Insurance Cases Art 77 to 98

8/12/2019 Insurance Cases Art 77 to 98

http://slidepdf.com/reader/full/insurance-cases-art-77-to-98 1/32

G.R. No. L-67835 October 12, 1987

MALAYAN INSURANCE CO., INC. (MICO), petitioner,vs.GREGORIA CRUZ ARNALDO, in her capacity as the INSURANCE COMMISSIONER, and CORONACION PINCA, respondents.

CRUZ, J. :

When a person's house is razed, the fire usually burns down the efforts of a lifetime and forecloses hope for the suddenly somber future. Thevanished abode becomes a charred and painful memory. Where once stood a home, there is now, in the sighing wisps of smoke, only a graydesolation. The dying embers leave ashes in the heart.

For peace of mind and as a hedge against possible loss, many people now secure fire insurance. This is an aleatory contract. By suchinsurance, the insured in effect wagers that his house will be burned, with the insurer assuring him against the loss, for a fee. If the housedoes burn, the insured, while losing his house, wins the wagers. The prize is the recompense to be given by the insurer to make good theloss the insured has sustained.

It would be a pity then if, having lost his house, the insured were also to lose the payment he expects to recover for such loss. Sometimes itis his fault that he cannot collect, as where there is a defect imputable to him in the insurance contract. Conversely, the reason may be anunjust refusal of the insurer to acknowledge a just obligation, as has happened many times.

In the instant case the private respondent has been sustained by the Insurance Commission in her claim for compensation for her burnedproperty. The petitioner is now before us to dispute the decision, 1 on the ground that there was no valid insurance contract at the time of theloss.

The chronology of the relevant antecedent facts is as follows:

On June 7, 1981, the petitioner (hereinafter called (MICO) issued to the private respondent, Coronacion Pinca, Fire Insurance Policy No. F-001-17212 on her property for the amount of P14,000.00 effective July 22, 1981, until July 22, 1982. 2

On October 15,1981, MICO allegedly cancelled the policy for non-payment, of the premium and sent the corresponding notice to Pinca. 3

On December 24, 1981, payment of the premium for Pinca was received by DomingoAdora, agent of MICO. 4

On January 15, 1982, Adora remitted this payment to MICO,together with other payments. 5

On January 18, 1982, Pinca's property was completely burned. 6

On February 5, 1982, Pinca's payment was returned by MICO to Adora on the ground that her policy had been cancelled earlier. But Adorarefused to accept it. 7

In due time, Pinca made the requisite demands for payment, which MICO rejected. She then went to the Insurance Commission. It isbecause she was ultimately sustained by the public respondent that the petitioner has come to us for relief.

From the procedural viewpoint alone, the petition must be rejected. It is stillborn.

The records show that notice of the decision of the public respondent dated April 5, 1982, was received by MICO on April 10, 1982. 8 On April25, 1982, it filed a motion for reconsideration, which was denied on June 4, 1982. 9Notice of this denial was received by MICO on June 13,1982, as evidenced by Annex "1" duly authenticated by the Insurance Commission. 10 The instant petition was filed with this Court on July 2,

1982. 11

The position of the petition is that the petition is governed by Section 416 0f the Insurance Code giving it thirty days wthin which to appeal bycertiorari to this Court. Alternatively, it also invokes Rule 45 of the Rules of Court. For their part, the public and private respondents insist thatthe applicable law is B.P. 129, which they say governs not only courts of justice but also quasi-judicial bodies like the Insurance Commission.The period for appeal under this law is also fifteen days, as under Rule 45.

The pivotal date is the date the notice of the denial of the motion for reconsideration was received by MICO.

MICO avers this was June 18, 1982, and offers in evidence its Annex "B," 12 which is a copy of the Order of June 14, 1982, with a signedrubber-stamped notation on the upper left-hand corner that it was received on June 18, 1982, by its legal department. It does not indicate



from whom. At the bottom, significantly, there is another signature under which are the ciphers "6-13-82," for which no explanation has beengiven.

Against this document, the private respodent points in her Annex "1," 13 the authenticated copy of the same Order with a rubber-stampednotation at the bottom thereof indicating that it was received for the Malayan Insurance Co., Inc. by J. Gotladera on "6-13-82." The signaturemay or may not habe been written by the same person who signed at the bottom of the petitioner's Annex "B."

Between the two dates, the court chooses to believe June 13, 1982, not only because the numbers "6-13-82" appear on both annexes butalso because it is the date authenticated by the administrative division of the Insurance Commission. Annex "B" is at worst self-serving; atbest, it might only indicate that it was received on June 18, 1982, by the legal department of MICO, after it had been received earlier by someother of its personnel on June 13, 1982. Whatever the reason for the delay in transmitting it to the legal department need not detain us here.

Under Section 416 of the Insurance Code, the period for appeal is thirty days from notice of the decision of the Insurance Commission. Thepetitioner filed its motion for reconsideration on April 25, 1981, or fifteen days such notice, and the reglementary period began to run againafter June 13, 1981, date of its receipt of notice of the denial of the said motion for reconsideration. As the herein petition was filed on July 2,1981, or nineteen days later, there is no question that it is tardy by four days.

Counted from June 13, the fifteen-day period prescribed under Rule 45, assuming it is applicable, would end on June 28, 1982, or also fourdays from July 2, when the petition was filed.

If it was filed under B.P. 129, then, considering that the motion for reconsideration was filed on the fifteenth day after MICO received notice ofthe decision, only one more day would have remained for it to appeal, to wit, June 14, 1982. That would make the petition eighteen days lateby July 2.

Indeed, even if the applicable law were still R.A. 5434, governing appeals from administrative bodies, the petition would still be tardy. The lawprovides for a fixed period of ten days from notice of the denial of a seasonable motion for reconsideration within which to appeal from thedecision. Accordingly, that ten-day period, counted from June 13, 1982, would have ended on June 23, 1982, making the petition filed onJuly 2, 1982, nine days late.

Whichever law is applicable, therefore, the petition can and should be dismissed for late filing.

On the merits, it must also fail. MICO's arguments that there was no payment of premium and that the policy had been cancelled before theoccurence of the loss are not acceptable. Its contention that the claim was allowed without proof of loss is also untenable.

The petitioner relies heavily on Section 77 of the Insurance Code providing that:

SEC. 77. An insurer is entitled to 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 lifepolicy whenever the grace period provision applies.

The above provision is not applicable because payment of the premium was in fact eventually made in this case. Notably, the premiuminvoice issued to Pinca at the time of the delivery of the policy on June 7, 1981 was stamped "Payment Received" of the amoung of P930.60on "12-24-81" by Domingo Adora. 14 This is important because it suggests an understanding between MICO and the insured that suchpayment could be made later, as agent Adora had assured Pinca. In any event, it is not denied that this payment was actually made by Pincato Adora, who remitted the same to MICO.

The payment was made on December 24, 1981, and the fire occured on January 18, 1982. One wonders: suppose the payment had beenmade and accepted in, say, August 1981, would the commencement date of the policy have been changed to the date of the payment, orwould the payment have retroacted to July 22, 1981? If MICO accepted the payment in December 1981 and the insured property had notbeen burned, would that policy not have expired just the same on July 22, 1982, pursuant to its original terms, and not on December 24,1982?

It would seem from MICO's own theory, that the policy would have become effective only upon payment, if accepted and so would have been

valid only from December 24, 1981m but only up to July 22, 1981, according to the original terms. In others words, the policy would have runfor only eight months although the premium paid was for one whole year.

It is not disputed that the preium was actually paid by Pinca to Adora on December 24, 1981, who received it on behalf of MICO, to which itwas remitted on January 15, 1982. What is questioned is the validity of Pinca's payment and of Adora's authority to receive it.

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

SEC. 306. xxx xxx xxx



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

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

Payment to an agent having authority to receive or collect payment is equivalent to

payment to the principal himself; such payment is complete when the money delivered isinto the agent's hands and is a discharge of the indebtedness owing to the principal. 15

There is the petitioner's argument, however, that Adora was not authorized to accept the premium payment because six months had elapsedsince the issuance by the policy itself. It is argued that this prohibition was binding upon Pinca, who made the payment to Adora at her ownriskl as she was bound to first check his authority to receive it. 16

MICO is taking an inconsistent stand. While contending that acceptance of the premium payment was prohibited by the policy, it at the sametime insists that the policy never came into force because the premium had not been paid. One surely, cannot have his cake and eat it too.

We do not share MICO's view that there was no existing insurance at the time of the loss sustained by Pinca because her policy neverbecame effective for non-payment of premium. Payment was in fact made, rendering the policy operative as of June 22, 1981, and removingit from the provisions of Article 77, Thereafter, the policy could be cancelled on any of the supervening grounds enumerated in Article 64(except "nonpayment of premium") provided the cancellation was made in accordance therewith and with Article 65.

Section 64 reads as follows:

SEC. 64. No policy of insurance other than life shall be cancelled by the insurer except upon prior notice thereof to theinsured, and no notice of cancellation shall be effective unless it is based on the occurrence, after the effective date ofthe policy, of one or more of the following:

(a) non-payment of premium;

(b) conviction of a crime arising out of acts increasing the hazard insured against;

(c) discovery of fraud or material misrepresentation;

(d) discovery of willful, or reckless acts or commissions increasing the hazard insured against;

(e) physical changes in the property insured which result in the property becoming uninsurable;or

(f) a determination by the Commissioner that the continuation of the policy would violate or would place the insurer inviolation of this Code.

As for the method of cancellation, Section 65 provides as follows:

SEC. 65. All notices of cancellation mentioned in the preceding section shall be in writing, mailed or delivered to thenamed insured at the address shown in the policy, and shall state (a) which of the grounds set forth in section sixty-fouris relied upon and (b) that, upon written request of the named insured, the insurer will furnish the facts on which thecancellation is based.

A valid cancellation must, therefore, require concurrence of the following conditions:

(1) There must be prior notice of cancellation to the insured; 17

(2) The notice must be based on the occurrence, after the effective date of the policy, of one or more of the grounds mentioned;18

(3) The notice must be (a) in writing, (b) mailed, or delivered to the named insured, (c) at the address shown in the policy; 19

(4) It must state (a) which of the grounds mentioned in Section 64 is relied upon and (b) that upon written request of the insured, the insurerwill furnish the facts on which the cancellation is based. 20

MICO's claims it cancelled the policy in question on October 15, 1981, for non-payment of premium. To support this assertion, it presentedone of its employees, who testified that "the original of the endorsement and credit memo" — presumably meaning the alleged cancellation



— "were sent the assured by mail through our mailing section" 21 However, there is no proof that the notice, assuming it complied with the

other requisites mentioned above, was actually mailed to and received by Pinca. All MICO's offers to show that the cancellation wascommunicated to the insured is its employee's testimony that the said cancellation was sent "by mail through our mailing section." without

more. The petitioner then says that its "stand is enervated (sic) by the legal presumption of regularity and due performance of duty." 22 (not

realizing perhaps that "enervated" means "debilitated" not "strengthened").

On the other hand, there is the flat denial of Pinca, who says she never received the claimed cancellation and who, of course, did not have toprove such denial Considering the strict language of Section 64 that no insurance policy shall be cancelled except upon prior notice, itbehooved MICO's to make sure that the cancellation was actually sent to and received by the insured. The presumption cited is unavailingagainst the positive duty enjoined by Section 64 upon MICO and the flat denial made by the private respondent that she had received noticeof the claimed cancellation.

