1. Ng v Asian Crusader G.R. No.

L-30685 May 30, 1983

J. Escolin:

Facts:
Kwong Nam applied for a 20-year endowment insurance on his life for the sum of
P20,000.00, with his wife, appellee Ng Gan Zee as beneficiary. On the same date,
Asian Crusader, upon receipt of the required premium from the insured, approved the
application and issued the corresponding policy. Kwong Nam died of cancer of the liver
with metastasis. All premiums had been paid at the time of his death.
Ng Gan Zee presented a claim for payment of the face value of the policy. On the same
date, she submitted the required proof of death of the insured. Appellant denied the
claim on the ground that the answers given by the insured to the questions in his
application for life insurance were untrue.
Appellee brought the matter to the attention of the Insurance Commissioner. The latter,
after conducting an investigation, wrote the appellant that he had found no material
concealment on the part of the insured and that, therefore, appellee should be paid the
full face value of the policy. The company refused to settle its obligation.
Appellant alleged that the insured was guilty of misrepresentation when he answered
"No" to the following question appearing in the application for life insurance-
Has any life insurance company ever refused your application for insurance or for
reinstatement of a lapsed policy or offered you a policy different from that applied for? If,
so, name company and date.
The lower court ruled against the company on lack of evidence.
Appellant further maintains that when the insured was examined in connection with his
application for life insurance, he gave the appellant's medical examiner false and
misleading information as to his ailment and previous operation. The company
contended that he was operated on for peptic ulcer 2 years before the policy was
applied for and that he never disclosed such an operation.

Issue: WON Asian Crusader was deceived into entering the contract or in accepting the
risk at the rate of premium agreed upon because of insured's representation?

Held: No. Petition dismissed.

Ratio:
Section 27 of the Insurance Law:
Sec. 27. Such party a contract of insurance must communicate to the other, in good
faith, all facts within his knowledge which are material to the contract, and which the
other has not the means of ascertaining, and as to which he makes no warranty.
"Concealment exists where the assured had knowledge of a fact material to the risk, and
honesty, good faith, and fair dealing requires that he should communicate it to the assurer,
but he designedly and intentionally withholds the same."

It has also been held "that the concealment must, in the absence of inquiries, be not
only material, but fraudulent, or the fact must have been intentionally withheld."
Fraudulent intent on the part of the insured must be established to entitle the insurer to
rescind the contract. And as correctly observed by the lower court, "misrepresentation
as a defense of the insurer to avoid liability is an 'affirmative' defense. The duty to
establish such a defense by satisfactory and convincing evidence rests upon the
defendant. The evidence before the Court does not clearly and satisfactorily establish
that defense."
It bears emphasis that Kwong Nam had informed the appellant's medical examiner of
the tumor. His statement that said tumor was "associated with ulcer of the stomach"
should be construed as an expression made in good faith of his belief as to the nature
of his ailment and operation.
While the information communicated was imperfect, the same was sufficient to have
induced appellant to make further inquiries about the ailment and operation of the
insured.
Section 32 of Insurance Law:
Section 32. The right to information of material facts maybe waived either by the terms
of insurance or by neglect to make inquiries as to such facts where they are distinctly
implied in other facts of which information is communicated.
Where a question appears to be not answered at all or to be imperfectly answered, and
the insurers issue a policy without any further inquiry, they waive the imperfection of the
answer and render the omission to answer more fully immaterial.
The company or its medical examiner did not make any further inquiries on such
matters from the hospital before acting on the application for insurance. The fact of the
matter is that the defendant was too eager to accept the application and receive the
insured's premium. It would be inequitable now to allow the defendant to avoid liability
under the circumstances.”

3. G.R. No. 150751

G.R. No. 150751, September 20, 2004

Central Shipping Company, Inc.
vs Insurance Company of North America
Ponente: Panganiban

Facts:
July 25, 1990, Central Shipping received on board its vessel 276 pieces of round logs
and undertook to transport said shipment to Manila for delivery to Alaska Lumber Co. The
cargo was insured for P3m against total loss. While on voyage, the vessel completely
sank.

Insurance Company alleged that the total loss of the shipment was caused by the fault
and negligence of the petitioner. The consignee, Alaska presented a claim for the value
of the shipment against the petitioner but the latter failed and refused to settle the claim,
hence being the insurer, Insurance company paid and now seeks to be subrogated by
the shipping company.
The shipping company argues that the ship was seaworthy and properly manned, putting
defense that the proximate cause of the sinking vessel and the loss was a natural disaster
which could have not been foreseen. RTC was unconvinced and favoured the insurance
company.

CA affirmed the RTC finding that the south western monsoon encountered by the vessel
was not unforeseeable.

Issues:
(1) Whether the carrier is liable for the loss of the cargo; and (2) whether the doctrine of
limited liability is applicable. These issues involve a determination of factual questions of
whether the loss of the cargo was due to the occurrence of a natural disaster; and if so,
whether its sole and proximate cause was such natural disaster or whether petitioner was
partly to blame for failing to exercise due diligence in the prevention of that loss.

