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 Renewal
Certificate 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 and
Assurance, 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 receipt
2. 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

o An insurer is entitled to payment of the premium as soon as the thing
insured is exposed to the peril insured against. Notwithstanding any agreement to
the contrary, no policy or contract of insurance issued by an insurance company is
valid and binding unless and until the premium thereof has been paid, except in the
case of life or an industrial life policy whenever the grace period provision applies
 Section 66 of the Insurance Code - not applicable since not termination but
renewal
 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
o 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
o 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
o 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
o award attorney’s fees where it deems just and equitable that it be so
granted
o reduced to P10,000
Tibay, et. al v Court of Appeals

GR No. 119655, 24 May 1996

Bellosillo, [J.]

Facts:

1. In January 22 1987, the Petitioner Violeta Tibay (and Nicolas Roralso) obtained a fire
insurance policy for their 2-storey from the Private Respondent Fortune Life Insurance Co.
The said policy covers the period from January 23, 1987 until January 23, 1988 or one year
for P600, 000 and at the agreed premium of P2, 983.50. On January 23 or the next day,
petitioner made a partial payment of the premium with P600.

2. Unfortunately, on March 8 1987, the said building was burned to the ground. It was only
two days after the fire that Petitioner Violeta advanced the full payment of the policy
premium which was accepted by the insurer. On this same day, petitioner likewise filed the
claim that was then referred to the insurer's adjuster. Investigation of the cause of fire
commenced and the petitioner submitted the required proof of loss.

3. Despite that, the private respondent Fortune refused to pay the insurance claim saying it
as not liable due to the non-payment by petitioner of the full amount of the premium as
stated in the policy.

4. The petitioner then brought the matter to the Insurance Commission but nothing good came
out. Hence this case filed.

5. The trial court rule in favor of the petitioner. Upon appeal, the Court of Appeals reversed
the lower court's decision and held that Fortune is not liable but ordered it to return the
premium paid with interest to the petitioner. Hence, this petition for review.

Issue: W/N the partial payment of the premium rendered the insurance policy ineffective?

YES.
1. Insurance is a contract whereby one undertakes for a consideration to indemnify another
against loss, damage or liability arising from an unknown or contingent event. The
 consideration is the premium, which must be paid at the time, way and manner as stated in
the policy, and if not so paid as in this case, the policy is therefore forfeited by its own
terms. In this case, the policy taken out by the petitioner provides for payment of premium
in full. Since the petitioner only made partial payment with the remaining balance paid only
after the fire or peril insured against has occurred, the insurance contract therefore did not
take effect barring the insured from claiming or collecting from the loss of her building.

2. Under Section 77 of the Insurance Code (Philippine), it provides therein that "An insurer is
entitled to payment of the premium as soon as the thing insured is exposed to the peril
insured against. Notwithstanding any agreement to the contrary, no policy or contract of
insurance issued by an insurance company is valid and binding unless and until the premium
thereof has been paid, except in the case of a life or an industrial life policy whenever the
grace period provision applies." Herein case, the controversy is on the payment of the
premium. It cannot be disputed that premium is the elixir vitae of the insurance business
because the insurer is required by law to maintain a reserve fund to meet its contingent
obligations to the public. Due to this, it is imperative that the premium is paid fully and
promptly. To allow the possibility of paying the premium even after the peril has ensued
will surely undermine the foundation of the insurance business.

UCPB GENERAL INSURANCE [UCPB] v. MASAGANA TELAMART [Masagana]

2001 / Davide, Jr.
FACTS [SEE 1999 CASE DIGEST FOR THE OTHER FACTS]
CA disagreed with UCPB’s stand that Masagana’s tender of payment of the
premiums on 13 July 1992 did not result in the renewal of the policies, having been
made beyond the effective date of renewal as provided under Policy Condition No.
26:
Renewal Clause. — Unless the company at least 45 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.
The following facts have been established:
1. For years, UCPB had been issuing fire policies to th Masagana, and these
policies were annually renewed.
2. UCPB had been granting Masagana a 60-90-day credit term within
which to pay the premiums on the renewed policies.
3. There was no valid notice of non-renewal of the policies, as there is no
proof that the notice sent by ordinary mail was received by Masagana,
and the copy allegedly sent to Zuellig was ever transmitted to Masagana.
4. The premiums for the policies were paid by Masagana within the 60-
90-day credit term and were duly accepted and received by UCPB’s
cashier.
ISSUE & HOLDING
WON IC 77 must be strictly applied to UCPB’s advantage despite its practice of
granting a 60- to 90-day credit term for the payment of premiums. NO.
MASAGANA WINS THIS TIME. 1999 DECISION SET ASIDE; CA DECISION
AFFIRMED
RATIO
SEC. 77. An insurer is entitled to payment of the premium as soon as
the thing insured is exposed to the peril insured
against. Notwithstanding any agreement to the contrary, no policy or
contract of insurance issued by an insurance company is valid and
binding unless and until the premium thereof has been paid, except in
the case of a life or an industrial life policy whenever the grace period
provision applies.
This was formerly Act 2427, Section 72:
SEC. 72. An insurer is entitled to payment of premium as soon as the
thing insured is exposed to the peril insured against, unless there is
clear agreement to grant the insured credit extension of the premium
due. No policy issued by an insurance company is valid and binding
unless and until the premium thereof has been paid. (Underscoring
supplied)
 IC 77 does not restate the portion of IC 72 expressly permitting an agreement to
extend the period to pay the premium. However, there are exceptions to IC 77.

 In case of a life or industrial life policywhenever the grace period provision

applies [Sec. 77]
 Any acknowledgment of the receipt of premiumis conclusive evidence of
payment [Sec. 78]
 If the parties have agreed to the payment ininstallments of the premium
and partial payment has been made at the time of loss [Makati Tuscany
Condominium v. CA]
 The insurer may grant credit extensionfor the payment of the premium
[Makati Tuscany Condominium]
 Estoppel

IC 77 merely precludes the parties from stipulating that the policy is valid even if
premiums are not paid, but does not expressly prohibit an agreement granting
credit extension, and such an agreement is not contrary to morals, good customs,
public order or public policy. [Makati Tuscany Condominium v. CA]
ON EXCEPTION #4. 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.
It would be unjust and inequitable if recovery on the policy would not be
permitted against UCPB, which had consistently granted a 60-90-day credit term
for the payment of premiums despite its full awareness of IC 77. Estoppel bars it
from taking refuge under said section, since Masagana relied in good faith on such
practice.
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.