INSURANCE: DIGESTED CASES FOR MIDTERMS

DIGEST CASES FOR INSURANCE

1. TANG VS. CA (90 SCRA 236)

Facts

 On Sept. 25, 2965, Lee Su Guat, widow, 61 years old and illiterate who spoke only

Chinese, applied for life insurance for 60T with Philamlife. The application was in two

parts, both in English.

 The second part dealt with her state of health. Her answers having shown that she was

health, Philamlife issued her a policy effective Oct. 23, 1965 with her nephew Vicente

Tang as beneficiary.

 On Nov. 15, 1965, Lee again applied for additional insurance of her life for 40T. Since it

was only recent from the time she first applied, no further medical exam was made but

she accomplished Part 1 (which certified the truthfulness of statements made in Part. 2)

 The policy was again approved. On April 20 1966, Lee Su Guat died of Lung cancer.

 Tang claimed the amount of 100T but Philamlife refused to pay on the ground that the

insured was guilty of concealment and misrepresentation.

 Both trial court and CA ruled that Lee was guilty of concealment.

 Tang’s position, however, is that because Lee was illiterate and spoke only Chinese, she

could not be held guilty of concealment of her health history because the application for

insurance was English, and the insurer has not proven that the terms thereof had been

fully explained to her as provided by Art. 1332 of CC.

Issue

Whether or not Art. 1332 applies.

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INSURANCE: DIGESTED CASES FOR MIDTERMS

Held

No, Art. 1332 is not applicable. Under said article, the obligation to show that the terms of

the contract had been fully explained to the party who is unable to read or understand the

language of the contract, when fraud or mistake is alleged, devolves on the party seeking to

enforce it. Here, the insurance company is NOT seeking to enforce the contract; on the contrary,

it is seeking to avoid its performance.

It is petitioner who is seeking to enforce it, even as fraud or mistake is NOT alleged.

Accordingly, Philamlife was under no obligation to prove that the terms of the insurance contract

were fully explained to the other party. Even if we were to say that the insurer is the one seeking

the performance of the cont. contracts by avoiding paying the claim, it has to be noted as above

stated that there has been NO imputation of mistake of fraud by the illiterate insured whose

personality is represented by her beneficiary. In sum, Art. 1332 is inapplicable, and considering

the findings of both the trial court and the CA as to the Concealment of Lee, the SC affirms their

decisions.

Concurring: J., Antonio

In a contract of insurance, each party must communicate to the other, in good faith, all

facts within his knowledge which are material to the contract, and which the other has no means

of ascertaining. As a general rule, the failure by the insured to disclose conditions affecting the

risk of which he is aware makes the contract voidable at the option of the insurer.

The reason for this rule is that insurance policies are traditionally contracts uberrimae

fidei, which means “most abundant good faith”, “absolute and perfect candor or openness and

honesty,” “absence of any concealment or deception however slight.” Here the CA found that

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the insured deliberately concealed material facts about her physical condition and history and/or

concealed with whoever assisted her in relaying false information to the medical examiner.

Certainly, the petitioner cannot assume inconsistent positions by attempting to enforce the

contract of insurance for the purpose of collecting the proceeds of the policy and at the same

time nullify the contract by claiming that it was executed through fraud or mistake.

NOTE: Art. 1332: When one of the parties is unable to read or if the contract is in a

language not understood by him, and mistake or fraud is alleged, the person enforcing the

contract must show that the terms thereof have been fully explained to him.

2. PACIFIC TIMBER vs CA (112 SCRA 199)

Facts

 On March 13, 1963, Pacific secured temporary insurance from the Workmen’s Insurance

Co. for its exportation of logs to Japan. Workmen issued on said date Cover Note 1010

insuring said cargo.

 The regular marine policies were issued by the company in favor of Pacific on Apr 2,

1963. The 2 marine policies bore the number 53H01032 and 53H01033.

 After the issuance of the cover note but BEFORE the issuance of the 2 policies, some of

the logs intended to be exported were lost due to a typhoon.

 Pacific filed its claim with the company, but the latter refused, contending that said loss

may not be considered as covered under the cover note because such became null and

void by virtue of the issuance of the marine policies.

Issue

Whether or not the cover not was without consideration, thus null and void.

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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.

3. BONIFACIO BROTHERS vs MONA (20 SCRA 261)

Facts

 Enrique Mora mortgaged his Oldsmobile sedan car to HS Reyes Inc. with the condition

that Mora would insure the car with HS Reyes as beneficiary.

 The car was then insured with State Insurance Company and the policy delivered to

Mora.

 During the effectivity of the insurance contract, the car figured in an accident. The

company then assigned the accident to an insurance appraiser for investigation and

appraisal of the damage.

 Mora without the knowledge and consent of HS Reyes, authorized Bonifacio Bros to fix

the car, using materials supplied by the Ayala Auto Parts Company.

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 For the cost of Labor and materials, Mora was billed P2, 102.73. The bill was sent to the

insurer’s appraiser. The insurance company drew a check in the amount of the insurance

proceeds and entrusted the check to its appraiser for delivery to the proper party.

 The car was delivered to Mora without the consent of HS Reyes, and without payment to

Bonifacio Bros and Ayala.

 Upon the theory that the insurance proceeds should be directly paid to them, Bonifacio

and Ayala filed a complaint against Mora and the insurer with the municipal court for the

collection of P2, 102.73.

 The insurance company filed its answer with a counterclaim for interpleader, requiring

Bonifacio and HS Reyes to interplead in order to determine who has a better right to the

proceeds.

Issue

Whether or not there is privity of contract between Bonifacio and Ayala on one hand and

State Insurance on the other.