Ruling:
Petition is devoid of merit.

(1) Liability for lost cargo: From the nature of their business and for reasons of public
policy, common carriers are bound to observe extraordinary diligence over the goods they
transport, according to all the circumstances of each case. In the event of loss, destruction
or deterioration of the insured goods, common carriers are responsible; that is, unless
they can prove that such loss, destruction or deterioration was brought about -- among
others -- by flood, storm, earthquake, lightning or other natural disaster or calamity. In all
other cases not specified under Article 1734 of the Civil Code, common carriers are
presumed to have been at fault or to have acted negligently, unless they prove that they
observed extraordinary diligence.

In the present case, petitioner has not given the Court sufficient cogent reasons to disturb
the conclusion of the CA that the weather encountered by the vessel was not a storm as
contemplated by Article 1734(1). Established is the fact that between 10:00 p.m. on July
25, 1990 and 1:25 a.m. on July 26, 1990, M/V Central Bohol encountered a south western
monsoon in the course of its voyage.

(2) Doctrine of Limited Liability: The doctrine of limited liability under Article 587 of the
Code of Commerce is not applicable to the present case. This rule does not apply to
situations in which the loss or the injury is due to the concurrent negligence of the ship
owner and the captain. It has already been established that the sinking of M/V Central
Bohol had been caused by the fault or negligence of the ship captain and the crew, as
shown by the improper stowage of the cargo of logs. Closer supervision on the part of the
ship owner could have prevented this fatal miscalculation. As such, the ship owner was
equally negligent. It cannot escape liability by virtue of the limited liability rule.

4.
FACTS Pan Malayan is the insurer of Canlubang Automotive Resource Corporation for a
Mitsubishi Colt Lancer car with plate number DDZ-431. Sometime on May 26, 1985, due
to the carelessness, recklessness and imprudence of the unknown driver of Fabie the
insured car was hit by a pick-up truck owned by the latter. PanMalay defrayed the cost of
the repair; it became the subrogee of Canlubang. Despite repeated demands for
reimbursement from Fabie, the latter refused to pay. Fabie contended that PanMalay has
no cause of action and that payment under the "own damage" clause of the insurance
policy precluded subrogation under Article 2207 of the Civil Code, since indemnification
thereunder was made on the assumption that there was no wrongdoer or no third party
at fault. Both RTC and CA ruled that PanMalay has no cause of action.

ISSUE: WON PanMalay may institute an action to recover the amount it had paid its
assured in settlement of an insurance claim against Fabie as the parties allegedly
responsible for the damage caused to the insured vehicle.

SC Ruling: The Court answered in the affirmative and ruled that PanMalay has cause of
action. Article 2207 of the Civil Code is founded on the well-settled principle of
subrogation. If the insured property is destroyed or damaged through the fault or
negligence of a party other than the assured, then the insurer, upon payment to the
assured, will be subrogated to the rights of the assured to recover from the wrongdoer to
the extent that the insurer has been obligated to pay. Payment by the insurer to the
assured operates as an equitable assignment to the former of all remedies which the
latter may have against the third party whose negligence or wrongful act caused the loss.
The right of subrogation is not dependent upon, nor does it grow out of, any privity of
contract or upon written assignment of claim. It accrues simply upon payment of the
insurance claim by the insurer. Exceptions to the abovecited rule: 1. if the assured by his
own act releases the wrongdoer or third party liable for the loss or damage, from liability,
the insurer's right of subrogation is defeated, 2. where the insurer pays the assured the
value of the lost goods without notifying the carrier who has in good faith settled the
assured's claim for loss, the settlement is binding on both the assured and the insurer,
and the latter cannot bring an action against the carrier on his right of subrogation and 3.
where the insurer pays the assured for a loss which is not a risk covered by the policy,
thereby effecting "voluntary payment", the former has no right of subrogation against the
third party liable for the loss It is a basic rule in the interpretation of contracts that the
terms of a contract are to be construed according to the sense and meaning of the terms
which the parties thereto have used. In the case of property insurance policies, the evident
intention of the contracting parties, i.e., the insurer and the assured, determine the import
of the various terms and provisions embodied in the policy. It is only when the terms of
the policy are ambiguous, equivocal or uncertain, such that the parties themselves
disagree about the meaning of particular provisions, that the courts will intervene. In such
an event, the policy will be construed by the courts liberally in favor of the assured and
strictly against the insurer. Both the PanMalay and Canlubang has the same
understanding the coverage insurance risks under Section III-1 (a) where it is
comprehensive enough to include damage to the insured vehicle arising from collision or
overturning due to the fault or negligence of a third party. CANLUBANG filed its claim with
PANMALAY for indemnification of the damage caused to its car. It then accepted payment
from PANMALAY, and executed a Release of Claim and Subrogation Receipt in favor of
latter.

5.