It stands to reason that if Pinca had really received the said notice, she would not have made payment on the original policy on December24, 1981. Instead, she would have asked for a new insurance, effective on that date and until one year later, and so taken advantage of theextended period. The Court finds that if she did pay on that date, it was because she honestly believed that the policy issued on June 7,1981, was still in effect and she was willing to make her payment retroact to July 22, 1981, its stipulated commencement date. After all, agent

Adora was very accomodating and had earlier told her "to call him up any time" she was ready with her payment on the policy earlier issued.She was obviously only reciprocating in kind when she paid her premium for the period beginning July 22, 1981, and not December 24,1981.

MICO's suggests that Pinca knew the policy had already been cancelled and that when she paid the premium on December 24, 1981, herpurpose was "to renew it." As this could not be done by the agent alone under the terms of the original policy, the renewal thereof did notlegally bind MICO. which had not ratified it. To support this argument, MICO's cites the following exchange:

Q: Now, Madam Witness, on December 25th you made the alleged payment. Now, my questionis that, did it not come to your mind that after the lapse of six (6) months, your policy wascancelled?

A: I have thought of that but the agent told me to call him up at anytime.

Q: So if you thought that your policy was already intended to revive cancelled policy?

A: Misleading, Your Honor.

Hearing Officer: The testimony of witness is that, she thought of that.

Q: I will revise the question. Now, Mrs. Witness, you stated that you thought the policy wascancelled. Now, when you made the payment of December 24, 1981, your intention was to revive

the policy if it was already cancelled?

A: Yes, to renew it. 23

A close study of the above transcript will show that Pinca meant to renew the policy if it had really been already cancelled but not if it was stffleffective. It was all conditional. As it has not been shown that there was a valid cancellation of the policy, there was consequently no need torenew it but to pay the premium thereon. Payment was thus legally made on the original transaction and it could be, and was, validlyreceived on behalf of the insurer by its agent Adora. Adora. incidentally, had not been informed of the cancellation either and saw no reasonnot to accept the said payment.

The last point raised by the petitioner should not pose much difficulty. The valuation fixed in fire insurance policy is conclusive in case of totalloss in the absence of fraud, 24 which is not shown here. Loss and its amount may be determined on the basis of such proof as may beoffered by the insured, which need not be of such persuasiveness as is required in judicial proceedings. 25 If, as in this case, the insured filesnotice and preliminary proof of loss and the insurer fails to specify to the former all the defects thereof and without unnecessary delay, allobjections to notice and proof of loss are deemed waived under Section 90 of the Insurance Code.

The certification 26 issued by the Integrated National Police, Lao-ang, Samar, as to the extent of Pinca's loss should be considered sufficient.Notably,MICO submitted no evidence to the contrary nor did it even question the extent of the loss in its answer before the InsuranceCommission. It is also worth observing that Pinca's property was not the only building bumed in the fire that razed the commercial district ofLao-ang, Samar, on January 18, 1982. 27

There is nothing in the Insurance Code that makes the participation of an adjuster in the assessment of the loss imperative or indespensable,as MICO suggests. Section 325, which it cites, simply speaks of the licensing and duties of adjusters.

We see in this cases an obvious design to evade or at least delay the discharge of a just obligation through efforts bordering on bad faith ifnot plain duplicity, We note that the motion for reconsideration was filed on the fifteenth day from notice of the decision of the InsuranceCommission and that there was a feeble attempt to show that the notice of denial of the said motion was not received on June 13, 1982, to



further hinder the proceedings and justify the filing of the petition with this Court fourteen days after June 18, 1982. We also look askance atthe alleged cancellation, of which the insured and MICO's agent himself had no knowledge, and the curious fact that although Pinca'spayment was remitted to MICO's by its agent on January 15, 1982, MICO sought to return it to Adora only on February 5, 1982, after itpresumably had learned of the occurrence of the loss insured against on January 18, 1982. These circumstances make the motives of thepetitioner highly suspect, to say the least, and cast serious doubts upon its candor and bona fides.

WHEREFORE, the petition is DENIED. The decision of the Insurance Commission dated April 10, 1981, and its Order of June 4, 1981, are AFFIRMED in full, with costs against the petitioner. This decision is immediately executory.

SO ORDERED.

Teehankee, C.J., Narvasa and Paras, JJ., concur.

Gancayco, J, is on leave.



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.

BELLOSILLO, J.:

This case involves a purely legal question: whether payment by installment of the premiums due on an insurance policy invalidates thecontract 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 insuredagainst. Notwithstanding any agreement to the contrary, no policy or contract of insurance issued by an insurancecompany is valid and binding unless and until the premium thereof has been paid, except in the case of a life or anindustrial life policy whenever the grace period provision applies.

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 onthe 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. Thepremium 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.

On 10 February 1983, private respondent issued to petitioner Insurance Policy No. AH-CPP-9210596, which replaced and renewed theprevious policy, for a term covering 1 March 1983 to 1 March 1984. The premium in the amount of P466,103.05 was again paid oninstallments on 13 April 1983, 13 July 1983, 3 August 1983, 9 September 1983, and 21 November 1983. All payments were likewiseaccepted by private respondent.

On 20 January 1984, the policy was again renewed and private respondent issued to petitioner Insurance Policy No. AH-CPP-9210651 forthe period 1 March 1984 to 1 March 1985. On this renewed policy, petitioner made two installment payments, both accepted by privaterespondent, the first on 6 February 1984 for P52,000.00 and the second, on 6 June 1984 for P100,000.00. Thereafter, petitioner refused topay the balance of the premium.

Consequently, private respondent filed an action to recover the unpaid balance of P314,103.05 for Insurance Policy No. AH-CPP-9210651.

In its answer with counterclaim, petitioner admitted the issuance of Insurance Policy No. AH-CPP-9210651. It explained that it discontinued

the payment of premiums because the policy did not contain a credit clause in its favor and the receipts for the installment paymentscovering the policy for 1984-85, as well as the two (2) previous policies, stated the following reservations:

2. Acceptance of this payment shall not waive any of the company rights to deny liability on any claim under the policyarising before such payments or after the expiration of the credit clause of the policy; and

3. Subject to no loss prior to premium payment. If there be any loss such is not covered.

Petitioner further claimed that the policy was never binding and valid, and no risk attached to the policy. It then pleaded a counterclaim forP152,000.00 for the premiums already paid for 1984-85, and in its answer with amended counterclaim, sought the refund of P924,206.10representing the premium payments for 1982-85.

After some incidents, petitioner and private respondent moved for summary judgment.

On 8 October 1987, the trial court dismissed the complaint and the counterclaim upon the following findings:

While it is true that the receipts issued to the defendant contained the aforementioned reservations, it is equally truethat payment of the premiums of the three aforementioned policies (being sought to be refunded) were made during thelifetime or term of said policies, hence, it could not be said, inspite of the reservations, that no risk attached under thepolicies. Consequently, defendant's counterclaim for refund is not justified.

As regards the unpaid premiums on Insurance Policy No. AH-CPP-9210651, in view ofthe reservation in the receipts ordinarily issued by the plaintiff on premium payments theonly plausible conclusion is that plaintiff has no right to demand their payment after the



lapse of the term of said policy on March 1, 1985. Therefore, the defendant was justifiedin refusing to pay the same. 1

Both parties appealed from the judgment of the trial court. Thereafter, the Court of Appeals rendered a decision 2modifying that of the trialcourt by ordering herein petitioner to pay the balance of the premiums due on Policy No. AH-CPP-921-651, or P314,103.05 plus legalinterest until fully paid, and affirming the denial of the counterclaim. The appellate court thus explained —

The obligation to pay premiums when due is ordinarily as indivisible obligation to pay the entire premium. Here, theparties herein agreed to make the premiums payable in installments, and there is no pretense that the parties neverenvisioned to make the insurance contract binding between them. It was renewed for two succeeding years, thesecond and third policies being a renewal/replacement for the previous one. And the insured never informed the insurerthat it was terminating the policy because the terms were unacceptable.

While it may be true that under Section 77 of the Insurance Code, the parties may not agree to make the insurancecontract valid and binding without payment of premiums, there is nothing in said section which suggests that the partiesmay not agree to allow payment of the premiums in installment, or to consider the contract as valid and binding uponpayment of the first premium. Otherwise, we would allow the insurer to renege on its liability under the contract, had aloss incurred (sic ) before completion of payment of the entire premium, despite its voluntary acceptance of partialpayments, a result eschewed by a basic considerations of fairness and equity.

To our mind, the insurance contract became valid and binding upon payment of the firstpremium, and the plaintiff could not have denied liability on the ground that payment was

not made in full, for the reason that it agreed to accept installment payment. . . .

3

Petitioner now asserts that its payment by installment of the premiums for the insurance policies for 1982, 1983 and 1984 invalidated saidpolicies because of the provisions of Sec. 77 of the Insurance Code, as amended, and by the conditions stipulated by the insurer in itsreceipts, disclaiming liability for loss for occurring before payment of premiums.

It argues that where the premiums is not actually paid in full, the policy would only be effective if there is an acknowledgment in the policy ofthe receipt of premium pursuant to Sec. 78 of the Insurance Code. The absence of an express acknowledgment in the policies of suchreceipt of the corresponding premium payments, and petitioner's failure to pay said premiums on or before the effective dates of said policiesrendered them invalid. Petitioner thus concludes that there cannot be a perfected contract of insurance upon mere partial payment of thepremiums because under Sec. 77 of the Insurance Code, no contract of insurance is valid and binding unless the premium thereof has beenpaid, notwithstanding any agreement to the contrary. As a consequence, petitioner seeks a refund of all premium payments made on thealleged invalid insurance policies.

We hold that the subject policies are valid even if the premiums were paid on installments. The records clearly show that petitioner andprivate 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 theinstallment payments. Such acceptance of payments speaks loudly of the insurer's intention to honor the policies it issued to petitioner.Certainly, basic principles of equity and fairness would not allow the insurer to continue collecting and accepting the premiums, although paidon installments, and later deny liability on the lame excuse that the premiums were not prepared in full.

We therefore sustain the Court of Appeals. We quote with approval the well-reasoned findings and conclusion of the appellate courtcontained in its Resolution denying the motion to reconsider its Decision —

While the import of Section 77 is that prepayment of premiums is strictly required as acondition to the validity of the contract, We are not prepared to rule that the request tomake installment payments duly approved by the insurer, would prevent the entirecontract of insurance from going into effect despite payment and acceptance of the initialpremium or first installment. Section 78 of the Insurance Code in effect allows waiver bythe 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 tomake the policy binding despite the fact that premium is actually unpaid. Section 77merely precludes the parties from stipulating that the policy is valid even if premiums arenot paid, but does not expressly prohibit an agreement granting credit extension, andsuch an agreement is not contrary to morals, good customs, public order or public policy(De Leon, the Insurance Code, at p. 175). So is an understanding to allow insured to paypremiums in installments not so proscribed. At the very least, both parties should bedeemed in estoppel to question the arrangement they have voluntarily accepted. 4



The reliance by petitioner on Arce vs. Capital Surety and InsuranceCo. 5 is unavailing because the facts therein are substantially different from those in the case at bar. In Arce, no payment was made by theinsured at all despite the grace period given. In the case before Us, petitioner paid the initial installment and thereafter made staggeredpayments resulting in full payment of the 1982 and 1983 insurance policies. For the 1984 policy, petitioner paid two (2) installments althoughit refused to pay the balance.

It appearing from the peculiar circumstances that the parties actually intended to make three (3) insurance contracts valid, effective andbinding, petitioner may not be allowed to renege on its obligation to pay the balance of the premium after the expiration of the whole term of

the third policy (No. AH-CPP-9210651) in March 1985. Moreover, as correctly observed by the appellate court, where the risk is entire andthe 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 anyperiod, however brief or momentary.

WHEREFORE, finding no reversible error in the judgment appealed from, the same is AFFIRMED. Costs against petitioner.