Held

None. It is fundamental that contracts take effect only between the parties thereto, except in

some specific instance provided by law where the contract contains some stipulation in favor of a

third person. Such stipulation is known as a stipulation pour autrui; or a provision in favor of a

third person not a party to the contract.

Under this doctrine, a third person is led to avail himself of a benefit granted to him by the

terms of the contract, provided that the contracting parties have clearly and deliberately

conferred a favor upon such person. Consequently, a third person NOT a party to the contract

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has NO action against the parties thereto, and cannot generally demand the enforcement of the

same.

The question of whether a third person has an enforceable interest in a contract must be

settled by determining whether the contracting parties intended to tender him such an interest by

deliberately inserting terms in their agreement with the avowed purpose of conferring favor upon

such third person. IN this connection, this court has laid down the rule that the fairest test to

determine whether the interest of a 3rd person in a contract is a stipulation pour autrui or merely

an incidental interest, is to rely upon the intention of the parties as disclosed by their contract.

In the instant case the insurance contract does not contain any words or clauses to disclose an

intent to give any benefit to any repairmen or material men in case of repair of the car in

question. The parties to the insurance contract omitted such stipulation, which is a circumstance

that supports the said conclusion. On the other hand, the "loss payable" clause of the insurance

policy stipulates that "Loss, if any, is payable to H.S. Reyes, Inc." indicating that it was only the

H.S. Reyes, Inc. which they intended to benefit.

A policy of insurance is a distinct and independent contract between the insured and insurer,

and third persons have no right either in a court of equity, or in a court of law, to the proceeds of

it, unless there be some contract of trust, expressed or implied, by the insured and third person.

In this case, no contract of trust, express or implied. In this case, no contract of trust, expressed

or implied exists. We, therefore, agree with the trial court that no cause of action exists in favor

of the appellants in so far as the proceeds of insurance are concerned. The appellant's claim, if at

all, is merely equitable in nature and must be made effective through Enrique Mora who entered

into a contract with the Bonifacio Bros Inc. This conclusion is deducible not only from the

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principle governing the operation and effect of insurance contracts in general, but is clearly

covered by the express provisions of section 50 of the Insurance Act (now Sec. 53).

The policy in question has been so framed that "Loss, if any, is payable to H. S. Reyes, Inc."

which unmistakably shows the intention of the parties.

4. DEVELOPMENT INSURANCE vs IAC (143 SCRA 62)

Facts

A fire occurred in the building of Philippine Union. It sued for recovery of damages from

the petitioner on the basis of an insurance contract between them. The petitioner failed to answer

on time despite the numerous extensions it asked for. It was declared in default by the trial court.

A judgment of default was subsequently rendered on the strength of the evidence given by the

private respondent, which was allowed damages. The petitioner moved to lift the order of

default. Its motion was denied. It went to the appellate court, which affirmed the decision of the

trial court. Hence this appeal.

Issue

Was Philippine Union required to jointly indemnify the building?

Held

No, petition is dismissed. The policy insured the private respondent's building against fire for P2,

500,000.00.

The petitioner argued that the respondent must share the difference between that amount and the

face value of the policy and the loss sustained for 5.8 million under Condition 17 of the policy.

The building was insured at P2, 500,000.00 by agreement of the insurer and the insured.

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The agreement is known as an open policy and is subject to the express condition that:

“In the event of loss, whether total or partial, it is understood that the amount of the loss shall be

subject to appraisal and the liability of the company, if established, shall be limited to the actual

loss, subject to the applicable terms, conditions, warranties and clauses of this Policy, and in no

case shall exceed the amount of the policy.”

Section 60 of the Insurance Code defines an open policy is one in which the value of the thing

insured is not agreed upon but is left to be ascertained in case of loss." This means that the actual

loss, as determined, will represent the total indemnity due the insured from the insurer except

only that the total indemnity shall not exceed the face value of the policy.

The actual loss has been ascertained in this case. Hence, applying the open policy clause as

expressly agreed upon, the private respondent is entitled to indemnity in the total amount of

P508, 867.00.

The refusal of its vice-president to receive the private respondent's complaint was the first

indication of the petitioner's intention to prolong this case and postpone the discharge of its

obligation to the private respondent under this agreement. They still evaded payment for 5 years.

5. SUN LIFE ASSURANCE COMPANY OF CANADA vs CA (195 SCRA 163)

Facts

Robert John Bacani procured a life insurance contract for himself from petitioner-

company, designating his mother Bernarda Bacani, herein private respondent, as the beneficiary.

He was issued a policy valued at P100, 000.00 with double indemnity in case of accidental death.

Sometime after, the insured died in a plane crash. Bernarda filed a claim with petitioner, seeking

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the benefits of the insurance policy taken by her son. However, said insurance company rejected

the claim on the ground that the insured did not disclose material facts relevant to the issuance of

the policy, thus rendering the contract of insurance voidable.

Petitioner discovered that two weeks prior to his application for insurance, the insured

was examined and confined at the Lung Center of the Philippines, where he was diagnosed for

renal failure.

The RTC, as affirmed by the CA, this fact was concealed, as alleged by the petitioner.

But the fact that was concealed was not the cause of death of the insured and that matters relating

to the medical history of the insured is deemed to be irrelevant since petitioner waived the

medical examination prior to the approval and issuance of the insurance policy.

