J.   PREMIUM PAYMENTS

Malayan Insurance Co. v. Cruz Arnaldo

FACTS: Coronacion Pinca insured her property for Php 14,000 with Malayan Insurance Company(MICO) for the period July 22, 1981 to July 22, 1982. On October 15, 1981, MICO cancelled the policy for non-payment. On December 24, 1981, Domingo Adora, the agent accepted Pinca's paymentand remitted to MICO. On January 18, 1982, Pinca's property was completely burned. She thendemanded from MICO for payment of the insured but the latter declined on the ground that the policyhad been cancelled due to non-payment. Pinca went to the Insurance Commission, she was ultimatelysustained by the public respondent, thus a petition was filed before the SC.

ISSUE: Whether or not MICO should be held liable to pay for the insured property.

RULING:MICO's acknowledgment of Adora as its agent defeats its contention that he was not authorized toreceive the premium payment on its behalf. It is clearly provided in Section 306 of the Insurance Code that:

SEC. 306. xxx xxx xxx

Any insurance company which delivers to an insurance agant or insurance broker a policy or contract of insurance shall be demmed to have authorizedsuch agent or broker to receive on its behalf payment of any premium whichis due on such policy or contract of insurance at the time of its issuance or delivery or which becomes due thereon.

And it is a well-known principle under the law of agency that:

Payment to an agent having authority to receive or collect payment is equivalent to payment to the principal himself; such payment is complete when the money delivered is into the agent's hands and isa discharge of the indebtedness owing to the principal. The SC denied the petition and affirmed the decision of the Insurance Commission.

Makati Tuscany Condominium Corp. v. Court of Appeals, 215 SCRA 462Facts:The insurer issued a insurance policy for the properties of Makati Tuscany, this insured policy was renewed 3 times and premiums were paid in installments. On

its 3rd year, Makati failed to pay the subsequent premiums and they contended that they are no longer required to pay for the subsequent premiums alleging that the insurance policy never took effect and is not binding, because full payment of the premiums must be paid in order for the insurance policy to take effect.

Issue:

WON the insurance policy was valid and binding.

Ruling:

YES. 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 prepaid in full.Sec 77 of the Insurance code precludes the party from stipulating that the policy is valid even if the premiums are not paid, but does not prohibit an agreement granting credit extension, such an agreement is not contrary to law, morals, good customs or public policy. SC also said that the risk already attached upon payment of the first installment or premium.

SOUTH SEA SURETY AND INSURANCE COMPANY vs. CAG.R. No. 102253 June 2, 1995

 FACTS:Valenzuela Hardwood and Industrial Supply, Inc. (Hardwood) entered into an agreement with Seven Brothers Shipping Corporation whereby the latter undertook to load on board its vessel M/V Seven Ambassador the former's lauan round logs for shipment to Manila. Hardwood insured the logs, against loss and/or, damage with defendant South Sea Surety and Insurance Co., Inc.(South Sea) for P2,000,000.00 and the latter issued the corresponding Marine Cargo Insurance Policy.

Hardwood gave the check in payment of the premium on the insurance policy to Mr. Victorio Chua. In the meantime, the said vessel M/V Seven Ambassador sank resulting in the loss of the plaintiffs insured logs. South Sea cancelled the insurance policy it issued as of the date of inception for non-payment of the premium due in accordance with Section 77 of the Insurance Code. Hardwood demanded from defendant South Sea the payment of the proceeds of the policy but the latter denied liability under the policy. Trial court rendered judgment in favor of plaintiff Hardwood. CA affirmed the judgment.

ISSUE: W/N Victorio Chua, in receiving the check for the insurance premium prior to the occurrence of the risk insured against has so acted as an agent of petitioner. – YES

HELD:Section 77 of the Insurance Code 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.Undoubtedly, the payment of the premium is a condition precedent to, and essential for, the efficaciousness of the contract. The sole question raised in the instant petition is really evidentiary in nature, i.e., whether or not Victorio Chua, in receiving the check for the insurance premium prior to the occurrence of the risk insured against has so acted as an agent of petitioner. The appellate court, like the trial court, has found this query in the affirmative.

Second paragraph of Section 306 of the Insurance Code provide as follows:Sec. 306. . . . Any insurance company which delivers to an insurance agent or insurance broker a policy or contract of insurance 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 of contract of insurance at the time of its issuance or delivery or which becomes due thereon.