SO ORDERED.

Cruz, Padilla and Griño-Aquino, JJ., concur.

Medialdea, J., is on leave.



G.R. No. 102253 June 2, 1995

SOUTH SEA SURETY AND INSURANCE COMPANY, INC., petitioner,vs.HON. COURT OF APPEALS and VALENZUELA HARDWOOD AND INDUSTRIAL SUPPLY, INC., respondents.

R E S O L U T I O N

VITUG, J.:

Two issues on the subject of insurance are raised in this petition, that assails the decision, that assails the decision of the Court of Appeals.(in CA-G.R. NO. CV-20156), the first dealing on the requirement of premium payment and the second relating to the agency relationship ofparties under that contract.

The court litigation started when Valenzuela Hardwood and Industrial Supply, Inc. ("Hardwood"), filed with the Regional, Trial Court of theNational Capital Judicial Region, Branch l71 in Valenzuela, Metro Manila, a complaint for the recovery of the value of lost logs and freightcharges from Seven Brothers Shipping Corporation or, to the extent of its alleged insurance cover, from South Sea Surety and insuranceCompany.

The factual backdrop is described briefly by the appellate court thusly:

It appears that on 16 January 1984, plaintiff [Valenzuela Hardwood and Industrial Supply, Inc.] entered into anagreement with the defendant Seven Brothers whereby the latter undertook to load on board its vessel M/V Seven

Ambassador the former's lauan round logs numbering 940 at the port of Maconacon, Isabela for shipment to Manila.

On 20 January 1984, plaintiff insured the logs, against loss and/or, damage with defendant South Sea Surety andInsurance Co., Inc. for P2,000,000.00 end the latter issued its Marine Cargo Insurance Policy No. 84/24229 forP2,000,000.00 on said date.

On 24 January 1984, the plaintiff gave the check in payment of the premium on the insurance policy to Mr. VictorioChua.

In the meantime, the said vessel M/V Seven Ambassador sank on 25 January 1984 resulting in the loss of the plaintiffsinsured logs.

On 30 January 1984, a check for P5,625.00 (Exh. "E") to cover payment of the premium and documentary stamps dueon the policy was tendered to the insurer but was not accepted. Instead, the South Sea Surety and Insurance Co., Inc.cancelled the insurance policy it issued as of the date of inception for non-payment of the premium due in accordancewith Section 77 of the Insurance Code.

On 2 February 1984, plaintiff demanded from defendant South Sea Surety and InsuranceCo., Inc. the payment of the proceeds of the policy but the latter denied liability under thepolicy. Plaintiff likewise filed a formal claim with defendant Seven Brothers ShippingCorporation for the value of the lost logs but the latter denied the claim. 1

In its decision, dated 11 May 1988, the trial court rendered judgment in favor of plaintiff Hardwood.

On appeal perfected by both the shipping firm and the insurance company, the Court of Appeals affirmed the judgment of the court aquo only against the insurance corporation; in absolving the shipping entity from liability, the appellate court ratiocinated:

The primary issue to be resolved before us is whether defendants shipping corporation and the surety company areliable to the plaintiff for the latter's lost logs.

It appears that there is a stipulation in the charter party that the ship owner would be exempted from liability in case ofloss.

The court a quo erred in applying the provisions of the Civil Code on common carriers to establish the liability of theshipping corporation. The provisions on common carriers should not be applied where the carrier is not acting as suchbut as a private carrier.



Under American jurisprudence, a common carrier undertaking to carry a special or chartered to a special person only,becomes a private carrier.

As a private carrier, a stipulation exempting the owner from liability even for the negligence of its agent is valid (HomeInsurance Company, Inc. vs. American Steamship Agencies, Inc., 23 SCRA 24).

The shipping corporation should not therefore be held liable for the loss of the logs. 2

In this petition for review on certiorari brought by South Sea Surety and Insurance Co., Inc., petitioner argues that it likewise should havebeen freed from any liability to Hardwood. It faults the appellate court (a) for having Supposedly disregarded Section 77 of the insuranceCode and (b) for holding Victorio Chua to have been an authorized representative of the insurer.

Section 77 of the Insurance Code provides:

Sec. 77. An insurer is entitled to payment of the premium as soon as the thing insured is exposed to the peril insuredagainst. Notwithstanding any agreement to the contrary, no policy or contract of insurance issued by an insurancecompany is valid and binding unless and until the premium thereof has been paid, except in the case of a life or anindustrial life policy whenever the grace period provision applies.

Undoubtedly, the payment of the premium is a condition precedent to, and essential for, the efficaciousness of the contract. The only twostatutorily provided exceptions are (a) in case the insurance coverage relates to life or industrial life (health) insurance when a grace periodapplies and (b) when the insurer makes a written acknowledgment of the receipt of premium, this acknowledgment being declared by law tobe then conclusive evidence of the premium payment (Secs. 77-78, Insurance Code). The appellate court, contrary to what the petitionsuggests, did not make any pronouncement to the contrary. Indeed, it has said:

Concerning the issue as to whether there is a valid contract of insurance betweenplaintiff-appellee and defendant-appellant South Sea Surety and Insurance Co., Inc.,Section 77 of the Insurance Code explicitly provides that notwithstanding any agreementto the contrary, no policy issued by an insurance company is valid and binding unlessand until premium thereof has been paid. It is therefore important to determine whether atthe time of the loss, the premium was already paid. 3

No attempt becloud the issues can disguise the fact that the sole question raised in the instant petition is really evidentiary in nature, i.e.,whether or not Victorio Chua, in receiving the check for the insurance premium prior to the occurrence of the risk insured against has soacted as an agent of petitioner. The appellate court, like the trial court, has found in the affirmative. Said the appellate court:

In the instant case, the Marine Cargo Insurance Policy No. 84/24229 was issued by defendant insurance company on20 January 1984. At the time the vessel sank on 25 January 1984 resulting in the loss of the insured logs, the insuredhad already delivered to Victorio Chua the check in payment of premium. But, as Victorio Chua testified, it was only inthe morning of 30 January 1984 or 5 days after the vessel sank when his messenger tendered the check to defendantSouth Sea Surety and Insurance Co., Inc. (TSN, pp. 3-27, 16-17, 22 October 1985).

The pivotal issue to be resolved to determine the liability, of the surety corporation is whether Mr. Chua acted as anagent of the surety company or of the insured when he received the check for insurance premiums.

Appellant surety company insists that Mr. Chua is an administrative assistant for the past ten years and an agent forless than ten years of the Columbia Insurance Brokers, Ltd. He is paid a salary as a administrative assistant and acommission as agent based on the premiums he turns over to the broker. Appellant therefore argues that Mr. Chua,having received the insurance premiums as an agent of the Columbia Insurance Broker, acted as an agent of theinsured under Section 301 of the Insurance Code which provides as follows:

Sec. 301. Any person who for any compensation, commission or other thing of value, acts, or

aids in soliciting, negotiating or procuring the making of any insurance contract or in placing riskor taking out insurance, on behalf of an insured other than himself, shall be an insurance brokerwithin the intent of this Code, and shall thereby become liable to all the duties requirements,liabilities and penalties to which an insurance broker is subject.

The appellees, upon the other hand, claim that the second paragraph of Section 306 of the Insurance Code provide asfollows:

Sec. 306. . . . Any insurance company which delivers to an insurance agent or insurance broker apolicy or contract of insurance shall be deemed to have authorized such agent or broker toreceive on its behalf payment of any premium which is due on such policy of contract ofinsurance at the time of its issuance or delivery or which becomes due thereon.



On cross-examination in behalf of South Sea Surety and Insurance Co., Inc. Mr. Chua testified that the marine cargoinsurance policy for the plaintiff's logs was delivered to him on 21 January 1984 at his office to be delivered to theplaintiff.

When the appellant South Sea Surety and Insurance Co., Inc. delivered to Mr. Chua the marine cargo insurance policyfor the plaintiffs logs, he is deemed to have been authorized by the South Sea Surety and Insurance Co., Inc. toreceive the premium which is due on its behalf.

When therefore the insured logs were lost, the insured had already paid the premium toan agent of the South Sea Surety and Insurance Co., Inc., which is consequently liable topay the insurance proceeds under the policy it issued to the insured. 4

We see no valid reason to discard the factual conclusions of the appellate court. Just as so correctly pointed out by private respondent, it isnot the function of this Court to assess and evaluate all over again the evidence, testimonial and documentary, adduced by the partiesparticularly where, such as here, the findings of both the trial court and the appellate court on the matter coincide.

WHEREFORE, the resolution, dated 01 February 1993, granting due course to the petition is RECALLED, and the petition is DENIED. Costsagainst petitioner.

SO ORDERED.

Feliciano, Romero, Melo and Francisco, JJ., concur.



G.R. No. 119655. May 24, 1996]

SPS. ANTONIO A. TIBAY and VIOLETA R. TIBAY and OFELIA M. RORALDO,VICTORINA M. RORALDO, VIRGILIO M. RORALDO, MYRNA M. RORALDO

and ROSABELLA M. RORALDO, peti t ion ers, vs. COURT OF APPEALS andFORTUNE LIFE AND GENERAL INSURANCE CO., INC.,respondents.

D E C I S I O N*

BELLOSILLO, J.:

May a fire insurance policy be valid, binding and enforceable upon mere partialpayment of premium?

On 22 January 1987 private respondent Fortune Life and General Insurance Co.,Inc. (FORTUNE) issued Fire Insurance Policy No. 136171 in favor of Violeta R. Tibay

and/or Nicolas Roraldo on their two-storey residential building located at 5855 ZobelStreet, Makati City, together with all their personal effects therein. The insurance wasfor P600,000.00 covering the period from 23 January 1987 to 23 January 1988. On 23January 1987, of the total premium of P2,983.50, petitioner Violeta Tibay only paidP600.00 thus leaving a considerable balance unpaid.

On 8 March 1987 the insured building was completely destroyed by fire. Two dayslater or on 10 March 1987 Violeta Tibay paid the balance of the premium. On the sameday, she filed with FORTUNE a claim on the fire insurance policy. Her claim wasaccordingly referred to its adjuster, Goodwill Adjustment Services, Inc. (GASI), whichimmediately wrote Violeta requesting her to furnish it with the necessary documents for

the investigation and processing of her claim. Petitioner forthwith complied. On 28March 1987 she signed a non-waiver agreement with GASI to the effect that any actiontaken by the companies or their representatives in investigating the claim made by theclaimant for his loss which occurred at 5855 Zobel Roxas, Makati on March 8, 1987, orin the investigating or ascertainment of the amount of actual cash value and loss, shallnot waive or invalidate any condition of the policies of such companies held by saidclaimant, nor the rights of either or any of the parties to this agreement, and such actionshall not be, or be claimed to be, an admission of liability on the part of said companiesor any of them.[1]

In a letter dated 11 June 1987 FORTUNE denied the claim of Violeta for violation ofPolicy Condition No. 2 and of Sec. 77 of the Insurance Code. Efforts to settle the case

before the Insurance Commission proved futile. On 3 March 1988 Violeta and the otherpetitioners sued FORTUNE for damages in the amount of P600,000.00 representing thetotal coverage of the fire insurance policy plus 12% interest per annum, P 100,000.00moral damages, and attorney’s fees equivalent to 20% of the total claim.

On 19 July 1990 the trial court ruled for petitioners and adjudged FORTUNE liablefor the total value of the insured building and personal properties in the amount ofP600,000.00 plus interest at the legal rate of 6% per annum from the filing of the

http://sc.judiciary.gov.ph/jurisprudence/1996/may1996/119655.htm#_edn1









complaint until full payment, and attorney’s fees equivalent to 20% of the total amountclaimed plus costs of suit.

