeds. Moreso, Pacific as indorsee of policy is not entitled.

Malayan Insurance Co. Inc. v Arnaldo

FACTS: On June 7, 1981, the petitioner (hereinafter called (MICO) issued to the private respondent, Coronacion Pinca, Fire Insurance Policy No. F-001-17212 on her property for the amount of P14,000.00 effective July 22, 1981, until July 22, 1982. On October 15,1981, MICO allegedly cancelled the policy for non-payment, of the premium and sent the corresponding notice to Pinca. On December 24, 1981, payment of the premium for Pinca was received by Domingo Adora, agent of MICO. On January 15, 1982, Adora remitted this payment to MICO, together with other payments. On January 18, 1982, Pinca's property was completely burned. 

DECISION OF LOWER COURTS: (1) Insurance Commission: granted claim for compensation for burned property. 

ISSUE: Whether there was a valid insurance contract at the time of the loss. 

RULING: Yes. 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. MICO's claims it cancelled the policy in question on October 15, 1981, for non-payment of premium. To support this assertion, it presented one of its employees, who testified that "the original of the endorsement and credit memo" —presumably meaning the alleged cancellation — "were sent the assured by mail through our mailing section" However, there is no proof that the notice, assuming it complied with the other requisites mentioned above, was actually mailed to and received by Pinca. We also look askance at the alleged cancellation, of which the insured and MICO's

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agent himself had no knowledge, and the curious fact that 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. These circumstances make the motives of the petitioner highly suspect, to say the least, and cast serious doubts upon its candor and bona fides. 

PHILIPPINE CHARTER INSURANCE CORPORATION VS. CHEMOIL LIGHTERAGE HITE GOLD CORPORATIONG.R. No. 136888. June 29, 2005

Facts: Philippine Charter Insurance Corporation is a domestic corporation engaged in the business of non-life insurance. Respondent Chemoil Lighterage Corporation is also a domestic corporation engaged in the transport of goods. On 24 January 1991, Samkyung Chemical Company, Ltd., based in South Korea, shipped 62.06 metric tons of the liquid chemical DIOCTYL PHTHALATE (DOP) on board MT “TACHIBANA” which was valued at US$90,201.57 and another 436.70 metric tons of DOP valued at US$634,724.89 to the Philippines. The consignee was Plastic Group Phils., Inc. in Manila. PGP insured the cargo with Philippine Charter Insurance Corporation against all risks. The insurance was under Marine Policies No. MRN-30721[5] dated 06 February 1991. Marine Endorsement No. 2786[7] dated 11 May 1991 was attached and formed part of MRN-30721, amending the latter’s insured value to P24,667,422.03, and reduced the premium accordingly. The ocean tanker MT “TACHIBANA” unloaded the cargo to the tanker barge, which shall transport the same to Del Pan Bridge in Pasig River and haul it by land to PGP’s storage tanks in Calamba, Laguna. Upon inspection by PGP, the samples taken from the shipment showed discoloration demonstrating that it was damaged. PGP then sent a letter where it formally made an insurance claim for the loss it sustained.Petitioner requested the GIT Insurance Adjusters, Inc. (GIT), to conduct a Quantity and Condition Survey of the shipment which issued a report stating that DOP samples taken were discolored. Inspection of cargo tanks showed manhole covers of ballast tanks’ ceilings loosely secured and that the rubber gaskets of the manhole covers of the ballast tanks re-acted to the chemical causing shrinkage thus, loosening the covers and cargo ingress. Petitioner paid PGP the full and final payment for the loss and issued a Subrogation Receipt. Meanwhile, PGP paid the respondent the as full payment for the latter’s services.

On 15 July 1991, an action for damages was instituted by the petitioner-insurer against respondent-carrier before the RTC, Br.16, City of Manila. Respondent filed an answer which admitted that it undertook to transport the shipment, but alleged that before the DOP was loaded into its barge, the representative of PGP, Adjustment Standard Corporation, inspected it and found the same clean, dry, and fit for loading, thus accepted the cargo without any protest or notice. As carrier, no fault and negligence can be attributed against respondent as it exercised extraordinary diligence in handling the cargo. After due hearing, the trial court rendered a Decision in favor of plaintiff. On appeal, the Court of Appeals promulgated its Decision reversing the trial court. A petition for review on certiorar[ was filed by the petitioner with this Court.