Issue

Whether or not the concealment of such material fact, despite it not being the cause of

death of the insured, is sufficient to render the insurance contract voidable

Held

YES. Section 26 of the Insurance Code is explicit in requiring a party to a contract of

insurance to communicate to the other, in good faith, all facts within his knowledge which are

material to the contract and as to which he makes no warranty, and which the other has no means

of ascertaining. Anent the finding that the facts concealed had no bearing to the cause of death of

the insured, it is well settled that the insured need not die of the disease he had failed to disclose

to the insurer. It is sufficient that his non-disclosure misled the insurer in forming his estimates

of the risks of the proposed insurance policy or in making inquiries. The SC, therefore, ruled that

petitioner properly exercised its right to rescind the contract of insurance by reason of the

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INSURANCE: DIGESTED CASES FOR MIDTERMS

concealment employed by the insured. It must be emphasized that rescission was exercised

within the two-year contestability period as recognized in Section 48 of The Insurance Code.

WHEREFORE, the petition is GRANTED and the Decision of the Court of Appeals is

REVERSED and SET ASIDE.

6. EDILLON vs MANILA BANKERS LIFE INSURANCE CO. (117 SCRA 187)

Facts

 In Apr. 1969, Carmen Lapuz applied for insurance with Manila Bankers. In the

application she stated the date of her birth as July 11, 1904 (around 64 yrs old). The

policy was thereafter issued.

 Subsequently, in May 1969, Carmen died of a car accident. Her sister, as beneficiary

claimed the proceeds of the insurance.

 Manila Bankers refused to pay because the certificate of insurance contained a provision

excluding it’s liability to pay claims to persons under 16 or over 60.

Issue

Whether or not the policy is void considering that the insured was over 60 when she

applied.

Held

No, the age of Carmen was not concealed to the insurance company. Her application form

indicated her true age. Despite such information, Manila Bankers accepted the premium and

issued the policy. It had all the time to process the application and notice the applicant’s age. If

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it failed to act, it was because Manila Bankers was willing to waive such disqualifications or it

simply overlooked such fact. It is therefore estopped from disclaiming any liability.

7. PIONEER INSURANCE AND SURETY CORP. vs OLIVIA YAP (61 SCRA 426)

Facts

Respondent Oliva Yap was the owner of a store in a two-story 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.

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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. The

trial court decided in favor of Yap. The CA affirmed.

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. Petition dismissed. There was a violation. 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.

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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. “

8. PHILIPPINE PHEONIX SURETY & INSURANCE CO. vs WOODWORKS INC.

(92 SCRA 419)

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

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INSURANCE: DIGESTED CASES FOR MIDTERMS

 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

insurance contract and rendered the policy unenforceable

 CFI: favored Philippine Phoenix

Issue

W/N there was a valid insurance contract despite no premium payment was paid?

Held

No. The decision is 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 must 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.

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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.

9. ALEJA vs GSIS (13 SCRA 212)

 Denying claims to the proceeds of the insurance policy on the ground that the deceased

was not yet covered by insurance at the time of claimant’s death.

Facts

Aleja, a temporary classroom teacher in the Bureau of Public Schools in Nueva Ecija, had

a compulsory term insurance policy issued in his name. It took effect on February 1, 1959.

The premium to which was deducted for the first time from his salary on January 31, 1959.

On January 29, 1959, Aleja was inflicted by his own gun. His heirs filed a claim with the

GSIS to collect the proceeds of the said policy. It was denied as GSIS contended that Aleja

was not yet covered by the insurance policy when he died.

Commonwealth Act 186 indicates that:

Sec. 4. Scope of Application of System. (a) Membership to the System shall be

compulsory upon all regularly and permanently appointed employees, including those

whose tenure of office is fixed or limited by law; upon all teachers except only those who

are substitutes; ….

Sec. 8. (a) Compulsory Membership Insurance. An employee whose membership in

the System is compulsory shall be automatically insurance on the first day of the seventh

calendar month following the month he was appointed or on the first day of the sixth

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calendar month if the date of his appointment is the first day of the month: Provided, that

his medical examination, if required, has been approved by the System.

Issue

W/N Aleja is covered by the insurance policy by virtue of C.A. 186 since the deceased

has rendered services to the government for 6 months and 21 days before his death?

Held

No, Aleja is not covered by the insurance policy. The coverage of compulsory insurance

should commence on the date when the employee becomes entitled to membership in the

System, or upon completion of six months’ service.

The policy issued and accepted by Aleja during his lifetime provides that the effective

date of the insurance contract is February 1, 1959 and the first premium only deducted from his

salary on January 31, 1959, or after his death. Clearly, there was no existing contract between

him and GSIS at the time of his death, there being no consideration for the risk sought to be

enforced against the insurance system. Although he is not covered by the insurance, thee heirs

may only be entitled to a refund of the amount collected after his death, not insurance coverage.

10. ACME vs CA (134 SCRA 155)

Facts

ACME Shoe Rubber and Plastic Corporation had been insuring its building, machines,

and general merchandise from fire with Domestic Insurance Company since 1946.

 On May 14, 1962, ACME continued to insure its properties with insurer in the amount of

P200,000 for the period May 15, 1962 up to May 15, 1963.

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 On May 14, 1963, insurer issued a Renewal Receipt to cover the period May 15, 1963 to

May 15, 1964.

 On January 8, 1964, ACME paid P3, 331.26 as premium. The insurer applied the

payment as renewal premium for the period of May 15, 1963 to May 15, 1964.

 On May 15, 1964, insurer issued a Renewal Receipt for the period of May 15, 1964 to

May 15, 1965, (for renewal premium of P3, 331.26, yet to be paid) with a stamped note

that says the insurance will be deemed valid and binding only when the premium and

documentary stamps have actually been paid in full and duly acknowledged in an official

receipt. ACME was given 90 days to pay otherwise the policy would automatically

become void and ineffective (ACME should pay short period premium for 90 days before

the period expires. If they are unable to pay the whole amount before the 90-day period,

the automatic termination would not apply anymore.)

 ON May 26, 1964, ACME, through its President, signed a promissory note saying that

they promise to pay the premium and documentary stamps and agreed to the automatic

cancellation penalty for not complying.