[2]

On 24 March 1995 the Court of Appeals reversed the court a quo by declaringFORTUNE not to be liable to plaintiff-appellees therein but ordering defendant-appellantto return to the former the premium of P2,983.50 plus 12% interest from 10 March 1987

until full payment.[3]

Hence this petition for review with petitioners contending mainly that contrary to theconclusion of the appellate court, FORTUNE remains liable under the subject fireinsurance policy inspite of the failure of petitioners to pay their premium in full.

We find no merit in the petition; hence, we affirm the Court of Appeals.

Insurance is a contract whereby one undertakes for a consideration to indemnifyanother against loss, damage or liability arising from an unknown or contingentevent.[4] The consideration is the premium, which must be paid at the time and in theway and manner specified in the policy, and if not so paid, the policy will lapse and be

forfeited by its own terms.[5]

The pertinent provisions in the Policy on premium read –

THIS POLICY OF INSURANCE WITNESSETH, THAT only after payment to theCompany in accordance with Policy Condition No. 2 of the total premiums by theinsured as stipulated above for the period aforementioned for insuring against Loss orDamage by Fire or Lightning as herein appears, the Property herein described x x x

2. This policy including any renewal thereof and/or any endorsement thereon is notin force until the premium has been fully paid to and duly receipted by the Company in

the manner provided herein.

Any supplementary agreement seeking to amend this condition prepared by agent,broker or Company official, shall be deemed invalid and of no effect.

xxx xxx xxx

Except only in those specific cases where corresponding rules and regulations whichare or may hereafter be in force provide for the payment of the stipulated premiums inperiodic installments at fixed percentage, it is hereby declared, agreed and warrantedthat this policy shall be deemed effective, valid and binding upon the Company only

when the premiums therefor have actually been paid in full and duly acknowledged in areceipt signed by any authorized official or representative/agent of the Company in suchmanner as provided herein, (Italics supplied).

[6]

Clearly the Policy provides for payment of premium in full. Accordingly, where thepremium has only been partially paid and the balance paid only after the peril insuredagainst has occurred, the insurance contract did not take effect and the insured cannot























collect at all on the policy. This is fully supported by Sec. 77 of the Insurance Codewhich provides –

SEC. 77. An insurer is entitled to payment of the premium as soon as the thing insuredis 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 bindingunless and until the premium thereof has been paid, except in the case of a life or anindustrial life policy whenever the grace period provision applies (Italics supplied).

Apparently the crux of the controversy lies in the phrase “unless and until the premium thereof has been paid.” This leads us to the manner of payment envisioned bythe law to make the insurance policy operative and binding. For whatever judicialconstruction may be accorded the disputed phrase must ultimately yield to the clearmandate of the law. The principle that where the law does not distinguish the courtshould neither distinguish assumes that the legislature made no qualification on the useof a general word or expression. In Escosura v. San Miguel Brewery, inc.,[7] the Court

through Mr. Justice Jesus G. Barrera, interpreting the phrase ―with pay‖ used inconnection with leaves of absence with pay granted to employees, ruled -

x x x the legislative practice seems to be that when the intention is to distinguishbetween full and partial payment, the modifying term is used x x x

Citing C. A. No. 647 governing maternity leaves of married women in government, R. A.No. 679 regulating employment of women and children, R.A. No. 843 granting vacationand sick leaves to judges of municipal courts and justices of the peace, and finally, Art.1695 of the New Civil Code providing that every househelp shall be allowed four (4)days vacation each month, which laws simply stated ―with pay,‖ the Court concluded

that it was undisputed that in all these laws the phrase ―with pay‖ used without anyqualifying adjective meant that the employee was entitled to full compensation duringhis leave of absence.

Petitioners maintain otherwise. Insisting that FORTUNE is liable on the policydespite partial payment of the premium due and the express stipulation thereof to thecontrary, petitioners rely heavily on the 1967 case of Philippine Phoenix and InsuranceCo., Inc. v. Woodworks, Inc .[8] where the Court through Mr. Justice Arsenio P. Dizonsustained the ruling of the trial court that partial payment of the premium made thepolicy effective during the whole period of the policy. In that case, the insurancecompany commenced action against the insured for the unpaid balance on a fireinsurance policy. In its defense the insured claimed that nonpayment of premium

produced the cancellation of the insurance contract. Ruling otherwise the Court held –

It is clear x x x that on April 1, 1960, Fire Insurance Policy No. 9652 was issued byappellee and delivered to appellant, and that on September 22 of the same year, thelatter paid to the former the sum of P3,000.00 on account of the total premium ofP6,051.95 due thereon. There is, consequently, no doubt at all that, as between theinsurer and the insured, there was not only a perfected contract of insurance but apartially performed one as far as the payment of the agreed premium was











concerned. Thereafter the obligation of the insurer to pay the insured the amount, forwhich the policy was issued in case the conditions therefor had been complied with,arose and became binding upon it, while the obligation of the insured to pay theremainder of the total amount of the premium due became demandable.

The 1967 Phoenix case is not persuasive; neither is it decisive of the instantdispute. For one, the factual scenario is different. In Phoenix it was the insurancecompany that sued for the balance of the premium, i.e., it recognized and admitted theexistence of an insurance contract with the insured. In the case before us, there is,quite unlike in Phoenix, a specific stipulation that (t)his policy xxx is not in force until the

premium has been fully paid and duly receipted by the Company x x x. Resultantly, it iscorrect to say that in Phoenix a contract was perfected upon partial payment of thepremium since the parties had not otherwise stipulated that prepayment of the premiumin full was a condition precedent to the existence of a contract.

In Phoenix, by accepting the initial payment of P3,000.00 and then later demanding the

remainder of the premium without any other precondition to its enforceability as in theinstant case, the insurer in effect had shown its intention to continue with the existingcontract of insurance, as in fact it was enforcing its right to collect premium, or exactspecific performance from the insured. This is not so here. By express agreement ofthe parties, novinculum juris or bond of law was to be established until full payment waseffected prior to the occurrence of the risk insured against.

In Makati Tuscany Condominium Corp. v. Court of Appeals [9] the parties mutuallyagreed that the premiums could be paid in installments, which in fact they did for three(3) years, hence, this Court refused to invalidate the insurance policy. In giving effect tothe policy, the Court quoted with approval the Court of Appeals –

The obligation to pay premiums when due is ordinarily an indivisible obligation to paythe entire premium. Here, the parties x x x agreed to make the premiums payable ininstallments, and there is no pretense that the parties never envisioned to make theinsurance contract binding between them. It was renewed for two succeeding years,the second and third policies being a renewal/replacement for the previous one. Andthe insured never informed the insurer that it was terminating the policy because theterms were unacceptable.

While it maybe true that under Section 77 of the Insurance Code, the parties may notagree to make the insurance contract valid and binding without payment of premiums,there is nothing in said section which suggests that the parties may not agree to allowpayment of the premiums in installment, or to consider the contract as valid and bindingupon payment of the first premium. Otherwise we would allow the insurer to renege onits liability under the contract, had a loss incurred (sic) before completion of payment ofthe entire premium, despite its voluntary acceptance of partial payments, a resulteschewed by basic considerations of fairness and equity x x x.






These two (2) cases, Phoenix and Tuscany, adequately demonstrate the waiver,either express or implied, of prepayment in full by the insurer: impliedly, by suing for thebalance of the premium as inPhoenix, and expressly, by agreeing to make premiumspayable in installments as in Tuscany. But contrary to the stance taken by petitioners,there is no waiver express or implied in the case at bench. Precisely, the insurer and the

insured expressly stipulated that (t)his policy including any renewal thereof and/or anyindorsement thereon is not in force until the premium has been fully paid to and dulyreceipted by the Company x x x and that this policy shall be deemed effective, valid andbinding upon the Company only when the premiums therefor have actually been paid infull and duly acknowledged.

Conformably with the aforesaid stipulations explicitly worded and taken inconjunction with Sec. 77 of the Insurance Code the payment of partial premium by theassured in this particular instance should not be considered the payment required bythe law and the stipulation of the parties. Rather, it must be taken in the concept of adeposit to be held in trust by the insurer until such time that the full amount has beentendered and duly receipted for. In other words, as expressly agreed upon in the

contract, full payment must be made before the risk occurs for the policy to beconsidered effective and in force.

Thus, no vinculum juris whereby the insurer bound itself to indemnify the assuredaccording to law ever resulted from the fractional payment of premium. The insurancecontract itself expressly provided that the policy would be effective only when thepremium was paid in full. It would have been altogether different were it not sostipulated. Ergo, petitioners had absolute freedom of choice whether or not to beinsured by FORTUNE under the terms of its policy and they freely opted to adherethereto.

Indeed, and far more importantly, the cardinal polestar in the construction of an

insurance contract is the intention of the parties as expressed in the policy.[10] Courtshave no other function but to enforce the same. The rule that contracts of insurance willbe construed in favor of the insured and most strongly against the insurer should not bepermitted to have the effect of making a plain agreement ambiguous and then construeit in favor of the insured.

[11] Verily, it is elemental law that the payment of premium is

requisite to keep the policy of insurance in force. If the premium is not paid in themanner prescribed in the policy as intended by the parties the policy isineffective. Partial payment even when accepted as a partial payment will not keep thepolicy alive even for such fractional part of the year as the part payment bears to thewhole payment.[12]

Applying further the rules of statutory construction, the position maintained bypetitioners becomes even more untenable. The case of South Sea Surety andInsurance Company, Inc. v. Court of Appeals,[13] speaks only of two (2) statutoryexceptions to the requirement of payment of the entire premium as a prerequisite to thevalidity of the insurance contract. These exceptions are: (a) in case the insurancecoverage relates to life or industrial life (health) insurance when a grace period applies,and (b) when the insurer makes a written acknowledgment of the receipt of premium,



















this acknowledgment being declared by law to, be then conclusive evidence of thepremium payment.

[14]

A maxim of recognized practicality is the rule that the expressed exception orexemption excludes others. Exceptio firm at regulim in casibus non exceptis. Theexpress mention of exceptions operates to exclude other exceptions; conversely, those

which are not within the enumerated exceptions are deemed included in the generalrule. Thus, under Sec. 77, as well as Sec. 78, until the premium is paid, and the lawhas not expressly excepted partial payments, there is no valid and bindingcontract. Hence, in the absence of clear waiver of prepayment in full by the insurer, theinsured cannot collect on the proceeds of the policy.

In the desire to safeguard the interest of the assured, itmust not be ignored that thecontract of insurance is primarily a risk-distributing device, a mechanism by which allmembers of a group exposed to a particular risk contribute premiums to aninsurer. From these contributory funds are paid whatever losses occur due to exposureto the peril insured against. Each party therefore takes a risk: the insurer, that of being

compelled upon the happening of the contingency to pay the entire sum agreed upon,and the insured, that of parting with the amount required as premium, without receivinganything therefor in case the contingency does not happen. To ensure payment forthese losses, the law mandates all insurance companies to maintain a legal reservefund in favor of those claiming under their policies.

[15] It should be understood that the

integrity of this fund cannot be secured and maintained if by judicial fiat partial offeringsof premiums were to be construed as a legal nexus between the applicant and theinsurer despite an express agreement to the contrary. For what could prevent theinsurance applicant from deliberately or wilfully holding back full premium payment andwait for the risk insured against to transpire and then conveniently pass on the balanceof the premium to be deducted from the proceeds of the insurance? Worse, what if the

insured makes an initial payment of only 10%, or even 1%, of the required premium,and when the risk occurs simply points to the proceeds from where to source thebalance? Can an insurance company then exist and survive upon the payment of 1%,or even 10%, of the premium stipulated in the policy on the basis that, after all, theinsurer can deduct from the proceeds of the insurance should the risk insured againstoccur?

