49. UNION MANUFACTURING CO., INC. VS. PHILIPPINE GUARANTYCO., INC.

47 SCRA
271 (G.R. NO. L-27932) OCTOBER 30, 1972

FACTS:
On January 12, 1962, the Union Manufacturing Co., Inc. obtained certain loans from the
Republic Bank in the total sum of 415,000.00. To secure the payment thereof, UMC executed
real and chattel mortgage on certain properties. The Republic Bank procured from the
defendant Philippine Guaranty Co., Inc. an insurance coverage on loss against fire for
500,000.00 over the properties of the UMC, as described in defendants cover note dated
September 25, 1962, with the annotation that loss or damage, if any, under said cover note is
payable to Republic Bank as its interest may appear, subject however, to the printed conditions
of said defendants Fire Insurance Policy Form. On September 6, 1964, a fire occurred in the
premises of UMC and on October 6, 1964, UMC filed its fire claim with the PGC Inc., thru its
adjuster, H.H. Bayne Adjustment Co., which was denied by said defendant in its letter dated
November 26, 1964 on the following ground: Policy Condition No. 3 and/or the Other
Insurance Clause of the policy was violated because you did not give notice to us of the other
insurance which 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 or not, Republic Bank can recover.

HELD:
Without deciding- whether notice of other insurance upon the same property must be given
inwriting, or whether a verbal notice is sufficient to render an insurance valid which requires
such notice, whether oral or written, we hold that in the absolute absence of such notice when it
is one of the conditions specified in the fire insurance policy, the policy is null and void. (Santa
Ana vs. Commercial Union Ass. Co., 55 Phil. 128). If the insured has violated or failed to
perform the conditions of the contract, and such a violation or want of performance has not been
waived by the insurer, then the insured cannot recover. Courts are not permitted to make
contracts for the parties. The functions and duty of the courts consist simply in enforcing and
carrying out the contracts actually made. While it is true, as a general rule, that contracts of
insurance are construed most favorably to the insured, yet contracts of insurance, like other
contracts, are to be construed according to the sense and meaning of the terms which the
parties themselves have used. If such terms are clear 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 property was not insured by any other policy. Violation there of
entitles the insurer to rescind. The materiality of non-disclosure of other insurance policies is not
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 insured accepted or adhered to and which
is the law between the contracting parties.
48. PIONEER INSURANCE AND SURETY CORPORATION vs. OLIVA YAP

G.R. No. L-36232 December 19, 1974

Facts:
Respondent Oliva Yap was the owner of a store in a two-storey building where she sold
shopping bags and footwear. Chua Soon Poon, her son-in-law, was in charge of the store.
Yap took out a Fire Insurance Policy No. 4216 from Pioneer Insurance with a value of
P25,000.00 covering her stocks, office furniture, fixtures and fittings.
Among the conditions in the policy executed by the parties are the following:
unless such notice be given and the particulars of such insurance or insurances be stated in, or
endorsed on this Policy by or on behalf of the Company before the occurrence of any loss or
damage, all benefits under this Policy shall be forfeited Any false declaration or breach or this
condition will render this policy null and void.
Another insurance policy for P20,000.00 issued by Great American covering the same
properties. The endorsement recognized co-insurance by Northwest for the same value.
Oliva Yap took out another fire insurance policy for P20,000.00 covering the same properties
from the Federal Insurance Company, Inc., which was procured without notice to and the written
consent of Pioneer.
A fire broke out in the building, and the store was burned. Yap filed an insurance claim, but the
same was denied for a breach.
Oliva Yap filed a case for payment of the face value of her fire insurance policy. The insurance
company refused to pay because she never informed Pioneer of another insurer.