When South Sea Surety and Insurance Co., Inc. delivered to Mr. Chua the marine cargo insurance policy for the plaintiffs logs, he is deemed to have been authorized by the South Sea to receive the premium which is due on its behalf. When therefore the insured logs were lost, the insured had already paid the premium to an agent of the South Sea, which is consequently liable to pay the insurance proceeds under the policy it issued to the insured.

The SC sees no valid reason to discard the factual conclusions of the appellate court. It is not the function of the SC to assess and evaluate all over again the evidence, testimonial and documentary, adduced by the parties particularly where, such as here, the findings of both the trial court and the appellate court on the matter coincide.

Spouses Tibay v. Court of Appeals

Facts:Sps. Tibay insured their property with Fortune insurance. The premium was for 2900, but only 600 were paid by the insured. The building insured was razed by fire. Two days later Violeta Tibay paid for the balance of the premium and on the same day filed a claim against Fortune insurance.

Issue:Is the policy valid and binding upon partial payment of premium?

Ruling: No, SC ruled that premium must be paid in full in order for the policy to be valid and binding. Where the premium has only been partially paid and the balance paid only after the peril insuredagainst has occurred, the insurance contract did not take effect and the insured cannot collect at all on the policy. The Insurance Code which says that no policy or contract of insurance issued by an insurance company is valid and binding unless and until the premium has been paid.This case is different from Makati Tuscany, because in the Makati, there was a practice that payment shall be in installments. Neither is there any stipulation granting any credit extension. Likewise, payment of premiums is the elixir vitae of insurance business because the insurer must maintain a legal reserve fund to meet its contingent liabilities.

Hence, in the absence of clear waiver of prepayment in full by the insurer, the insured cannot collect on the proceeds of the policy.“The terms of the insurance policy constitute the measure of the insurer’s liability. In the absence of statutory prohibition to the contrary, insurance companies have the same rights as individuals

to limit their liability and to impose whatever conditions they deem best upon their obligations not inconsistent with public policy.”

Paulin vs. Insular47 OG 3012

Facts:This action was instituted by the minors Vicentita Antigua Paulin and Silvina Paulin, who

are sisters assisted by their guardian ad-litem, for the purpose of collecting the amount of three life insurance policies issued by the defendant, the Insular Life Assurance Co. ltd. In favor of their father, Estaban Paulin, who is alleged to have been killed by the guerillas, on or about December 10, 1943.

The aforementioned policies are Policy no. 84029 in the sum of P 2,000, issued on August 1, 1940, with premiums payable on the first day of August of each year, for 20 years and the second Policy No. 84683, in the sum of P 2, 000, issued on October 1, 1940, with premiums payable on the first day of October of each year, for 20 years and Policy No. 85061, in the sum of P7, 000 issued on October 1, 1940, with premiums payable on the first day of every month, for 20 years. The three policies carried an accidental death benefit clause, providing for double indemnity in case of death, under the conditions therein set forth, and named the plaintiffs as beneficiaries in such case.

Upon demand, made on behalf of the plaintiffs, the defendant refused to pay the sums stated in said policies, on the ground that the same had lapsed, prior to the date of death of Esteban Paulin, for non-payment of premiums. Hence complaint herein, which, after due trial, was dismissed by the RTC.

Appellee admits having received, in connection with policy no 84029, the annual premiums due on August 1, 1940 and August 1, 1941; in connection with policy no. 84683, the annual premiums due on October 1, 1940, and October 1, 1941; and in connection with policy no. 85061, fifteen monthly premiums which fell due from October 1, 9140 to December 1, 1941, inclusive.

Issue:Whether or not the policies have lapsed for the non-payment of premium

Ruling:

Despite appellant’s assertion to the contrary, no evidence whatsoever of such payment, in relation to the policies nos. 84029 and 84683, has been introduced. Despite appellant’s testimonial and documentary evidence, they do not bear any contention.

Exhibit B only showed a provisional receipt for the initial premium paid on October 11, 1940 and the acceptance letter by Esteban Paulin were only submitted in connection with Policy No. 84683.