Interpreting the contract of insurance stringently against the insurer but liberally infavor of the insured despite clearly defined obligations of the parties to the policy can becarried out to extremes that there is the danger that we may, so to speak, ―kill the goosethat lays the golden egg.‖ We are well aware of insurance companies falling into thedespicable habit of collecting premiums promptly yet resorting to all kinds of excuses to

deny or delay payment of just insurance claims. But, in this case, the law is manifestlyon the side of the insurer. For as long as the current Insurance Code remainsunchanged and partial payment of premiums is not mentioned at all as among theexceptions provided in Secs. 77 and 78, no policy of insurance can ever pretend to beefficacious or effective until premium has been fully paid.

And so it must be. For it cannot be disputed that premium is the elixir vitae of theinsurance business because by law the insurer must maintain a legal reserve fund to











meet its contingent obligations to the public, hence, the imperative need for its promptpayment and full satisfaction.

[16] It must be emphasized here that all actuarial

calculations and various tabulations of probabilities of losses under the risks insuredagainst are based on the sound hypothesis of prompt payment of premiums. Upon thisbedrock insurance firms are enabled to offer the assurance of security to the public at

favorable rates. But once payment of premium is left to the whim and caprice of theinsured, as when the courts tolerate the payment of a mere P600.00 as partialundertaking out of the stipulated total premium of P2,983.50 and the balance to be paideven after the risk insured against has occurred, as petitioners have done in this case,on the principle that the strength of thevinculumjuris is not measured by any specificamount of premium payment, we will surely wreak havoc on the business and set tonaught what has taken actuarians centuries to devise to arrive at a fair and equitabledistribution of risks and benefits between the insurer and the insured.

The terms of the insurance policy constitute the measure of the insurer’s liability. Inthe absence of statutory prohibition to the contrary, insurance companies have thesame rights as individuals to limit their liability and to impose whatever conditions they

deem best upon their obligations not inconsistent with public policy.[17] The validity ofthese limitations is by law passed upon by the Insurance Commissioner who isempowered to approve all forms of policies, certificates or contracts of insurance whichinsurers intend to issue or deliver. That the policy contract in the case at bench wasapproved and allowed issuance simply reaffirms the validity of such policy, particularlythe provision in question.

WHEREFORE, the petition is DENIED and the assailed Decision of the Court of Appeals dated 24 March 1995 is AFFIRMED.

SO ORDERED.

Kapunan, and Hermosisima, Jr., JJ., concur .Padilla (Chairman), J., joins Mr. Justice Vitug’s dissent. Vitug, J., see dissenting opinion.











Tibay, et. al v Court of Appeals GR No. 119655, 24 May 1996

Bellosillo, [J.] Facts: In January 22 1987, the Petitioner Violeta Tibay (and Nicolas Roralso) obtained afire insurance policy for their 2-storey from the Private Respondent Fortune LifeInsurance 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. OnJanuary 23 or the next day, petitioner made a partial payment of the premium withP600.

Unfortunately, on March 8 1987, the said building was burned to the ground. It was onlytwo days after the fire that Petitioner Violeta advanced the full payment of the policypremium which was accepted by the insurer. On this same day, petitioner likewise filedthe claim that was then referred to the insurer's adjuster. Investigation of the cause offire commenced and the petitioner submitted the required proof of loss. Despite that, theprivate respondent Fortune refused to pay the insurance claim saying it as not liabledue to the nonpayment by petitioner of the full amount of the premium as stated in the

policy. The petitioner then brought the matter to the Insurance Commission but nothinggood came out. Hence this case filed. The trial court rule in favor of the petitioner. Uponappeal, the Court of Appeals reversed the lower court's decision and held that Fortuneis not liable but ordered it to return the premium paid with interest to the petitioner.Hence, this petition for review.

Issue

Is the partial payment of the premium rendered the insurance policy ineffective? Ruling: YES.

Insurance is a contract whereby one undertakes for a consideration to indemnifyanother 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 asstated in the policy, and if not so paid asin this case, the policy is therefore forfeited byits own terms. In this case, the policy taken out by the petitioner provides for payment ofpremium in full. Since the petitioner only made partial payment with the remainingbalance paid only after the fire or peril insured against has occurred, the insurancecontract therefore did not take effect barring the insured from claiming or collecting fromthe loss of her building.

Under Section 77 of the Insurance Code (Philippine), it provides therein that "An insureris entitled to payment of the premium as soon as the thing insured is exposed to theperil insured against. Notwithstanding any agreement to the contrary, no policy or

contract of insurance issued by an insurance company is valid and binding unless anduntil the premium thereof has been paid, except in the case of a life or an industrial lifepolicy whenever the grace period provision applies." Herein case, the controversy is onthe payment of the premium. It cannot be disputed that premium is the elixir vitae of theinsurance business because the insurer is required by law to maintain a reserve fund tomeet its contingent obligations to the public. Due to this, it is imperative that thepremium 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 insurancebusiness.



G.R. No. 137172. June 15, 1999]

UCPB GENERAL INSURANCE CO., INC., Petitioner, vs. MASAGANA TELAMART, INC., Respondent.

D E C I S I O N

PARDO, J .:

The case is an appeal via certiorari seeking to set aside the decision of the Court of Appeals,[1 affirming with modification that of the RegionalTrial Court, Branch 58, Makati, ordering petitioner to pay respondent the sum of P18,645,000.00, as the proceeds of the insurance coverage

of respondent's property razed by fire; 25% of the total amount due as attorney's fees and P25,000.00 as litigation expenses, and costs.

The facts are undisputed and may be related as follows:

On April 15, 1991, petitioner issued five (5) insurance policies covering respondent's various property described therein against fire, for theperiod from May 22, 1991 to May 22, 1992.

In March 1992, petitioner evaluated the policies and decided not to renew them upon expiration of their terms on May 22, 1992. Petitioneradvised respondent's broker, Zuellig Insurance Brokers, Inc. of its intention not to renew the policies.

On April 6, 1992, petitioner gave written notice to respondent of the non-renewal of the policies at the address stated in the policies.

On June 13, 1992, fire razed respondent's property covered by three of the insurance policies petitioner issued.

On July 13, 1992, respondent presented to petitioner's cashier at its head office five (5) manager's checks in the total amount of

P225,753.95, representing premium for the renewal of the policies from May 22, 1992 to May 22, 1993. No not ice of loss was fi led byrespondent under the policies prior to July 14, 1992.

On July 14, 1992, respondent filed with petitioner its formal claim for indemnification of the insured property razed by fire.

On the same day, July 14, 1992, petitioner returned to respondent the five (5) manager's checks that it tendered, and at the same timerejected respondent's claim for the reasons (a) that the policies had expired and were not renewed, and (b) that the fire occurred on June 13,1992, before respondent's tender of premium payment.

On July 21, 1992, respondent filed with the Regional Trial Court, Branch 58, Makati City, a civil complaint against petitioner for recovery of

P18,645,000.00, representing the face value of the policies covering respondent's insured property razed by fire, and for attorney's fees.[2

On October 23, 1992, after its motion to dismiss had been denied, petitioner filed an answer to the complaint. It alleged that the complaint"fails to state a cause of action"; that petitioner was not liable to respondent for insurance proceeds under the policies because at the time of

the loss of respondent's property due to fire, the policies had long expired and were not renewed.[3

After due trial, on March 10, 1993, the Regional Trial Court, Branch 58, Makati, rendered decision, the dispositive portion of which reads:

"WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and against the defendant, as follows:

"(1) Authorizing and allowing the plaintiff to consign/deposit with this Court the sum of P225,753.95 (refused by the defendant) as fullpayment of the corresponding premiums for the replacement-renewal policies for Exhibits A, B, C, D and E;

"(2) Declaring plaintiff to have fully complied with its obligation to pay the premium thereby rendering the replacement-renewal policy of

Exhibits A, B, C, D and E effective and binding for the duration May 22, 1992 until May 22, 1993; and, ordering defendant to deliver forthwithto plaintiff the said replacement-renewal policies;

"(3) Declaring Exhibits A & B, in force from August 22, 1991 up to August 23, 1992 and August 9, 1991 to August 9, 1992, respectively; and

"(4) Ordering the defendant to pay plaintiff the sums of: (a) P18,645,000.00 representing the latter's claim for indemnity under Exhibits A, B& C and/or its replacement-renewal policies; (b) 25% of the total amount due as and for attorney's fees; (c) P25,000.00 as necessarylitigation expenses; and, (d) the costs of suit.

"All other claims and counterclaims asserted by the parties are denied and/or dismissed, including plaintiff's claim for interests.

"SO ORDERED.

"Makati, Metro-Manila, March 10, 1993.

http://www.chanrobles.com/scdecisions/jurisprudence1999/jun99/137172.php#_edn1














G.R. No. 130421 June 28, 1999

AMERICAN HOME ASSURANCE COMPANY, petitioner,vs.ANTONIO CHUA, respondent.

DAVIDE, JR. C.J.:

In this petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, petitioner seeks the reversal of the decision 1 of theCourt of Appeals in CA-G.R. CV No. 40751, which affirmed in toto the decision of the Regional Trial Court, Makati City, Branch 150(hereafter trial court), in Civil Case No. 91-1009.

Petitioner is a domestic corporation engaged in the insurance business. Sometime in 1990, respondent obtained from petitioner a fireinsurance covering the stock-in-trade of his business, Moonlight Enterprises, located at Valencia, Bukidnon. The insurance was due to expireon 25 March 1990.

On 5 April 1990 respondent issued PCIBank Check No. 352123 in the amount of P2,983.50 to petitioner's agent, James Uy, as payment forthe renewal of the policy. In turn, the latter delivered Renewal Certificate No. 00099047 to respondent. The check was drawn against aManila bank and deposited in petitioner's bank account in Cagayan de Oro City. The corresponding official receipt was issued on 10 April.Subsequently, a new insurance policy, Policy No. 206-4234498-7, was issued, whereby petitioner undertook to indemnify respondent for anydamage or loss arising from fire up to P200,000 for the period 25 March 1990 to 25 March 1991.

On 6 April 1990 Moonlight Enterprises 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 and Surety Corporation,Prudential Guarantee and Assurance, Inc., Filipino Merchants Insurance Co. and Domestic Insurance Company of the Philippines. Petitionerrefused to honor the claim notwithstanding several demands by respondent, thus, the latter filed an action against petitioner before the trialcourt.

In its defense, petitioner claimed there was no existing insurance contract when the fire occurred since respondent did not pay the premium.It also alleged that even assuming there was a contract, respondent violated several conditions of the policy, particularly: (1) his submissionof fraudulent income tax return and financial statements; (2) his failure to establish the actual loss, which petitioner assessed at P70,000; and(3) his failure to notify to petitioner of any insurance already effected to cover the insured goods. These violations, petitioner insisted, justifiedthe denial of the claim.

The trial court ruled in favor of respondent. It found that respondent paid by way of check a day before the fire occurred. The check, whichwas deposited in petitioner's bank account, was even acknowledged in the renewal certificate issued by petitioner's agent. It declared that

the alleged fraudulent documents were limited to the disparity between the official receipts issued by the Bureau of Internal Revenue (BIR)and the income tax returns for the years 1987 to 1989. All the other documents were found to be genuine. Nonetheless, it gave credence tothe BIR certification that respondent paid the corresponding taxes due for the questioned years.

As to respondent's failure to notify petitioner of the other insurance contracts covering the same goods, the trial court held that petitionerfailed to show that such omission was intentional and fraudulent. Finally, it noted that petitioner's investigation of respondent's claim wasdone in collaboration with the representatives of other insurance companies who found no irregularity therein. In fact, Pioneer Insurance andSurety Corporation and Prudential Guarantee and Assurance, Inc. promptly paid the claims filed by respondent.