Issues: 1. Whether or not the Notice of Claim was filed within the required period.

2.Whether or not the damage to the cargo was due to the fault or negligence of the respondent.

Held: Article 366 of the Code of Commerce has profound application in the case at bar, which provides that; “Within twenty-four hours following the receipt of the merchandise a claim may be made against the carrier on account of damage or average found upon opening the packages, provided that the indications of the damage or average giving rise to the claim cannot be ascertained from the exterior of said packages, in which case said claim shall only be admitted at the time of the receipt of the packages.” After the periods mentioned have elapsed, or after the transportation charges have been paid, no claim whatsoever shall be admitted against the carrier with regard to the condition in which the goods transported were delivered.As to the first issue, the petitioner contends that the notice of contamination was given by PGP employee, to Ms. Abastillas, at the time of the delivery of the cargo, and therefore, within the required period. The respondent, however, claims that the supposed notice given by PGP over the telephone was denied by Ms. Abastillas. The Court of Appeals declared:that a telephone call made to defendant-company could constitute substantial compliance with the requirement of notice. However, it must be pointed out that compliance with the period for filing notice is an essential part of the requirement, i.e.. immediately if the damage is apparent, or otherwise within twenty-four hours from receipt of the goods, the clear import being that prompt examination of the goods must be made to ascertain damage if

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this is not immediately apparent. We have examined the evidence, and We are unable to find any proof of compliance with the required period, which is fatal to the accrual of the right of action against the carrier.Nothing in the trial court’s decision stated that the notice of claim was relayed or filed with the respondent-carrier immediately or within a period of twenty-four hours from the time the goods were received. The Court of Appeals made the same finding. Having examined the entire records of the case, we cannot find a shred of evidence that will precisely and ultimately point to the conclusion that the notice of claim was timely relayed or filed.The requirement that a notice of claim should be filed within the period stated by Article 366 of the Code of Commerce is not an empty or worthless proviso.The object sought to be attained by the requirement of the submission of claims in pursuance of this article is to compel the consignee of goods entrusted to a carrier to make prompt demand for settlement of alleged damages suffered by the goods while in transport, so that the carrier will be enabled to verify all such claims at the time of delivery or within twenty-four hours thereafter, and if necessary fix responsibility and secure evidence as to the nature and extent of the alleged damages to the goods while the matter is still fresh in the minds of the parties.The filing of a claim with the carrier within the time limitation therefore actually constitutes a condition precedent to the accrual of a right of action against a carrier for loss of, or damage to, the goods. The shipper or consignee must allege and prove the fulfillment of the condition. If it fails to do so, no right of action against the carrier can accrue in favor of the former. The aforementioned requirement is a reasonable condition precedent; it does not constitute a limitation of action.We do not believe so. As discussed at length above, there is no evidence to confirm that the notice of claim was filed within the period provided for under Article 366 of the Code of Commerce. Petitioner’s contention proceeds from a false presupposition that the notice of claim was timely filed.Considering that we have resolved the first issue in the negative, it is therefore unnecessary to make a resolution on the second issue.

Geagonia v CA G.R. No. 114427 February 6, 1995

 Facts: Geagonia, owner of a store, obtained from Country Bankers fire insurance policy for P100,000.00. The 1 year policy and covered thestock trading of dry goods. The