Exhibit c, with reference to Policy no. 85061, were letters written by Esteban Paulin to the defendant on the first day of May, July and November 1942 and March, April, June and July 1943, respectively, each stating that it enclosed a post office money order for P36.12, which, presumably represented the monthly premiums falling due in the months already mentioned. But these were not part of the records of the defendant company but found among the personal belongings of the deceased Esteban Paulin. Each of the letters in the exhibit bore the signature of Esteban which the Court finds them to be originals. Having remained in the possession of its writer, it tends to show that the premiums for the months specified were not forwarded to the defendant.

It is urged also that, in view of the Executive Order No. 25, series of 1944, as amended by Executive Order No. 32, series of 1945, providing for a moratorium in the enforcement of payment of all debts or monetary obligations contracted prior to the liberalization of the Philippines by the American forces, the policies could not and did not lapse for non-payment of

the premiums. This contention is untenable, for an insured is not under the obligation to pay premiums. The same do not constitute a debt and the insurance company cannot compel payment thereof, which is one only of the conditions for the subsistence or effectivity of an insurance policy. While the payment of premiums or assessments as specified in the insurance contract is necessary to bind the insurer to discharge its obligations imposed by the contract, it is generally true in the case of life insurance contracts that there is no absolute undertaking to pay the premiums or assessment and, consequently, no personal liability of the insurer, and the insured, if he has not expressly promised to pay, is at liberty to refuse to make the payment.

UCPB vs. MASAGANA

Facts: 

UCPB insured Masagana’s properties. Two months before expiration of the policy, UCPB gave written notice to Masagana for non renewal of the policies. Then the property insured was razed by fire. A month after Masagana gave a check for payment of the premium and the following day filed a complaint to clam the proceeds of the policy. 

ISSUE: 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?

Ruling:1991 – The SC ruled that the insurance policies had expired. Because an insurance policy other than life is not valid and binding until actual payment of the premium, any agreement to the contrary is void. The parties may not agree expressly or impliedly on the extension of the credit time to pay the premium and consider the policy binding before actual payment. 

UCPB vs. MASAGANA

Facts: 

UCPB insured Masagana’s properties. Two months before expiration of the policy, UCPB gave written notice to Masagana for non renewal of the policies. Then the property insured was razed by fire. A month after Masagana gave a check for payment of the premium and the following day filed a complaint to clam the proceeds of the policy. 

ISSUE: 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?

1992- The SC ruled that SECTION 77 merely precludes that the policy is valid even if premiums are not paid. But it does not expressly prohibit an agreement granting credit extension. Likewise this case mentions about the exceptions to SECTION 77, that the policy is valid and binding notwithstanding non-payment of the premium. They are: 1.) Granting credit extension and 2.) estoppel. 

AMERICAN HOME ASSURANCE CO. VS CHUA, 309 SCRA 250FACTS:

On April 6, 1990, Moonlight Enterprises, respondent's business establishment, was razed by fire. Respondent then filed an insurance claim with petitioner and four other co-insurers. Petitioner refused to honor the claim, thus prompting respondent to file an action. In its defense, petitioner claimed that there was no existing insurance contract when the fire occurred since respondent did not pay the premium. It alleged that even assuming there was a contract, respondent violated several conditions of the policy. The trial court ruled in favor of respondent. This was affirmed in toto by the Court of Appeals. Its motion for reconsideration having been denied, petitioner filed this petition.

ISSUE: Whether there was a valid payment of premium, considering that respondent's check

was cashed after the occurrence of the fire?

RULING: Petitioner accepted the check and issued an official receipt for the payment. Its agent

acknowledged receipt of payment. An acknowledgment of the receipt of premium is conclusive evidence of its payment, so far as to make the policy binding.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.However, loss of profit cannot be shouldered by petitioner whose obligation is limited to the object of insurance, which was the stock-in-trade and not the expected loss in income or profit. The awards of moral and exemplary damages were also deleted. Moral damages may be awarded in breaches of contracts where the defendant acted in bad faith. The Court found no such fraud or bad faith. Exemplary damages may be awarded if the defendant acted in a wanton, fraudulent, reckless, oppressive or malevolent manner. Nothing thereof can be attributed to petitioner. The award of attorney's fees was reduced to a reasonable level

K.   DOUBLE INSURANCE

Pioneer Insurance and Surety v. Yap

FACTS: Respondent Oliva Yap was the owner of a store in a two-storey building located in Manila. On April 19, 1962, respondent Yap took out a fire policy from Pioneer Insurane for 25,000.00 covering her stocks, officer furniture, fixtures ₱and fittings of every kind and description Amongthe conditions in the policy was:“The insured shall give notice to the company of any insurance or insurance already effected, or which may subsequently be effected, covering any of the

property hereby insured and unlesssuch notice be given and the particulars of such insurance be stated in or indorsed on this policyby or on behalf of the company before the occurrence of any loss or damage, all benefits underthis policy shall be forfeited.” At the time of the insurance, an insurance for 20,000.00 issued by the₱Great AmericanInsurance Company covering the same properties was noted on said policy as co-insurance.