The trial court decreed as follows:

WHEREFORE, judgment is hereby rendered in favor of [respondent] and against the [petitioner] ordering the latter topay the former the following:

1. P200,000.00, representing the amount of the insurance, plus legal interest from the date offiling of this case;

2. P200,000.00 as moral damages;

3. P200,000.00 as loss of profit;

4. P100,000.00 as exemplary damages;

5. P50,000.00 as attorney's fees; and



6. Cost of suit.

On appeal, the assailed decision was affirmed in toto by the Court of Appeals. The Court of Appeals found that respondent's claim wassubstantially proved and petitioner's unjustified refusal to pay the claim entitled respondent to the award of damages.

Its motion for reconsideration of the judgment having been denied, petitioner filed the petition in this case. Petitioner reiterates its stand thatthere was no existing insurance contract between the parties. It invokes Section 77 of the Insurance Code, which 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 isvalid and binding unless and until the premium thereof has been paid, except in the case of life or an industrial lifepolicy whenever the grace period provision applies.

and cites the case of Arce v . Capital Insurance & Surety Co., Inc ., 2 where we ruled that unless and until the premium is paid thereis no insurance.

Petitioner emphasizes that when the fire occurred on 6 April 1990 the insurance contract was not yet subsisting pursuant to Article 1249 3 ofthe Civil Code, which recognizes that a check can only effect payment once it has been cashed. Although respondent testified that he gavethe check on 5 April to a certain James Uy, the check, drawn against a Manila bank and deposited in a Cagayan de Oro City bank, could nothave been cleared by 6 April, the date of the fire. In fact, the official receipt issued for respondent's check payment was dated 10 April 1990,four days after the fire occurred.

Citing jurisprudence, 4 petitioner also contends that respondent's non-disclosure of the other insurance contracts rendered the policy void. It

underscores the trial court's neglect in considering the Commission on Audit's certification that the BIR receipts submitted by respondentwere, in effect, fake since they were issued to other persons. Finally, petitioner argues that the award of damages was excessive andunreasonable considering that it did not act in bad faith in denying respondent's claim.

Respondent counters that the issue of non-payment of premium is a question of fact which can no longer be assailed. The trial court's findingon the matter, which was affirmed by the Court of Appeals, is conclusive.

Respondent refutes the reason for petitioner's denial of his claim. As found by the trial court, petitioner's loss adjuster admitted priorknowledge of respondent's existing insurance contracts with the other insurance companies. Nonetheless, the loss adjuster recommendedthe denial of the claim, not because of the said contracts, but because he was suspicious of the authenticity of certain documents whichrespondent submitted in filing his claim.

To bolster his argument, respondent cites Section 66 of the Insurance Code, 5 which requires the insurer to give a notice to the insured of itsintention to terminate the policy forty-five days before the policy period ends. In the instant case, petitioner opted not to terminate the policy.Instead, it renewed the policy by sending its agent to respondent, who was issued a renewal certificate upon delivery of his check paymentfor the renewal of premium. At this precise moment the contract of insurance was executed and already in effect. Respondent also claimsthat it is standard operating procedure in the provinces to pay insurance premiums by check when collected by insurance agents.

On the issue of damages, respondent maintains that the amounts awarded were reasonable. He cites numerous trips he had to make fromCagayan de Oro City to Manila to follow up his rightful claim. He imputes bad faith on petitioner who made enforcement of his claim difficultin the hope that he would eventually abandon it. He further emphasizes that the adjusters of the other insurance companies recommendedpayment of his claim, and they complied therewith.

In its reply, petitioner alleges that the petition questions the conclusions of law made by the trial court and the Court of Appeals.

Petitioner invokes respondent's admission that his check for the renewal of the policy was received only on 10 April 1990, taking into accountthat the policy period was 25 March 1990 to 25 March 1991. The official receipt was dated 10 April 1990. Anent respondent's testimony thatthe check was given to petitioner's agent, a certain James Uy, the latter points out that even respondent was not sure if Uy was indeed itsagent. It faults respondent for not producing Uy as his witness and not taking any receipt from him upon presentment of the check. Evenassuming that the check was received a day before the concurrence of the fire, there still could not have been payment until the check wascleared.

Moreover, petitioner denies respondent's allegation that it intended a renewal of the contract for the renewal certificate clearly specified thefollowing conditions:

Subject to the payment by the assured of the amount due prior to renewal date, the policy shall be renewed for theperiod stated.

Any payment tendered other than in cash is received subject to actual cash collection.

Subject to no loss prior to premium and payment. If there be any loss, is not covered [ sic ].



Petitioner asserts that an insurance contract can only be enforced upon the payment of the premium, which should have beenmade before the renewal period.

Finally, in assailing the excessive damages awarded to respondent petitioner stresses that the policy in issue was limited to a liability ofP200,000; but the trial court granted the following monetary awards: P200,000 as actual damages; P200,000 as moral damages; P100,000as exemplary damages; and P50,000 as attorney's fees.

The following issues must be resolved: first , whether there was a valid payment of premium, considering that respondent's check was cashedafter the occurrence of the fire; second , whether respondent violated the policy by his submission of fraudulent documents and non-disclosure of the other existing insurance contracts; and finally, whether respondent is entitled to the award of damages.

The general rule in insurance laws is that unless the premium is paid the insurance policy is not valid and binding. The only exceptions arelife and industrial life insurance. 6 Whether payment was indeed made is a question of fact which is best determined by the trial court. Thetrial court found, as affirmed by the Court of Appeals, that there was a valid check payment by respondent to petitioner. Well-settled is therule that the factual findings and conclusions of the trial court and the Court of Appeals are entitled to great weight and respect, and will notbe disturbed on appeal in the absence of any clear showing that the trial court overlooked certain facts or circumstances which wouldsubstantially affect the disposition of the case. 7 We see no reason to depart from this ruling.

According to the trial court the renewal certificate issued to respondent contained the acknowledgment that premium had been paid. It is notdisputed that the check drawn by respondent in favor of petitioner and delivered to its agent was honored when presented and petitionerforthwith issued its official receipt to respondent on 10 April 1990. Section 306 of the Insurance Code provides that any insurance companywhich delivers a policy or contract of insurance to an insurance agent or insurance broker shall be deemed to have authorized such agent orbroker 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 ordelivery or which becomes due thereon. 8 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 agent's acknowledgment of receipt of payment.

Sec. 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 itspayment, so far as to make the policy binding, notwithstanding any stipulation therein that it shall not be binding untilthe premium is actually paid.

This Section establishes a legal fiction of payment and should be interpreted as an exception to Section 77.9

Is respondent guilty of the policy violations imputed against him? We are not convinced by petitioner's arguments. The submission of thealleged fraudulent documents pertained to respondent's income tax returns for 1987 to 1989. Respondent, however, presented a BIRcertification that he had paid the proper taxes for the said years. The trial court and the Court of Appeals gave credence to the certificationand it being a question of fact, we hold that said finding is conclusive.

Ordinarily, where the insurance policy specifies as a condition the disclosure of existing co-insurers, non-disclosure thereof is a violation thatentitles the insurer to avoid the policy. This condition is common in fire insurance policies and is known as the "other insurance clause." Thepurpose for the inclusion of this clause is to prevent an increase in the moral hazard. We have ruled on its validity and the case of Geagonia

v . Court of Appeals 10 clearly illustrates such principle. However, we see an exception in the instant case.

Citing Section 29 11 of the Insurance Code, the trial court reasoned that respondent's failure to disclose was not intentional and fraudulent.The application of Section 29 is misplaced. Section 29 concerns concealment which is intentional. 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 immaterialprovision does not avoid the policy.

To constitute a violation the other existing insurance contracts must be upon the same subject matter and with the same interest andrisk. 12 Indeed, respondent acquired several co-insurers and he failed to disclose this information to petitioner. Nonetheless, petitioner isestopped from must invoking this argument. The trial court cited the testimony of petitioner's loss adjuster who admitted previous knowledge

of the co-insurers. Thus,

COURT:

Q The matter of additional insurance of other companies, was that ever discussed in yourinvestigation?

A Yes, sir.



Q In other words, from the start, you were aware the insured was insured with other companieslike Pioneer and so on?

A Yes, Your Honor.

Q But in your report you never recommended the denial of the claim simply because of the non-disclosure of other insurance? [sic ]

A Yes, Your Honor.

Q In other words, to be emphatic about this, the only reason you recommended the denial of theclaim, you found three documents to be spurious. That is your only basis?

A Yes, Your Honor. 13 [Emphasis supplied]

Indubitably, it cannot be said that petitioner was deceived by respondent by the latter's non-disclosure of the other insurance contracts whenpetitioner actually had prior knowledge thereof. Petitioner's loss adjuster had known all along of the other existing insurance contracts, yet,he did not use that as basis for his recommendation of denial. The loss adjuster, being an employee of petitioner, is deemed a representativeof the latter whose awareness of the other insurance contracts binds petitioner. We, therefore, hold that there was no violation of the "otherinsurance" clause by respondent.

Petitioner is liable to pay its share of the loss. The trial court and the Court of Appeals were correct in awarding P200,000 for this. There is,

however, merit in petitioner's grievance against the damages and attorney's fees awarded.

There is no legal and factual basis for the award of P200,000 for loss of profit. It cannot be denied that the fire totally gutted respondent'sbusiness; thus, respondent no longer had any business to operate. His loss of profit cannot be shouldered by petitioner whose obligation islimited to the object of insurance, which was the stock-in-trade, and not the expected loss in income or profit.

Neither can we approve the award of moral and exemplary damages. At the core of this case is petitioner's alleged breach of its obligationunder a contract of insurance. Under Article 2220 of the Civil Code, moral damages may be awarded in breaches of contracts where thedefendant acted fraudulently or in bad faith. We find no such fraud or bad faith. It must again be stressed that moral damages areemphatically not intended to enrich a plaintiff at the expense of the defendant. Such damages are awarded only to enable the injured party toobtain means, diversion or amusements that will serve to obviate the moral suffering he has undergone, by reason of the defendant'sculpable action. Its award is aimed at the restoration, within the limits of the possible, of the spiritual status quo ante, and it must beproportional to the suffering inflicted. 14 When awarded, moral damages must not be palpably and scandalously excessive as to indicate thatit was the result of passion, prejudice or corruption on the part of the trial court judge. 15

The law 16 is likewise clear that in contracts and quasi-contracts the court may award exemplary damages if the defendant acted in a wanton,

fraudulent, reckless, oppressive, or malevolent manner. Nothing thereof can be attributed to petitioner which merely tried to resist what itclaimed to be an unfounded claim for enforcement of the fire insurance policy.

As to attorney's fees, the general rule is that attorney's fees cannot be recovered as part of damages because of the policy that no premiumshould be placed on the right to litigate. 17 In short, the grant of attorney's fees as part of damages is the exception rather than the rule;counsel's fees are not awarded every time a party prevails in a suit. It can be awarded only in the cases enumerated in Article 2208 of theCivil Code, and in all cases it must be reasonable. 18 Thereunder, the trial court may award attorney's fees where it deems just and equitablethat it be so granted. While we respect the trial court's exercise of its discretion in this case, the award of P50,000 is unreasonable andexcessive. It should be reduced to P10,000.

WHEREFORE, the instant petition is partly GRANTED. The challenged decision of the Court of Appeals in CA-G.R. No. 40751 is herebyMODIFIED by a) deleting the awards of P200,000 for loss of profit, P200,000 as moral damages and P100,000 as exemplary damages, andb) reducing the award of attorney's fees from P50,000 to P10,000.