 On October 13, 1964, ACME’s properties were completely destroyed by fire. ACME

filed for an insurance claim but the insurer disclaimed liability on the ground that as of

the date of the loss, the properties burned were not covered by insurance.

 ACME claims that the January 8, 1964 payment was for the period 1964-1965 and that

the insurer had no right to apply it to the period 1963-1964 because under R 3540, the

policy was void and the insurer could have validly disclaimed liability for the loss had

one occurred then.

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 RTC found the insurer liable for P200,000 and opined that there was a clean intention on

the insurer’s part to grant ACME a credit extension for the payment of the premium due;

and that to allow the insurer to apply the premium ACME paid on January 8, 1964.

 CA reversed the decision and dismissed the suit on the ground that, as of the moment of

the loss, ACME’s properties were not insured and the insurer could not be held liable for

any indemnity as a result of the loss.

Issue

W/N the premium payment for 1964-1965 prevails per RA 3540?

Held

No, not having paid the 1964-65 premium within the extension granted, and pursuant to

RA 3540, the policy was automatically cancelled and there was no insurance coverage to speak

of as of the date of the fire.

RA 3540 provides:

Sec. 72. An insurer is entitled to payment of the premium as soon as the thing ensured is

exposed to the peril insured against, unless there is clear agreement to grant the insurer

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.

RA 3540 was approved on June 20, 1963 and was put into effect on October 1, 1963. It

could not be applied retroactively to the renewal of the policy for the 1963-64 period because

said policy was renewed on May 14, 1963. (laws have no retroactive effect unless the contrary is

provided.) Therefore, the January 8, 1964 payment was properly applied to the 1963-64

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premium. The RTC’s opinion that there was a clear agreement to grant ACME credit extension

for 1964-65 is negated by ACME’s promissory note binding itself to pay within 90 days from the

effective date of the policy, May 15, 194. The credit extension as granted for 90 days only.

Therefore, it ceased on August 16, 1964.

If ACME was granted credit extensions in the past, the promissory note it signed did

away with such credit arrangement. Also, before RA 3540, the Renewal Receipts issued by the

insurer did not contain the auto-cancellation after 90 days’ note. By 1964, however, the situation

had changed by the passage of the bill that no policy could be valid and binding unless and until

the premium thereof had been paid.

What became automatically cancelled by RA 3540 was the 1964-65 policy for ACME’s

failure to pay the premium within the 90-day extension granted, and in accordance with the

express terms of the promissory note that it had signed.

The judgment was affirmed.

11. ARCE vs THE CAPITAL INSURANCE AND SURETY CO. INC. (117 SCRA 63)

Facts

The insured was an owner of a residential lot in Tondo which had been insured since

1961 under Fire Policy No. 24204.

 On November 27, 1965, the insurer sent to the insured a Renewal Certificate No. 47302

to cover the period December 5, 1965 to 1966. The insure also requested for the payment

of the corresponding premium.

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 The insured sought for a credit extension through his wife and promised to pay on

January 4, 1966. The insurer accepted the promise. However, the insured failed to pay on

the said date. The house was then destroyed on January 8, 1966.

 The wife of the insured then presented a claim for indemnity to the insurer. The insurer

denied said claims attaining that the policy was not paid and therefore, ineffective.

Nonetheless, the insured tendered a check as financial aid which was received by the

insured’s daughter. The voucher for the check had a stipulation which stated, “in full

settlement (ex gratia) of the fire loss under Claim No. F-544 Policy No. F-24202.”

 The insured sought the check to be encashed. The insurer contended that the check was

not given as an obligation but as a concession because the renewal premium had not been

paid.

 The insured cashed the check but then sued the insurer.

 RTC held that the insurer could have demanded payment of the premium. Mutuality of

obligation requires that it should also be liable on its policy. The court then held that the

insured was not bound by the signature of their daughter on the check voucher because he

did not authorize her to do so.

Issue

W/N the insurer is bound to effectuate the policy and is liable for the fire insurance? Was

the daughter’s signature on the check a waiver to the claim on the policy?

Held

No, the insured are not entitled to the fire policy. The insurer gave a grace period for the

former to comply with the payment of the premium. Despite the given period, the insured failed

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to pay what was due. Nonetheless, the insurer is not obligated to him. Moreover, Sec. 72 of the

Insurance Act had been amended and changed the legal regime in that unless the premium is

paid, there is no insurance.

On the daughter’s signature towards the check, the Court agreed that his daughter had not

been given authority to waive or accept the check. However, since there was no insurance policy

to begin with, there was nothing to waive in the first place.

12. VALENZUELA vs CA (191 SCRA 1)

Facts

Petitioner Valenzuela, a General Agent respondent Philamgen, was authorized to solicit

and sell all kinds of non-life insurance. He had a 32.5% commission rate.

From 1973 to 1975, Valenzuela solicited marine insurance from Delta Motors, Inc. in the

amount of P4.4 Million from which he was entitled to a commission of 32%. However,

Valenzuela did not receive his full commission which amounted to P1.6 Million from the P4.4

Million. Premium payments amounting to P1,946,886.00 were paid directly to Philamgen.

Valenzuela’s commission amounted to P632,737.00.

Philamgen wanted to cut Valenzuela’s commission to 50% of the amount. He declined.

When Philamgen offered again, Valenzuela firmly reiterated his objection. Philamgen took

drastic action against Valenzuela. They: reversed the commission due him, threatened the

cancellation of policies issued by his agency, and started to leak out news that Valenzuela has a

substantial debt with Philamgen. His agency contract was terminated.