On September 26, 1962, Yap took out another Fire Policy for 20,000.00 ₱covering the same properties, from the Federal Insurance Company, Inc. which new policy was however procuredwithout notice to and without the written consent of Pioneer Ins. and therefore, was not noted asa co-insurance in Policy No. 4219.

On December 19, 1962, a fire broke out in the building housing Yap’s above-mentioned store,and the said store was burned. Yap filed an insurance claim, but the same was denied on the ground of “breach and/or violative of any/or all terms and conditions of Policy No. 4219.

ISSUE:Whether or not petitioner should be absolved from liability on the policy.

HELD:Yes. By the plain terms of the policy, other insurance without the consent of petitioner would ipsofacto avoid the contract. It required no affirmative act of election on the part of the company tomake operative the clause avoiding the contract, wherever the specified conditions should occur.Its obligations ceased, unless, being informed of the fact, it consented to the additional insurance.The obvious purpose of the aforesaid requirement in the policy is to prevent over-insurance andthus avert the perpetration of fraud. The public, as well as the insurer, is interested in preventingthe situation in which a fire would be profitable to the insured.

UNION MANUFACTURING CO., INC. VS. PHILIPPINE GUARANTYCO., INC.47 SCRA 271

FACTS:On January 12, 1962, the Union Manufacturing Co., Inc. obtained certainloans from the Republic Bank in the total sum of 415,000.00. To secure the payment thereof, UMC executed real and chattel mortgageon certain properties.The Republic Bank procured from the defendant Philippine GuarantyCo., Inc. an insurance coverage on loss against fire for 500,000.00 over the properties of the UMC, as described in defendant’s cover notedated September 25, 1962, with the annotation that loss or damage, if any, under said cover note is payable to Republic Bank as its interestmay appear, subject however to the printed conditions of saiddefendant’s Fire Insurance Policy Form.On September 6, 1964, a fire occurred in the premises of UMC and onOctober 6, 1964, UMC filed its fire claim with the PGC Inc., thru itsadjuster, H.H. Bayne Adjustment Co., which was denied by saiddefendant in its letter dated

November 26, 1964 on the following ground:“Policy Condition No. 3 and/or the ‘Other Insurance Clause’ of the policywas violated because you did not give notice to us of the other insurancewhich you had taken from New India for 80,000.00. Sincere Insurance for 25,000.00 and Manila Insurance for 200,000.00 with the result that these insurances of which we became aware of only after the fire,were not endorsed on our policy.

ISSUE:Whether Republic Bank can recover.

HELD:Without deciding- whether notice of other insurance upon the sameproperty must be given in writing, or whether a verbal notice is sufficientto render an insurance valid which requires such notice, whether oral or written, we hold that in the absolute absence of such notice when it isone of the conditions specified in the fire insurance policy, the policy isnull and void. (Santa Ana vs. Commercial Union Ass. Co., 55 Phil. 128).

If the insured has violated or failed to perform the conditions of thecontract, and such a violation or want of performance has not beenwaived by the insurer, then the insured cannot recover. Courts are notpermitted to make contracts for the parties. The functions and duty of thecourts consist simply in enforcing and carrying out the contracts actuallymade.

While it is true, as a general rule, that contracts of insurance areconstrued most favorably to the insured, yet contracts of insurance, likeother contracts, are to be construed according to the sense and meaningof the terms which the parties themselves have used. If such terms areclear and unambiguous they must be taken and understood in their plain,ordinary and popular sense.

The annotation then, must be deemed to be a warranty that the propertywas not insured by any other policy. Violation thereof entitles the insurer to rescind. The materiality of non-disclosure of other insurance policies isnot open to doubt.

The insurance contract may be rather onerous, but that in itself does not justify the abrogation of its express terms, terms which the insuredaccepted or adhered to and which is the law between the contractingparties.