No pronouncement as to costs.

Melo, Kapunan, Pardo and Santiago, JJ., concur.

Footnotes 1 Per Cui, E.J., with Montenegro, E. and De la Rama, J., JJ. concurring. Annex of Petition, Rollo, 16-26. 2 117 SCRA 63 [1982].



3 Art. 1249. The payment of debts in money shall be made in the currency stipulated, and if it is not possible to deliver suchcurrency, then in the currency which is legal tender in the Philippines.

The delivery of promissory noted payable to order, or bills of exchange or other mercantile documents shall producethe effect of payment only when they have been cashed, or when through the fault of the creditor they have beenimpaired.

In the meantime, the action derived from the original obligation shall be held in abeyance.

4 General Insurance & Surety Corporation v. Ng Hua, 106 Phil. 1117 [1960]; and Union Manufacturing Co., Inc. v. PhilippineGuaranty Co., Inc., 47 SCRA 271 [1972].

5 Sec. 66. In case of insurance other than life, unless the insurer at least forty-five days in advance of the end of the policy periodmails or delivers to the named insured at the address shown in the policy notice of its intention not to renew the policy or tocondition its renewal upon reduction of limits or elimination of coverages, the named insured shall be entitled to renew the policyupon payment of the premium due on the effective date of the renewal. Any policy written for a term of less than one year shall beconsidered as if written for a term of one year. Any policy written for a term longer than one year or any policy with no fixedexpiration date shall be considered as if written for successive policy periods or terms of one year. 1âwphi1.nêt

6 Sec. 77, insurance Code.

7 Borillo v. Court of Appeals, 209 SCRA 130, 140 [1992]; Gobonsong, Jr. v. Court of Appeals, 246 SCRA 472, 474-475 [1995];Vda. de Alcantara v. Court of Appeals, 252 SCRA 457, 468 [1996].

8 See Malayan Insurance Co. v. Amaldo, 154 SCRA 672, 678 [1987].

9 RUFUS R. RODRIGUEZ, The Insurance Code of the Philippines Annotated, 3rd ed., 162.

10 241 SCRA 152, 160 [1995], citing General Insurance & Surety Corporation v. Ng Hua, 106 Phil. 1117 [1960]; UnionManufacturing Co., Inc., v. Philippine Guaranty Co., Inc., 47 SCRA 271 [1972]; Pioneer Insurance & Surety Corporation v. Yap, 61SCRA 426 [1974].

11 Sec. 29. An intentional and fraudulent omission, on the part of one insured, to communicate information of matters proving ortending to prove the falsity of a warranty, entitles the insurer to rescind.

12 Geagonia v. Court of Appeals, supra note 10.

13 TSN, 27 November 1991, 29-30.

14 Visayan Sawmill Company, Inc. v. Court of Appeals, 219 SCRA 378, 392 [1993], citing authorities.

15 People v. Wenceslao, 212 SCRA 560, 569 [1992].

16 Art. 2232, Civil Code.

17 Firestone Tire & Rubber Company of the Philippines v. Chaves, 18 SCRA 356, 358 [1966]; Philippine Air Lines v. Miano, 242SCRA 235, 240 [1995].

18 Philtranco Service Enterprises Inc. v. Court of Appeals, 273 SCRA 562, 575 [1997].



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

PIONEER INSURANCE AND SURETY CORPORATION, petitioner-appellant,vs.OLIVA YAP, represented by her attorney-in-fact, CHUA SOON POON respondent-appellee.

Eriberto D. Ignacio for petitioner-appellant.

Paculdo, Miranda, Marquez, Sibal & Associates for respondent-appellee.

FERNANDEZ, J. : p

This is an appeal by certiorari from the decision of the Court of Appeals dated December 16, 1972, in CA-G.R. No. 36669-R, affirming the judgment of the Court of First Instance of Manila (Branch VI) in Civil Case No. 54508, which latter court declared plaintiff Oliva Yap, hereinrespondent, entitled to recover from defendant Pioneer Insurance & Surety Corporation, herein petitioner, the full amount of the damageinquired in Policy No. 4219, which is P25,000.00, plus 12% of said sum from the date of filing of the complaint until full payment, in additionto the sum of P6,000.00 for attorney's fees, and costs.

Respondent Oliva Yap was the owner of a store in a two-storey building located at No. 856 Juan Luna Street, Manila, where in 1962 she soldshopping bags and footwear, such as shoes, sandals and step-ins. Chua Soon Poon Oliva Yap's son-in-law, was in charge of the store.

On April 19, 1962, respondent Yap took out Fire Insurance Policy No. 4216 from petitioner Pioneer Insurance & Surety Corporation with aface value of P25,000.00 covering her stocks, office furniture, fixtures and fittings of every k ind and description. Among the conditions in thepolicy executed by the parties are the following:

The Insured shall give notice to the Company of any insurance or insurances already effected, or which maysubsequently be effected, covering any of the property hereby insured, and 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 Companybefore the occurrence of any loss or damage, all benefits under this Policy shall be forfeited . (emphasis supplied)

It is understood that, except as may be stated on the face of this policy there is no other insurance on the propertyhereby covered and no other insurance is allowed except by the consent of the Company endorsed hereon. Any falsedeclaration or breach or this condition will render this policy null and void.

At the time of the insurance on April 19, 1962 of Policy No. 4219 in favor of respondent Yap, an insurance policy for P20,000.00 issued by

the Great American Insurance Company covering the same properties was noted on said policy as co-insurance (Annex "1-E"). Later, on August 29, 1962, the parties executed Exhibit "1-K", as an endorsement on Policy No. 4219, stating:

It is hereby declared and agreed that the co-insurance existing at present under this policy is as follows: P20,000.00 — Northwest Ins., and not as originally stated . (emphasis supplied)

Except as varied by this endorsement, all other terms and conditions remain unchanged.

Still later, or on September 26, 1962, respondent Oliva Yap took out another fire insurance policy for P20,000.00 covering the sameproperties, this time from the Federal Insurance Company, Inc., which new policy was, however, procured without notice to and the writtenconsent of petitioner Pioneer Insurance & Surety Corporation and, therefore, was not noted as a co-insurance in Policy No. 4219.

At dawn on December 19, 1962, a fire broke out in the building housing respondent Yap's above-mentioned store, and the said store wasburned. Respondent Yap filed an insurance claim, but the same was denied in petitioner's letter of May 17, 1963 (Exhibit "G"), on the groundof "breach and/or violation of any and/or all terms and conditions" of Policy No. 4219.

On July 17, 1963, Oliva Yap filed with the Court of First Instance of Manila the present complaint, asking, among others, for payment of theface value of her fire insurance policy. In its answer, petitioner alleged that no property belonging to plaintiff Yap and covered by theinsurance policy was destroyed by the fire; that Yap's claim was filed out of time; and that Yap took out an insurance policy from anotherinsurance company without petitioner's knowledge and/or endorsement, in violation of the express stipulations in Policy No. 4219, hence, allbenefits accruing from the policy were deemed forfeited.

As already stated at the beginning of this opinion, the trial court decided for plaintiff Oliva Yap; and its judgment was affirmed in full by theCourt of Appeals.



The vital issue in this appeal is whether or not petitioner should be absolved from liability on Fire Insurance Policy No. 4219 on account ofany violation by respondent Yap of the co-insurance clause therein. In resolving this problem, the Court of Appeals stated in its decision:

5. The plaintiff-appellee has not violated the other insurance clause (Exhibit 1-F) of the insurance Policy No. 4219 thatwould justify the defendant-appellant, as insurer, to avoid its liability thereunder. It appears on the face of said policythat a co-insurance in the amount of P20,000.00 was secured from the Great American Insurance and was declared bythe plaintiff-appellee and recognized by the defendant-appellant. This was later on substituted for the same amountand secured by the Federal Insurance Company. Chua Soon Poon on being cross-examined by counsel for the

defendant-appellant, declared that the Great American Insurance policy was cancelled because of the difference in thepremium and the same was changed for that of the Federal (t.s.n., hearing of December 1, 1964, pp. 35-36). Contraryto the assertion of the defendant-appellant, the Great American Insurance policy was not substituted by the NorthwestInsurance policy. As admitted by the defendant-appellant in its brief (p. 48), the fire insurance policy issued by theGreat American Insurance Company for P20,000.00 (Exhibit 1-E) was cancelled on August 29, 1962. On the otherhand, the fire insurance policy issued by the Northwest Insurance & Surety Company for P20,000.00 (Exhibit 1-K) wastaken out on July 23, 1962. How then can the Northwest Insurance policy issued on July 23, 1962, be considered ashaving substituted the Great American policy which was cancelled only on August 29, 1962? The defendant-appellantcan be considered to have waived the formal requirement of indorsing the policy of co-insurance since there wasabsolutely no showing that it was not aware of said substitution and preferred to continue the policy (Gonzales La O vs.Yek Tong Lin Fire and Marine Insurance Co., 55 Phil. 386). Even assuming that the defendant-appellant did notindorse the Federal Insurance policy, there is no question that the same was only a substitution and did not in any wayincrease the amount of the declared co-insurance. In other words, there was no increase in the risk assumed by thedefendant-appellant.

We do not agree with the conclusion of the Court of Appeals.

There was a violation by respondent Oliva Yap of the co-insurance clause contained in Policy No. 4219 that resulted in the avoidance ofpetitioner's liability. The insurance policy for P20,000.00 issued by the Great American Insurance Company covering the same properties ofrespondent Yap and duly noted on Policy No. 4219 as c-insurance, ceased, by agreement of the parties (Exhibit "1-L"), to be recognized bythem as a co-insurance policy. The Court of Appeals says that the Great American Insurance policy was substituted by the FederalInsurance policy for the same amount, and because it was a mere case of substitution, there was no necessity for its endorsement on PolicyNo. 4219. This finding, as well as reasoning, suffers from several flaws. There is no evidence to establish and prove such a substitution. Ifanything was substituted for the Great American Insurance policy, it could only be the Northwest Insurance policy for the same amount ofP20,000.00. The endorsement (Exhibit "1-K") quoted above shows the clear intention of the parties to recognize on the date theendorsement was made (August 29, 1962), the existence of only one co-insurance, and that is the Northwest Insurance policy, whichaccording to the stipulation of the parties during the hearing, was issued on August 20, 1962 (t.s.n., January 12, 1965, pp. 3-4) and endorsedonly on August 20, 1962. The finding of the Court of Appeals that the Great American Insurance policy was substituted by the FederalInsurance policy is unsubstantiated by the evidence of record and indeed contrary to said stipulation and admission of respondent, and isgrounded entirely on speculation, surmises or conjectures, hence, not binding on the Supreme Court. 1

The Court of Appeals would consider petitioner to have waived the formal requirement of endorsing the policy of co-insurance "since therewas absolutely no showing that it was not aware of said substitution and preferred to continue the policy." The fallacy of th is argument is that,contrary to Section 1, Rule 131 of the Revised Rules of Court, which requires each party to prove his own allegations, it would shift to

petitioner, respondent's burden of proving her proposition that petitioner was aware of the alleged substitution, and with such knowledgepreferred to continue the policy. Respondent Yap cites Gonzales La O vs. Yek Tong Lin Fire and Marine Insurance Co., Ltd . 2to justify theassumption but in that case, unlike here, there was knowledge by the insurer of violations of the contract, to wit: "If, with the knowledge of theexistence of other insurances which the defendant deemed violations of the contract, it has preferred to continue the policy, its actionamounts to a waiver of the annulment of the contract ..." A waiver must be express. If it is to be implied from conduct mainly, said conductmust be clearly indicative of a clear intent to waive such right. Especially in the case at bar where petitioner is assumed to have waived avaluable right, nothing less than a clear, positive waiver, made with full knowledge of the circumstances, must be required.