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INSURANCE: DIGESTED CASES FOR MIDTERMS

RTC. The petitioners sought relief by filing the complaint against the private

respondents. The trial court found that the principal cause of the termination as agent was his

refusal to share his Delta commission. The court considered these acts as harassment and ordered

the company to pay for the resulting damage in the value of the commission. They also ordered

the company to pay 350,000 in moral damages.

CA. The company appealed. The CA ordered Valenzuela to pay the entire amount of the

commission. Hence, this appeal by Valenzuela.

Issue

WON Valenzuela should pay the premiums he collected?

Held

As to the issue of whether or not the petitioners are liable to Philamgen for the unpaid

and uncollected premiums which the appellate court ordered Valenzuela to pay, the respondent

court erred in holding Valenzuela liable.

Under Section 77 of the Insurance Code, the remedy for the non-payment of premiums is

to put an end to and render the insurance policy not binding. Philippine Phoenix- non-payment of

premium does not merely suspend but puts an end to an insurance contract since the time of the

payment is peculiarly of the essence of the contract.

Section 776 of the insurance Code says that no contract of insurance by an insurance

company is valid and binding unless and until the premium has been paid, notwithstanding any

agreement to the contrary. Since the premiums have not been paid, the policies issued have

lapsed. The insurance coverage did not go into effect or did not continue and the obligation of

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INSURANCE: DIGESTED CASES FOR MIDTERMS

Philamgen as insurer ceased. Philam can’t demand from or sue Valenzuela for the unpaid

premiums.

13. FINMAN ASSURANCE CORP. vs CA AND TELEMART, INC. (308 SCRA 259)

Facts

On October 22, 1986, deceased, Carlie Surposa was insured with petitioner Finman

General Assurance Corporation with his parents, spouses Julia and Carlos Surposa, and brothers

Christopher, Charles, Chester and Clifton, all surnamed, Surposa, as beneficiaries.

While said insurance policy was in full force and effect, the insured, Carlie Surposa, died

on October 18, 1988 as a result of a stab wound inflicted by one of the three (3) unidentified

men.

Private respondent and the other beneficiaries of said insurance policy filed a written

notice of claim with the petitioner insurance company which denied said claim contending that

murder and assault are not within the scope of the coverage of the insurance policy.

Private respondent filed a complaint with the Insurance Commission which rendered a

favorable response for the respondent.

The appellate court ruled likewise. Petitioner filed this petition alleging grave abuse of

discretion on the part of the appellate court in applying the principle of "expresso unius exclusio

alterius" in a personal accident insurance policy, since death resulting from murder and/or assault

are impliedly excluded in said insurance policy considering that the cause of death of the insured

was not accidental but rather a deliberate and intentional act of the assailant. Therefore, said

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death was committed with deliberate intent which, by the very nature of a personal accident

insurance policy, cannot be indemnified.

Issue

Whether or not the insurer is liable for the payment of the insurance premiums?

Held

Yes, the insurer is still liable. Contracts of insurance are to be construed liberally in favor of

the insured and strictly against the insurer. Thus ambiguity in the words of an insurance contract

should be interpreted in favor of its beneficiary. The terms "accident" and "accidental" as used in

insurance contracts have not acquired any technical meaning, and are construed by the courts in

their ordinary and common acceptation. Thus, the terms have been taken to mean that which

happen by chance or fortuitously, without intention and design, and which is unexpected,

unusual, and unforeseen. Where the death or injury is not the natural or probable result of the

insured's voluntary act, or if something unforeseen occurs in the doing of the act which produces

the injury, the resulting death is within the protection of the policies insuring against death or

injury from accident.

In the case at bar, it cannot be pretended that Carlie Surposa died in the course of an assault

or murder as a result of his voluntary act considering the very nature of these crimes. Neither can

it be said that where was a capricious desire on the part of the accused to expose his life to

danger considering that he was just going home after attending a festival. Furthermore, the

personal accident insurance policy involved herein specifically enumerated only ten (10)

circumstances wherein no liability attaches to petitioner insurance company for any injury,

disability or loss suffered by the insured as a result of any of the stimulated causes.

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INSURANCE: DIGESTED CASES FOR MIDTERMS

The principle of expresso unius exclusio alterius — the mention of one thing implies the

exclusion of another thing — is therefore applicable in the instant case since murder and assault,

not having been expressly included in the enumeration of the circumstances that would negate

liability in said insurance policy cannot be considered by implication to discharge the petitioner

insurance company from liability for, any injury, disability or loss suffered by the insured. Thus,

the failure of the petitioner insurance company to include death resulting from murder or assault

among the prohibited risks leads inevitably to the conclusion that it did not intend to limit or

exempt itself from liability for such death.

14. PHILIPPINE HOME ASSURANCE CORP. vs CA (257 SCRA 468)

Facts

Petitioners are the Philippine Home Assurance Corporation (PHAC), the Philippine

American Accident Insurance Company (PAAIC), the Philippine American General Insurance

Company (PAGIC), and the American International Underwriters (Phils.), Inc. (AIUPI), which

are domestic corporations engaged in the insurance business.

 From January to June 1986, they paid under protest as documentary stamp taxes on

various life and non-life insurance policies issued by them.

 On August 4, 1987, petitioners filed for a refund from the BIR on the ground that the

alleged premiums on the insurance policies issued by them had not been paid thus, in

accordance with Sec. 77 of the Insurance Code, no documentary stamp taxes were due on

the policies.

The CTA contended that the payment or non-payment of the premium by the insured is

immaterial since a documentary stamp tax is in the nature of an excise tax upon a facility used in

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INSURANCE: DIGESTED CASES FOR MIDTERMS

the transaction of a business which is separate and distinct from the business itself. Such being

the case, the subsequent cancellation of an insurance policy will not exempt the issuer from the

corresponding documentary stamp tax and no refund can be allowed.