policy noted the requirement that "3. The insured shall give notice to the Company of any insurance or insurances already effected, or which may subsequently be effected, covering any of the property or properties consisting of stocks in trade, goods in process and/or inventories only hereby insured, and unless notice be given and the particulars of such insurance or insurances be stated therein or endorsed in this policy pursuant to Section 50 of the Insurance Code, by or on behalf of the Company before the occurrence of any loss or damage, all benefits under this policy shall be deemed forfeited, provided however, that this condition shall not apply when the total insurance or insurances in force at the time of the loss or damage is not more than P200,000.00." The petitioners’ stocks were destroyed by fire. He then filed a claim which was subsequently denied because the petitioner’s stocks were covered by two other fire insurance policies for Php 200,000 issued by PFIC. The basis of the private respondent's denial was the petitioner's alleged violation of Condition 3 of the policy. Geagonia then filed a complaint against the private respondent in the Insurance Commission for the recovery of P100,000.00 under fire insurance policy and damages. He claimed that he knew the existence of the other two policies. But, he said that he had no knowledge of the provision in the private respondent's policy requiring him to inform it of the prior policies and this requirement was not mentioned to him by the private respondent's agent. The Insurance Commission found that the petitioner did not violate Condition 3 as he had no knowledge of the existence of the two fire insurance policies obtained from the PFIC; that it was Cebu Tesing Textiles w/c procured the PFIC policies w/o informing him or securing his consent; and that Cebu Tesing Textile, as his creditor, had insurable interest on the stocks. The Insurance Commission then ordered the respondent company to pay complainant the sum of P100,000.00 with interest and attorney’s fees. CA reversed the decision of the Insurance Commission because it found that the petitioner knew of the existence of the two other policies issued by the PFIC.

Issues:

1. WON the petitioner had not disclosed the two insurance policies when he obtained the fire insurance and thereby violated Condition 3 of the policy.

2. WON he is prohibited from recovering

Held: Yes. No. Petition Granted

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 Ratio: 

1. The court agreed with the CA that the petitioner knew of the prior policies issued by the PFIC. His letter of 18 January 1991 to the private respondent conclusively proves this knowledge. His testimony to the contrary before the Insurance Commissioner and which the latter relied upon cannot prevail over a written admission made ante litem motam. It was, indeed, incredible that he did not know about the prior policies since these policies were not new or original. 

2. Stated differently, provisions, conditions or exceptions in policies which tend to work a forfeiture of insurance policies should be construed most strictly against those for whose benefits they are inserted, and most favorably toward those against whom they are intended to operate. With these principles in mind, Condition 3 of the subject policy is not totally free from ambiguity and must be meticulously analyzed. Such analysis leads us to conclude that (a) the prohibition applies only to double insurance, and (b) the nullity of the policy shall only be to the extent exceeding P200,000.00 of the total policies obtained. Furthermore, by stating within Condition 3 itself that such condition shall not apply if the total insurance in force at the time of loss does not exceed P200,000.00, the private respondent was amenable to assume a co-insurer's liability up to a loss not exceeding P200,000.00. What it had in mind was to discourage over-insurance. Indeed, the rationale behind the incorporation of "other insurance" clause in fire policies is to prevent over-insurance and thus avert the perpetration of fraud. When a property owner obtains insurance policies from two or more insurers in a total amount that exceeds the property's value, the insured may have an inducement to destroy the property for the purpose of collecting the insurance. The public as well as the insurer is interested in preventing a situation in which a fire would be profitable to the insured.

REINSURANCE

Philamlife vs. Auditor General

Facts: On January 1950, Philippine American Life Insurance Co.(PHILAM) and, foreign corporation, American InternationalReinsurance Co.(AIRCO) entered into a reinsurance treaty where PHILAM agreed to reinsure with AIRCO the excess of life insurance on the lives of persons written by PHILAM. In their agreement it is also stipulated that even though PHILAM is already on a risk for its maximum retention

under policies previously issued, when new policies are applied for and issued they can cede automatically any amount, within the limits specified. 

No question ever arose with respect to the remittances made by Philamlife to Airco before July 16, 1959, the date of approval of the Margin Law. 

Subsequently, the Central Bank of the Philippines collected the sum of P268,747.48 as foreign exchange margin on Philamlife remittances to Airco made subsequent to July 16, 1959. 

PHILAM then filed with the CB a claim for refund for the same amount arguing that the reinsurance premiums remitted were paid on January 1950 and is therefore exempt from the 25% foreign exchange margin fee. The Acting legal counsel of the Monetaryboard resolved that reinsurance contracts entered into and approved by the Central Bank before July 17, 1959 are exempt from the payment of the 25% foreign exchange margin, even if remittances thereof are made after July 17, 1959. 

Still the Auditor of the CB denied PHILAM’s claim for refund and reconsideration was denied, hence the petition. 