Issue:
Whether or not, petitioner should be absolved from liability on the Pioneer policy on account of
any violation of the co-insurance clause

Held:
No. There was a violation by respondent Oliva Yap of the co-insurance clause contained in
Policy No. 4219 that resulted in the avoidance of petitioner's liability. The insurance policy for
P20,000.00 issued by the Great American, ceased to be recognized by them as a co-insurance
policy.
The endorsement shows the clear intention of the parties to recognize on the date the
endorsement was made, the existence of only one co-insurance, the Northwest one. The finding
of the Court of Appeals that the Great American Insurance policy was substituted by the Federal
Insurance policy is indeed contrary to said stipulation.
Other insurance without the consent of Pioneer would avoid the contract. It required no
affirmative act of election on the part of the company to make 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 validity of a clause in a fire insurance policy to the effect that the procurement of additional
insurance without the consent of the insurer renders the policy void is in American
jurisprudence.
Milwaukee Mechanids' Lumber Co., vs. Gibson- "The rule in this state and practically all of the
states is to the effect that a clause in a policy to the effect that the procurement of additional
insurance without the consent of the insurer renders the policy void is a valid provision.
In this jurisdiction, General Insurance & Surety Corporation vs. Ng Hua- The annotation then,
must be deemed to be a warranty that the property was not insured by any other policy.
Violation thereof entitled the insurer to rescind. Furthermore, even if the annotations were
overlooked the defendant insurer would still be free from liability because there is no question
that the policy issued by General Indemnity has not been stated in nor endorsed on Policy No.
471 of defendant. The obvious purpose of the aforesaid requirement in the policy is to prevent
over-insurance and thus avert the perpetration of fraud where a fire would be profitable to the
insured.

47. AMERICAN HOME ASSURANCE COMPANY vs. ANTONIO 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 Homes 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 because of his fraudulent
tax returns, his failure to establish the actual loss and his failure to notify to petitioner of any
insurance already effected. The trial court ruled in favor of respondent because the respondent
paid by way of check a day before the fire occurred and that the other insurance companies
promptly paid the claims. American homes was made to pay 750,000 in damages.
The Court of Appeals found that respondents claim was substantially proved and petitioners
unjustified refusal to pay the claim entitled respondent to the award of damages.
American Home filed the petition reiterating its stand that there was no existing insurance
contract between the parties. It invoked Section 77 of the Insurance Code, which provides that
no policy or contract of insurance issued by an insurance company is valid and binding unless
and until the premium thereof has been paid and the case of Arce v. Capital Insurance that until
the premium is paid there is no insurance.

Issues:
1. Whether or not, there was a valid payment of premium, considering that respondents check
was cashed after the occurrence of the fire
2. Whether or not, respondent violated the policy by his submission of fraudulent documents
and non-disclosure of the other existing insurance contracts

Held:
1. Yes. The trial court found, as affirmed by the Court of Appeals, that there was a valid check
payment by respondent to petitioner. The court respected this.
The renewal certificate issued to respondent contained the acknowledgment that premium had
been paid.
In the instant case, the best evidence of such authority is the fact that petitioner accepted the
check and issued the official receipt for the payment. It is, as well, bound by its agents
acknowledgment of receipt of payment.
Section 78 of the Insurance Code explicitly provides:
An acknowledgment in a policy or contract of insurance of the receipt of premium is conclusive
evidence of its payment, so far as to make the policy binding, notwithstanding any stipulation
therein that it shall not be binding until the premium is actually paid.

2. No. Submission of the alleged fraudulent documents pertained to respondents 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
adjusters admission of previous knowledge of the co-insurers.
It cannot be said that petitioner was deceived by respondent by the latters 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.
46. UCPB GENERAL INSURANCE CO. INC., vs. MASAGANA TELAMART, INC.

G.R. No. 137172. April 4, 2001

Facts:
Masagana obtained from UCPB five (5) insurance policies on its Manila properties.
Plaintiff obtained from defendant fire insurance policies on its property effective from May 1991 -
1992. On June 1992, plaintiff's properties were raged by fire. On the same date plaintiff
tendered, and defendant accepted five checks as renewal premium payments for which a
receipt was issued. 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.

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. 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.
In Makati Tuscany v CA, 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.

Finally in the instant case, it would be unjust and inequitable 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 despite its full awareness of Section 77. Estoppel bars it from taking
refuge under said Section, since Respondent relied in good faith on such practice. Estoppel
then is the fifth exception to Section 77.

(SUPPLEMENTAL FACTS: Just in case you will not understand why it came up with such held
haha

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. )