The CA affirmed the CTA’s decision stating that the documentary stamp tax accrues when

the said privilege is exercised. Therefore, it is imposed on the privilege of conducting a business

and not on the transaction itself.

Issue

W/N the issuer is exempt from paying the documentary stamp tax and entitled to a tax

refund on the ground that the life and non-life insurance policies were not paid?

Ruling

The issuer is NOT entitled to a refund. The tax is imposed upon the business transacted

but is an excise upon the privilege, opportunity, or facility offered at exchanges for the

transaction of the business and separate from the business itself. In this view, it is immaterial

whether the transfer of the account constituted as a sale. The tax would still be due and borne by

the issuer.

15. CATHAY INSRUANCE CO. vs CA, et al (151 SCRA 710)

Facts

The insurer filed a complaint against insurer seeking a sum of P868,339 representing the

insurer’s losses and damage incurred in a shipment of seamless steel pipes under insurance

contract as the consignee or importer of the merchandise while in transit from Japan to the

Philippines.

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RTC rendered a decision in favor of the insured compelling the insurer to pay the sum as

its recoverable insured loss equivalent to 30% of the value of the seamless steel pipes, a 34% or

double the ceiling prescribed by the Monetary Board per annum or 90 days from the insurer’s

submission of proof of loss to petitioner until paid as provided for in the settlement of claim

provision of the policy.

Upon appeal, the insurer contended that the steel pipes were destroyed without

interference of external factors and that the insurer would be exempt from liability if it presents

any evidence of any viable exception to the application of the policy such as the implied

coverage from the phrase “perils of the sea.”

The insurer also contested that rusting is not a risk insured against, since a risk to be

insured against should be a casualty or some casualty, something which could not be foreseen as

one of the necessary incidents of adventure.

Issue

W/N the insurer is absolved from liability based on the exception of “perils of the sea”?

Ruling

There is no question that the rusting of steel pipes in the course of a voyage is a "peril of

the sea" in view of the toll on the cargo of wind, water, and salt conditions. At any rate if the

insurer cannot be held accountable therefor, the Court would fail to observe a cardinal rule in the

interpretation of contracts, namely, that any ambiguity therein should be construed against the

maker/issuer/drafter thereof, namely, the insurer. Besides the precise purpose of insuring cargo

during a voyage would be rendered fruitless. Be it noted that any attack of the 15-day clause in

the policy was foreclosed right in the pre-trial conference. Finally, it is a cardinal rule that save

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for certain exceptions, findings of facts of the appellate tribunal are binding. Therefore, the

insurer is liable to pay for the damages.

16. MALAYAN INSURANCE CORPORATION vs CA AND TKC MARKETING

CORPORATION (270 SCRA 242)

Facts

TKC Marketing imported 3,000 metric tons of soya from Brazil to Manila. It was insured

by Malayan at the value of almost 20 million pesos. The vessel, however, was stranded on South

Africa because of a lawsuit regarding the possession of the soya. TKC consulted Malayan on

recovery of the amount, but the latter claimed that it wasn’t covered by the policy. The soya was

sold in Africa for Php 10 million, but TKC wanted Malayan to shoulder the remaining value of

10 million as well.

Petitioner filed suit due to Malayan’s reticence to pay. Malayan claimed that arrest by

civil authorities wasn’t covered by the policy. The trial court ruled in TKC’s favor with damages

to boot. The appellate court affirmed the decision under the reason that clause 12 of the policy

regarding an excepted risk due to arrest by civil authorities was deleted by Section 1.1 of the

Institute War Clauses which covered ordinary arrests by civil authorities. Failure of the cargo to

arrive was also covered by the Theft, Pilferage, and Non-Delivery Clause of the contract.

Issues

1. WON the arrest of the vessel was a risk covered under the subject insurance policies?

2. WON the insurance policies must strictly construe against the insurer?

Held

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Yes, the risk is subject to insurance policies. Section 12 or the "Free from Capture &

Seizure Clause" states: "Warranted free of capture, seizure, arrest, restraint or detainment, and

the consequences thereof or of any attempt thereat… Should Clause 12 be deleted, the relevant

current institute war clauses shall be deemed to form part of this insurance.”

This was really replaced by the subsection 1.1 of section 1 of Institute War Clauses

(Cargo) which included “the risks excluded from the standard form of English Marine Policy by

the clause warranted free of capture, seizure, arrest, restraint or detainment, and the

consequences thereof of hostilities or warlike operations, whether there be a declaration of war

or not.”

The petitioner’s claim that the Institute War Clauses can be operative in case of hostilities

or warlike operations on account of its heading "Institute War Clauses" is not tenable. It

reiterated the CA’s stand that “its interpretation in recent years to include seizure or detention by

civil authorities seems consistent with the general purposes of the clause.” This interpretation

was regardless of the fact whether the arrest was in war or by civil authorities. The petitioner was

said to have confused the Institute War clauses and the F.C.S. in English law.

“It stated that "the F.C. & S. Clause was "originally incorporated in insurance policies to

eliminate the risks of warlike operations". It also averred that the F.C. & S. Clause applies even

if there be no war or warlike operations. In the same vein, it contended that subsection 1.1 of

Section 1 of the Institute War Clauses (Cargo) "pertained exclusively to warlike operations" and

yet it also stated that "the deletion of the F.C. & S. Clause and the consequent incorporation of

subsection 1.1 of Section 1 of the Institute War Clauses (Cargo) was to include "arrest, etc. even

if it were not a result of hostilities or warlike operations."