Issue: Whether PHILAM’s claim was covered by the exemption 

Held: The Court held in the negative stating that for an exemption to come into play, there must be a reinsurance policy or, as in the reinsurance treaty provided, a "reinsurance cession" which may be automatic or facultative. 

To distinguish, a reinsurance policy is a contract of indemnity one insurer makes with another to protect the first insurer from a risk it has already assumed. On the other hand, a reinsurance treaty is merely an agreement between two insurance companies whereby one agrees to surrender and the other to accept reinsurance business pursuant to provisions specified in the treaty. Treaties are contracts for insurance; reinsurance policies or cessions are contracts of insurance. 

Although the reinsurance treaty precedes the Margin Law by over nine years nothing in that treaty obligates PHILAM to remit toAIRCO a fixed, certain, and obligatory sum by way of reinsurance premiums. All that the reinsurance treaty provides on this point is

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that PHILAM "agrees to reinsure." The treaty speaks of a probability; not a reality. 

PHILAM’s obligation to remit reinsurance premiums becomes fixed and definite upon the execution of the reinsurance cession. Because, for every life insurance policy surrendered to AIRCO, PHILAM agrees to pay premium. It is only after a reinsurancecession is made that payment of reinsurance premium may be exacted, as it is only after PHILAM seeks to remit that reinsurance premium that the obligation to pay the margin fee arises.

GIBSON VS REVILLA

FACTS:  Lepanto Consolidated Mining Company filed a complaint against Malayan Insurance Company, Inc. The civil suit thus instituted by Lepanto against Malayan was founded on the fact that Malayan issued a Marine Open Policy covering all shipments of copper, gold, and silver concentrates in bulk from Poro, San Fernando, La Union to Tacoma, Washington or to other places in the United States. Thereafter, Malayan obtained reinsurance abroad through Sedgwick, Collins & Co., Limited, a London insurance brokerage. The Memorandum of Insurance issued by Sedgwick to Malayan listed three groups of underwriters or reinsurers – Lloyds 62.808%, Companies (I.L.U.) 34.705%, Other companies 2.487%. At the top of the list of underwriting members of Lloyds is Syndicate No. 448, assuming 2.48% of the risk assumed by the reinsurer, which syndicate number petitioner Ivor Robert Dayton Gibson claims to be himself. Petitioner then filed a motion to intervene as defendant, which motion was denied by the lower court.

ISSUE: WON THE LOWER COURT COMMITTED, REVERSIBLE ERROR IN REFUSING THE INTERVENTION OF THE PETITIONER IN THE SUIT BETWEEN LEPANTO AND MALAYAN COMPANIES.

HELD: 

No. The respondent Judge committed no error of law in denying petitioner’s Motion to Intervene and neither has he abused his discretion in his denial of petitioner’s Motion for Intervention. We agree with the holding of the respondent court that since movant Ivor Robert Dayton Gibson appears to be only one of several re-insurers of the risks and liabilities assumed by Malayan Insurance Company, Inc., it is highly probable that other re-insurers may likewise intervene. If petitioner is allowed to intervene, We hold that there is good and sufficient basis for the