By the plain terms of the policy, other insurance without the consent of petitioner would ipso facto avoid the contract. It required noaffirmative act of election on the part of the company to make operative the clause avoiding the contract, wherever the specified conditionsshould 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 insurerrenders ipso facto the policy void is well-settled:

In Milwaukee Mechanids' Lumber Co., vs. Gibson, 199 Ark. 542, 134 S. W. 2d 521, 522, a substantially identical clausewas sustained and enforced, the court saying: "The rule in this state and practically all of the states is to the effect thata clause in a policy to the effect that the procurement of additional insurance without the consent of the insurer rendersthe policy void is a valid provision. The earlier cases of Planters Mutual Insurance Co., vs. Green, 72 Ark. 305, 80 S.W.92, are to the same effect." And see Vance, Insurance, 2nd Ed., 725. (Reach vs. Arkansas Farmers Mut. Fire Ins. Co.,[Ark. Nov. 14, 1949] 224 S. W. 2d 48, 49.)

2. Where a policy contains a clause providing that the policy shall be void if insured has or shall procure any otherinsurance on the property, the procurement of additional insurance without the consent of the insurer avoids the policy."(Planters' Mut. Ins. Ass'n vs. Green [Supreme Court of Arkansas, March 19, 1904] 80 S.W. 151.)



G.R. No. L-27932 October 30, 1972

UNION MANUFACTURING CO., INC. and the REPUBLIC BANK, plaintiffs, REPUBLIC BANK, plaintiff-appellant,vs.PHILIPPINE GUARANTY CO., INC., defendant-appellee.

Armando L. Abad, Sr. for plaintiff-appellant.

Gamelo, Francisco and Aquino for defendant-appellee.

FERNANDO, J. : p

In a suit arising from a fire insurance policy, the insurer, Philippine Guaranty Co., Inc., defendant in the lower court and now appellee, wasable to avoid liability upon proof that there was a v iolation of a warranty. There was no denial thereof from the insured, Union ManufacturingCo., Inc. With such a legally crippling blow, the effort of the Republic Bank, the main plaintiff and now the sole appellant, to recover on suchpolicy as mortgagee, by virtue of the cover note in the insurance policy providing that it is entitled to the payment of loss or damages as itsinterest may appear, was in vain. The defect being legally incurable, its appeal is likewise futile. We affirm.

As noted in the decision, the following facts are not disputed: "(1) That on January 12, 1962, the Union Manufacturing Co., Inc. obtainedcertain loans, overdrafts and other credit accommodations from the Republic Bank in the total sum of P415,000.00 with interest at 9% per

annum from said date and to secure the payment thereof, said Union Manufacturing Co., Inc. executed a real and chattel mortgages oncertain properties, which are more particularly described and listed at the back of the mortgage contract ...; (2) That as additional condition ofthe mortgage contract, the Union Manufacturing Co., Inc. undertook to secure insurance coverage over the mortgaged properties for thesame amount of P415,000.00 distributed as follows: (a) Buildings, P30,000.00; (b) Machineries, P300,000.00; and (c) MerchandiseInventory, P85,000.00, giving a total of P415,000.00; (3) That as Union Manufacturing Co., Inc. failed to secure insurance coverage on themortgaged properties since January 12, 1962, despite the fact that Cua Tok, its general manager, was reminded of said requirement, theRepublic Bank procured from the defendant, Philippine Guaranty Co., Inc. an insurance coverage on loss against fire for P500,000.00 overthe properties of the Union Manufacturing Co., Inc., as described in defendant's 'Cover Note' dated September 25, 1962, with the annotationthat loss or damage, if any, under said Cover Note is payable to Republic Bank as its interest may appear, subject however to the printedconditions of said defendant's Fire Insurance Policy Form; (4) That on September 27, 1962, Fire Insurance Policy No. 43170 ... was issuedfor the sum of P500,000.00 in favor of the assured, Union Manufacturing Co., Inc., for which the corresponding premium in the sum ofP8,328.12, which was reduced to P6,688.12, was paid by the Republic Bank to the defendant, Philippine Guaranty Co., Inc. ...; (5) That uponthe expiration of said fire policy on September 25, 1963, the same was renewed by the Republic Bank upon payment of the correspondingpremium in the same amount of P6,663.52 on September 26, 1963; (6) That in the corresponding voucher ..., it appears that although saidrenewal premium was paid by the Republic Bank, such payment was for the account of Union Manufacturing Co., Inc. and that the cashvoucher for the payment of the first premium was paid also by the Republic Bank but for the account Union Manufacturing Co., Inc.; (7) Thatsometime on September 6, 1964, a fire occurred in the premises of the Union Manufacturing Co., Inc.; (8) That on October 6, 1964, theUnion Manufacturing Co., Inc. filed its fire claim with the defendant Philippine Guaranty Co., Inc., thru its adjuster, H. H. Bayne Adjustment

Co., which was denied by said defendant in its letter dated November 27, 1964 ..., on the following grounds: 'a. Policy Condition No. 3 and/orthe 'Other Insurance Clause' of the policy violated because you did not give notice to us the other insurance which you had taken from NewIndia for P80,000.00, Sincere Insurance for P25,000.00 and Manila Insurance for P200,000.00 with the result that these insurances, of whichwe became aware of only after the fire, were not endorsed on our policy; and (b) Policy Condition No. 11 was not complied with because youhave failed to give to our representatives the required documents and other proofs with respect to your claim and matters touching on ourliability, if any, and the amount of such liability'; (9) That as of September, 1962, when the defendant Philippine Guaranty Co., issued FireInsurance Policy No. 43170 ... in the sum of P500,000.00 to cover the properties of the Union Manufacturing Co., Inc., the same propertieswere already covered by Fire Policy No. 1533 of the Sincere Insurance Company for P25,000.00 for the period from October 7, 1961 toOctober 7, 1962 ...; and by insurance policies Nos. F-2314 ... and F-2590 ... of the Oceanic Insurance Agency for the total sum ofP300,000.00 and for periods respectively, from January 27, 1962 to January 27, 1963, and from June 1, 1962 to June 1, 1963; and (10) Thatwhen said defendant's Fire Insurance Policy No. 43170 was already in full force and effect, the Union Manufacturing Co., Inc. without theconsent of the defendant, Philippine Guaranty Co., Inc., obtained other insurance policies totalling P305,000.00 over the same propertiesprior to the fire, to wit: (1) Fire Policy No. 250 of New India Assurance Co., Ltd., for P80,000.00 for the period from May 27, 1964 to May 27,1965 ...; (2) Fire Policy No. 3702 of the Sincere Insurance Company for P25,000.00 for the period from October 7, 1963 to October 7, 1964...; and (3) Fire Policy No. 6161 of Manila Insurance Co. for P200,000.00 for the period from May 15, 1964 to May 15, 1965 ... ." 1 There is inthe cover note 2 and in the fire insurance policy 3 the following warranty: "[Co- Insurance Declared]: Nil." 4

Why the appellant Republic Bank could not recover, as payee, in case of loss as its "interest may appear subject to the terms and conditions,clauses and warranties" of the policy was expressed in the appealed decision thus: "However, inasmuch as the Union Manufacturing Co.,Inc. has violated the condition of the policy to the effect that it did not reveal the existence of other insurance policies over the sameproperties, as required by the warranty appearing on the face of the policy issued by the defendant and that on the other hand said UnionManufacturing Co., Inc. represented that there were no other insurance policies at the time of the issuance of said defendant's policy, and itappearing furthermore that while the policy of the defendant was in full force and effect the Union Manufacturing Co., Inc. secured other fireinsurance policies without the written consent of the defendant endorsed on the policy, the conclusion is inevitable that both the RepublicBank and Union Manufacturing Co., Inc. cannot recover from the same policy of the defendant because the same is null and void." 5 The toneof confidence apparent in the above excerpts from the lower court decision is understandable. The conclusion reached by the lower courtfinds support in authoritative precedents. It is far from easy, therefore, for appellant Republic Bank to impute to such a decision a failure toabide by the law. Hence, as noted at the outset, the appeal cannot prosper. An affirmance is indicated.



It is to Santa Ana v. Commercial Union Assurance Co., 6 a 1930 decision, that one turns to for the first explicit formulation as to the controllingprinciple. As was made clear in the opinion of this Court, penned by Justice Villa-Real: "Without deciding whether notice of other insuranceupon the same property must be given in writing, or whether a verbal notice is sufficient to render an insurance valid which requires suchnotice, whether oral or written, we hold that in the absolute absence of such notice when it is one of the conditions specified in the fireinsurance policy, the policy is null and void." 7 The next year, in Ang Giok Chip v. Springfield Fire & Marine Ins. Co., 8 the conformity of theinsured to the terms of the policy, implied from the failure to express any disagreement with what is provided for, was stressed in these wordsof the ponente, Justice Malcolm: "It is admitted that the policy before us was accepted by the plaintiff. The receipt of this policy by the insuredwithout objection binds both the acceptor and the insured to the terms thereof. The insured may not thereafter be heard to say that he did notread the policy or know its terms, since it is his duty to read his policy and it will be assumed that he did so." 9 As far back as 1915, in Young

v. Midland Textile Insurance Company , 10 it was categorically set forth that as a condition precedent to the right of recovery, there must becompliance on the part of the insured with the terms of the policy. As stated in the opinion of the Court through Justice Johnson: "If theinsured has violated or failed to perform the conditions of the contract, and such a violation or want of performance has not been waived bythe insurer, then the insured cannot recover. Courts are not permitted to make contracts for the parties. The function and duty of the courtsconsist simply in enforcing and carrying out the contracts actually made. While it is true, as a general rule, that contracts of insurance areconstrued most favorably to the insured, yet contracts of insurance, like other contracts, are to be construed according to the sense andmeaning of the terms which the parties themselves have used. If such terms are clear and unambiguous they must be taken and understoodin their plain, ordinary and popular sense." 11 More specifically, there was a reiteration of this Santa Ana ruling in a decision by the thenJustice, later Chief Justice, Bengzon, in General Insurance & Surety Corp. v. Ng Hua. 12 Thus: "The annotation then, must be deemed to be awarranty that the property was not insured by any other policy. Violation thereof entitles the insurer to rescind. (Sec. 69, Insurance Act) Suchmisrepresentation is fatal in the light of our views in Santa Ana v. Commercial Union Assurance Company, Ltd. ... . The materiality of non-disclosure of other insurance policies is not open to doubt." 13 As a matter of fact, in a 1966 decision, Misamis Lumber Corp. v. Capital Ins. &Surety Co., Inc., 14 Justice J.B.L. Reyes, for this Court, made manifest anew its adherence to such a principle in the face of an assertion thatthereby a highly unfavorable provision for the insured would be accorded recognition. This is the language used: "The insurance contractmay be rather onerous ('one sided', as the lower court put it), but that in itself does not justify the abrogation of its express terms, terms whichthe insured accepted or adhered to and which is the law between the contracting parties." 15

There is no escaping the conclusion then that the lower court could not have disposed of this case in a way other than it did. Had it actedotherwise, it clearly would have disregarded pronouncements of this Court, the compelling force of which cannot be denied. There is, torepeat, no justification for a reversal.

WHEREFORE, the decision of the lower court of March 31, 1967 is affirmed. No costs.

Concepcion, C.J., Zaldivar, Barredo, Makasiar, Antonio and Esguerra, JJ., concur.

Castro and Teehankee, JJ., reserve their votes.

Makalintal, J., is on leave.

Insurance Cases Art 77 to 98

Documents

Transcript of Insurance Cases Art 77 to 98