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The court found that the insurance agency tried to interpret executive and political acts as

those not including ordinary arrests in the exceptions of the FCS clause, and claims that the War

Clauses now included executive and political acts without including ordinary arrests in the new

stipulation. “A strained interpretation which is unnatural and forced, as to lead to an absurd

conclusion or to render the policy nonsensical, should, by all means, be avoided.”

On the second issue, yes, it must be construed against the insurer. Indemnity and liability

insurance policies are construed in accordance with the general rule of resolving any ambiguity

therein in favor of the insured, where the contract or policy is prepared by the insurer. A contract

of insurance, being a contract of adhesion, means that any ambiguity should be resolved against

the insurer.

17. FILIPINO MERCHANTS vs CA (179 SCRA 638)

Principle: Insurable Interest

Facts

The Chao Tiek Seng a consignee of the shipment of fishmeal loaded on board the vessel SS

Bougainville and unloaded at the Port of Manila on or about December 11, 1976 and seeks to

recover from Filipino the amount of P51,568.62 representing damages to said shipment which

has been insured by Filipino.

Filipino brought a third party complaint against Compagnie Maritime Des Chargeurs Reunis

and/or E. Razon, Inc. seeking judgment against the third party defendants in case judgment is

rendered against it.

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It appears from the evidence presented that Chao insured said shipment with Filipino for the

sum of P267,653.59 for the goods described as 600 metric tons of fishmeal in gunny bags of 90

kilos each from Bangkok, Thailand to Manila against all risks under warehouse to warehouse

terms.

Actually, what was imported was 59.940 metric tons not 600 tons at $395.42 a ton.

The fishmeal in 666 gunny bags were unloaded from the ship on December 11, 1976 at

Manila unto the arrastre contractor E. Razon, Inc. and Filipino’s surveyor ascertained and

certified that in such discharge 105 bags were in bad order condition as jointly surveyed by the

ship's agent and the arrastre contractor.

Based on said computation the Chao made a formal claim against the Filipino for

P51,568.62. A formal claim statement was also presented by the plaintiff against the vessel, but

the Filipino refused to pay the claim.

Issue

1. W/N the “all risks” marine policy has a technical meaning in insurance that there must be

a fortuity, casualty, or accidental clause before a claim may be warranted?

2. Do the Chao’s have insurable interest?

Held

1. No, the claim is tenable for it covers all losses by an accidental cause of any kind. The

terms "accident" and "accidental", as used in insurance contracts, have not acquired any

technical meaning. They are construed by the courts in their ordinary and common

acceptance. Thus, the terms have been taken to mean that which happens by chance or

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fortuitously, without intention and design, and which is unexpected, unusual and

unforeseen. An accident is an event that takes place without one's foresight or

expectation; an event that proceeds from an unknown cause, or is an unusual effect of a

known cause and, therefore, not expected.

Coverage under an "all risks" provision of a marine insurance policy creates a

special type of insurance which extends coverage to risks not usually contemplated and

avoids putting upon the insured the burden of establishing that the loss was due to the

peril falling within the policy's coverage; the insurer can avoid coverage upon

demonstrating that a specific provision expressly excludes the loss from coverage. A

marine insurance policy providing that the insurance was to be "against all risks" must be

construed as creating a special insurance and extending to other risks than are usually

contemplated, and covers all losses except such as arise from the fraud of the insured.

The burden of the insured, therefore, is to prove merely that the goods he transported

have been lost, destroyed or deteriorated. Thereafter, the burden is shifted to the insurer

to prove that the loss was due to excepted perils. To impose on the insured, the burden of

proving the precise cause of the loss or damage would be inconsistent with the broad

protective purpose of "all risks" insurance.

In the present case, there being no showing that the loss was caused by any of the

excepted perils, the insurer is liable under the policy.

2. Yes, the Chao’s have an insurable interest as consignees of the said goods. Section 13 of

the Insurance Code defines insurable interest in property as every interest in property,

whether real or personal, or any relation thereto, or liability in respect thereof, of such

nature that a contemplated peril might directly damnify the insured. In principle, anyone

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INSURANCE: DIGESTED CASES FOR MIDTERMS

has an insurable interest in property who derives a benefit from its existence or would

suffer loss from its destruction whether he has or has not any title in, or lien upon or

possession of the property. Insurable interest in property may consist in (a) an existing

interest; (b) an inchoate interest founded on an existing interest; or (c) an expectancy,

coupled with an existing interest in that out of which the expectancy arises.

Chao, as vendee/consignee of the goods in transit has such existing interest

therein as may be the subject of a valid contract of insurance. His interest over the goods

is based on the perfected contract of sale. The perfected contract of sale between him

and the shipper of the goods operates to vest in him an equitable title even before delivery

or before he performed the conditions of the sale. The contract of shipment, whether

under F.O.B., C.I.F., or C. & F. as in this case, is immaterial in the determination of

whether the vendee has an insurable interest or not in the goods in transit. The perfected

contract of sale even without delivery vests in the vendee an equitable title, an existing

interest over the goods sufficient to be the subject of insurance.

18. MAKATI TUSCANY CONDOMINIUM CORP. vs CA (215 SCRA 462)

Facts

American International Underwriters issued a policy in favor of Makati Tuscany

Condominium Corporation with a total premium of P466,103.05. The company issued a

replacement policy. Premium was again paid. In 1984, the policy was again renewed and private

respondent issued to petitioner another policy. The petitioner paid 152,000 pesos then refused to

furnish the balance.

The company filed an action to recover the unpaid balance of P314,103.05.

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The condominium administration explained that it discontinued the payment of premiums

because the policy did not contain a credit clause in its favor and that the acceptance of

premiums didn’t waive any of the company rights to deny liability on any claim under the policy

arising before such payments or after the expiration of the credit clause of the policy and prior to

premium payment, loss wasn’t covered.