Court a quo to declare that the trial between Lepanto and Malayan would be definitely disrupted and would certainly unduly delay the proceedings between the parties especially at the stage where Lepanto had already rested its case and that the issue would also be compounded as more parties and more matters will have to be litigated. In other words, the Court’s discretion is justified and reasonable. We also hold that respondent Judge committed no reversible error in further sustaining the fourth ground of Lepanto’s Opposition to the Motion to Intervene that the rights, if any, of petitioner are not prejudiced by the present suit and will be fully protected in a separate action against him and his co-insurers by Malayan. Petitioner’s contention that he has to pay once Malayan is finally adjudged to pay Lepanto because of the very nature of a contract of reinsurance and considering that the re-insurer is obliged to pay as may be paid thereon (referring to the original policies), although this is subject to other stipulations and conditions of the reinsurance contract, is without merit. The general rule in the law of reinsurance is that the re-insurer is entitled to avail itself of every defense which the re-insured (which is Malayan) might urge in an action by the person originally insured (which is Lepanto). As to the effect of the clause “to pay as may be paid thereon” contained in petitioner’s re-insurance contract, Arnould, on the Law of Marine Insurance and Average, 13th Ed., Vol. 1, Section 327, p. 315, states the rule, this: “It has been decided that this clause does not preclude the reinsurer from insisting upon proper proof that a loss strictly within the terms of the original policy has taken place. “This clause does not enable the original underwriter to recover from his reinsurer to an extent beyond the subscription of the latter. “Wherefore, in view of the foregoing, the petition is hereby dismissed. No costs.” Pacific Timber Export Corporation vs Court of Appeals In 1963, Pacific Timber Export Corporation (PTEC) applied for a temporary marine insurance from Workmen’s Insurance Company (WIC) in order for the latter to insure 1,250,000 board feet of logs to be exported to Japan. In March 1963, WIC issued a cover note to PTEC for the said logs. On April 2, 1963, WIC issued two policies for the logs. However, the total board feet covered this time is only 1,195,498. On April 4, 1963, while the logs were in transit to Japan, bad weather prevailed and this caused the loss of 32 pieces of logs. WIC then asked an adjuster to investigate the loss. The adjuster submitted that the logs lost were not covered by the two policies issued on April 2, 1963 but said logs were included in the cover note earlier issued. WIC however denied the insurance

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claim of PTEC as it averred that the cover note became null and void when the two policies were subsequently issued. The Court of Appeals ruled that the cover note is void for lack of valuable consideration as it appeared that no premium payment therefor was made by PTEC. ISSUE: Whether or not a separate premium is needed for cover notes. HELD: No. The Cover Note was not without consideration for which the Court of Appeals held the Cover Note as null and void, and denied recovery therefrom. The fact that no separate premium was paid on the Cover Note before the loss insured against occurred, does not militate against the validity of PTEC’s contention, for no such premium could have been paid, since by the nature of the Cover Note, it did not contain, as all Cover Notes do not contain particulars of the shipment that would serve as basis for the computation of the premiums. As a logical consequence, no separate premiums are intended or required to be paid on a Cover Note. At any rate, it is not disputed that PTEC paid in full all the premiums as called for by the statement issued by WIC after the issuance of the two regular marine insurance policies, thereby leaving no account unpaid by PTEC due on the insurance coverage, which must be deemed to include the Cover Note. If the Note is to be treated as a separate policy instead of integrating it to the regular policies subsequently issued, the purpose and function of the Cover Note would be set at naught or rendered meaningless, for it is in a real sense a contract, not a mere application for insurance which is a mere offer.

Artex Development Co. Inc. v Wellington Insurance Co. Inc.

GR No. L-29508 June 27, 1973

FACTS: Wellington Insurance Co. insured for P24, 346, 509.00 the buildings, stocks and machinery of Artex Development against loss or damage by fire or lightning, upon payment of the corresponding premiums. On 22 September 1963, the buildings, stocks and machinery of plaintiff’s spinning department were burned. Total property loss was computed at P10, 106, 554.40 and the total business interruption loss was P3, 000, 000.00. Defendant paid P6, 481, 870 for the property loss and P1, 864, 134 for business interruption loss leaving a balance of P3, 624, 683 and P1, 748, 460, respectively. Plaintiff filed a Manifestation that “the only remaining liability subject of litigation shall be that proportion of the loss reinsured with or through Alexander and Alexander Inc. of NY, USA, namely, P397, 813—the rest having been paid and settled.” Defendant

manifested that such document is true and correct.

ISSUE: Whether or not plaintiff may collect against his insurance company’s reinsurer’s, notwithstanding that the former is not privy to the contract of reinsurance between Wellington Insurance Co. and Alexander and Alexander Inc.

HELD: No. A third party not privy to a contract that contains no stipulation pour autrui in its favor may not sue enforcement of the contract. In this case, the lower court ordered defendant-insurer to pay plaintiff-insured the balance of the insured property loss of P3, 624,683 and its ascertained business interruption loss of P1, 748, 460. The Supreme Court affirmed the correctness of the lower court’s ruling that it is no defense for the insurer as against insured that the insurer had obtained reinsurance from other companies to cover its liability.