Makati Tuscany Condominium Corporation v CA (Insurance)

G.R. No. 95546 November 6, 1992

MAKATI TUSCANY CONDOMINIUM CORPORATION, petitioner, vs. THE
COURT OF APPEALS, AMERICAN HOME ASSURANCE CO., represented
by American International Underwriters (Phils.), Inc., respondent.

FACTS:
Sometime in early 1982, private respondent American Home Assurance Co.
(AHAC), represented by American International Underwriters (Phils.), Inc.,
issued in favor of petitioner Makati Tuscany Condominium Corporation
(TUSCANY) Insurance Policy No. AH-CPP-9210452 on the latter's building and
premises, for a period beginning 1 March 1982 and ending 1 March 1983,
with a total premium of P466,103.05. The premium was paid on installments
on 12 March 1982, 20 May 1982, 21 June 1982 and 16 November 1982, all of
which were accepted by private respondent.
Successive renewals of the policies were made in the same manner. On
1984, the policy was again renewed and petitioner made two installment
payments, both accepted by private respondent, the first on 6 February 1984
for P52,000.00 and the second, on 6 June 1984 for P100,000.00. Thereafter,
petitioner refused to pay the balance of the premium.

Private respondent filed an action to recover the unpaid balance of

P314,103.05 for Insurance Policy. Petitioner explained that it discontinued the
payment of premiums because the policy did not contain a credit clause in
its favor. Petitioner further claimed that the policy was never binding and
valid, and no risk attached to the policy. It then pleaded a counterclaim for
P152,000.00 for the premiums already paid for 1984-85, and in its answer
with amended counterclaim, sought the refund of P924,206.10 representing
the premium payments for 1982-85.

DECISION OF LOWER COURTS:

(1) Trial Court: dismissed the complaint and counterclaim
(2) CA: ordering herein petitioner to pay the balance of the premiums due

ISSUE:
Whether payment by installment of the premiums due on an insurance policy
invalidates the contract of insurance, in view of Sec. 77 of P.D. 612,
otherwise known as the Insurance Code, as amended, which provides:
Sec. 77. An insurer is entitled to the payment of the premium as soon as the
thing is exposed to the peril insured against. Notwithstanding any
agreement to the contrary, no policy or contract of insurance issued by an
insurance company is valid and binding unless and until the premium thereof
has been paid, except in the case of a life or an industrial life policy
whenever the grace period provision applies.

RULING:
No, the contract remains valid even if the premiums were paid on
installments. Certainly, basic principles of equity and fairness would not
allow the insurer to continue collecting and accepting the premiums,
although paid on installments, and later deny liability on the lame excuse
that the premiums were not prepared in full.
At the very least, both parties should be deemed in estoppel to question the
arrangement they have voluntarily accepted.
Moreover, as correctly observed by the appellate court, where the risk is
entire and the contract is indivisible, the insured is not entitled to a refund of
the premiums paid if the insurer was exposed to the risk insured for any
period, however brief or momentary. The obligation to pay premiums when
due is ordinarily as indivisible obligation to pay the entire premium.
UCPB v Masagana G.R. No. 137172. April 4, 2001
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 Respondents 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 courts
declaration that three of the policies were in force from August 1991 to
August 1992; and (2) reduction of the award of the attorneys 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, Masaganas 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
Masaganas 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 UCPBs argument that Masaganas

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 Petitioners 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 make the policy
binding, notwithstanding any stipulation therein that it shall not be binding
until 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.