Petitioner sought for a refund. The trial court dismissed the complaint and counterclaim

owing to the argument that payment of the premiums of the policies were made during the

lifetime or term of said policies, so risk attached under the policies.

The Court of Appeals ordered petitioner to pay the balance of the premiums owing to the

reason that it was part of an indivisible obligation.

Petitioner now asserts that its payment by installment of the premiums for the insurance

policies invalidated them because of the provisions of Sec. 77 of the Insurance Code disclaiming

liability for loss for occurring before payment of premiums

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?

Held

The policies are valid even if the premiums were paid on installments. 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

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INSURANCE: DIGESTED CASES FOR MIDTERMS

thereof has been paid, except in the case of a life or an industrial life policy whenever the grace

period provision applies.

Petitioner concluded that there cannot be a perfected contract of insurance upon mere partial

payment of the premiums because under Sec. 77 of the Insurance Code, no contract of insurance

is valid and binding unless the premium thereof has been paid, notwithstanding any agreement to

the contrary. As a consequence, petitioner seeks a refund of all premium payments made on the

alleged invalid insurance policies.

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.

CA’s ruling has merit. While the import of Section 77 is that prepayment of premiums is

strictly required as a condition to the validity of the contract, we are not prepared to rule that the

request to make installment payments duly approved by the insurer, would prevent the entire

contract of insurance from going into effect despite payment and acceptance of the initial

premium or first installment. Section 78 of the Insurance Code in effect allows waiver by the

insurer of the condition of prepayment by making an acknowledgment in the insurance policy of

receipt of premium as conclusive evidence of payment so far as to make the policy binding

despite the fact that premium is actually unpaid. Section 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. So is an understanding to allow insured to pay premiums

in installments not so proscribed.

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The reliance by petitioner on Arce vs. Capital Surety and Insurance Co. is unavailing because

the facts therein are substantially different from those in the case at bar. In Arce, no payment was

made by the insured at all despite the grace period given. Here, petitioner paid the initial

installment and thereafter made staggered payments resulting in full payment of the 1982 and

1983 insurance policies. For the 1984 policy, petitioner paid two (2) installments although it

refused to pay the balance.

It appearing from the peculiar circumstances that the parties actually intended to make three

(3) insurance contracts valid, effective and binding, petitioner may not be allowed to renege on

its obligation to pay the balance of the premium after the expiration of the whole term.

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.

19. AREOLA vs CA (236 SCRA 643)

Facts

 December 17, 1984: Prudential Guarantee and Assurance, Inc. issued collector's

provisional receipt amounting to P1,609.65

 June 29, 1985: 7 months after the issuance of petitioner Santos Areola's Personal

Accident Insurance Policy, Prudential Guarantee and Assurance, Inc. unilaterally

cancelled it for failing to pay his premiums through its manager Teofilo M. Malapit

Shocked by the cancellation of the policy, Santos approached Carlito Ang, agent of

Prudential and demanded the issuance of an official receipt. Ang told Santos that it was a

mistake and assured its rectification.

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INSURANCE: DIGESTED CASES FOR MIDTERMS

 July 15, 1985: Santos demanded the same terms and same rate increase as when he paid

the provincial receipt but Malapit insisted that the partial payment he made was

exhausted and that he should pay the balance or his policy will cease to operate

 July 25, 1985: Assistant Vice-President Mariano M. Ampil III apologized

 August 6, 1985 had filed a complaint for breach of contract with damages before the

lower court

 August 13, 1985: Santos received through Carlito Ang the letter of Assistant Vice-

President Mariano M. Ampil III finding error on their part since premiums were not

remitted Malapit, proposed to extend its lifetime to December 17, 1985

RTC: favored Santos - Prudential in Bad Faith

CA: Reversed - not motivated by negligence, malice or bad faith in cancelling subject policy

Issue

W/N the Areolas can file against damages despite the effort to rectify the cancellation?

Ruling

Yes, the Areolas can file against damages. Malapit's fraudulent act of misappropriating

the premiums paid is beyond doubt directly imputable to Prudential.

Art. 1910 provides: “The principal must comply with all the obligations which the agent

may have contracted within the scope of his authority. As for any obligation wherein the agent

has exceeded his power, the principal is not bound except when he ratifies it expressly or

tacitly.”

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INSURANCE: DIGESTED CASES FOR MIDTERMS

Subsequent reinstatement could not possibly absolve Prudential there being an obvious

breach of contract a contract of insurance creates reciprocal obligations for both insurer and

insured Article 1191 choice between fulfillment or rescission of the obligation in case one of the

obligors fails to comply with what is incumbent upon him entitles the injured party to payment of

damages, regardless of whether he demands fulfillment or rescission of the obligation.

Nominal damages are "recoverable where a legal right is technically violated and must be

vindicated against an invasion that has produced no actual present loss of any kind, or where

there has been a breach of contract and no substantial injury or actual damages whatsoever have

been or can be shown.

20. AMERICAN HOME ASSURANCE CO. vs CHUA (309 SCRA 250)

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

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INSURANCE: DIGESTED CASES FOR MIDTERMS

CA: Affirmed

Issues

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"?

Ruling

1. Yes, there was a valid payment of premium.

Section 77 of the Insurance Code provides: “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

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INSURANCE: DIGESTED CASES FOR MIDTERMS

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 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.” This Section establishes a legal fiction of

payment and should be interpreted as an exception to Section 77.

2. No, Chua did not violate the policy. The 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 of the Insurance Code 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. American Home is estopped because its

loss adjusters had previous knowledge of the co-insurers.

The loss adjuster, being an employee of the 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 was imminent. Since there

was also no fraud or bad faith, the award of moral damages is untenable.

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