FACTS:

June 7, 1981: Malayan insurance co., inc. (MICO) issued

to Coronacion Pinca, Fire Insurance Policy for her property effective
July 22, 1981, until July 22, 1982
October 15,1981: MICO allegedly cancelled the policy for non-
payment, of the premium and sent the corresponding notice to Pinca
December 24, 1981: payment of the premium for Pinca was received
by Domingo Adora, agent of MICO
January 15, 1982: Adora remitted this payment to MICO,together with
other payments
January 18, 1982: Pinca's property was completely burned
February 5, 1982: Pinca's payment was returned by MICO to Adora
on the ground that her policy had been cancelled earlier but Adora
refused to accept it and instead demanded for payment
Under Section 416 of the Insurance Code, the period for appeal is
thirty days from notice of the decision of the Insurance Commission.
The petitioner filed its motion for reconsideration on April 25, 1981, or
fifteen days such notice, and the reglementary period began to run
again after 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.
Insurance Commission: favored Pinca
MICO appealed
ISSUE: W/N MICO should be liable because its agent Adora was
authorized to receive it

HELD: YES. petition is DENIED

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 life policy whenever the grace period provision applies.
SEC. 306. xxx xxx xxx

Any insurance company which delivers to an insurance agant or insurance

broker a policy or contract of insurance shall be demmed to have
authorized such agent or broker to receive on its behalf payment of any
premium which is due on such policy or contract of insurance at the time of
its issuance or delivery or which becomes due thereon.
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 is into the agent's hands and is a
discharge of the indebtedness owing to the principal.
SEC. 64. No policy of insurance other than life shall be cancelled by
the insurer except upon prior notice thereof to the insured, and no
notice of cancellation shall be effective unless it is based on the
occurrence, after the effective date of the 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 in violation 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 the named insured
at the address shown in the policy, and shall state (a) which of the
grounds set forth in section sixty-four is relied upon and (b) that, upon
written request of the named insured, the insurer will furnish the facts
on which the cancellation is based.
A valid cancellation must, therefore, require concurrence of the
following conditions:

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

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

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

(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 insurer will
furnish the facts on which the cancellation is based.

All MICO's offers to show that the cancellation was communicated to

the insured is its employee's testimony that the said cancellation was
sent "by mail through our mailing section." without more
It stands to reason that if Pinca had really received the said notice,
she would not have made payment on the original policy on
December 24, 1981. Instead, she would have asked for a new
insurance, effective on that date and until one year later, and so
taken advantage of the extended period.
Incidentally, Adora had not been informed of the cancellation either
and saw no reason not to accept the said payment
Although Pinca's payment 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 it presumably had learned of the occurrence of the loss
insured against on January 18, 1982 make the motives of MICO
highly suspicious

6.
 379 SCRA 356 – Mercantile Law – Insurance Law – Representation – Concealment –
Rescission of an Insurance Contract – Health Care Agreement is an Insurance Contract
In 1988, Ernani Trinos applied for a health care insurance under the Philamcare Health
Systems, Inc. He was asked if he was ever treated for high blood, heart trouble,
diabetes, cancer, liver disease, asthma, or peptic ulcer; he answered no. His application
was approved and it was effective for one year. His coverage was subsequently
renewed twice for one year each. While the coverage was still in force in 1990, Ernani
suffered a heart attack for which he was hospitalized. The cost of the hospitalization
amounted to P76,000.00. Julita Trinos, wife of Ernani, filed a claim before Philamcare
for the latter to pay the hospitalization cost. Philamcare refused to pay as it alleged that
Ernani failed to disclose the fact that he was diabetic, hypertensive, and asthmatic.
Julita ended up paying the hospital expenses. Ernani eventually died. In July 1990,
Julita sued Philamcare for damages. Philamcare alleged that the health coverage is not
an insurance contract; that the concealment made by Ernani voided the agreement.
ISSUE: Whether or not Philamcare can avoid the health coverage agreement.
HELD: No. The health coverage agreement (health care agreement) entered upon by
Ernani with Philamcare is a non-life insurance contract and is covered by the Insurance
Law. It is primarily a contract of indemnity. Once the member incurs hospital, medical or
any other expense arising from sickness, injury or other stipulated contingent, the health
care provider must pay for the same to the extent agreed upon under the contract. There
is no concealment on the part of Ernani. He answered the question with good faith. He
was not a medical doctor hence his statement in answering the question asked of him
when he was applying is an opinion rather than a fact. Answers made in good faith will
not void the policy.
Further, Philamcare, in believing there was concealment, should have taken the
necessary steps to void the health coverage agreement prior to the filing of the suit by
Julita. Philamcare never gave notice to Julita of the fact that they are voiding the
agreement. Therefore, Philamcare should pay the expenses paid by Julita.

7. FACTS:

Anco Enterprises Company (ANCO), a partnership between

Ang Gui and Co To, was engaged in the shipping business
operating two common carriers
M/T ANCO tugboat
D/B Lucio barge - no engine of its own, it could not
maneuver by itself and had to be towed by a tugboat
for it to move from one place to another.
September 23 1979: San Miguel Corporation (SMC) shipped
from Mandaue City, Cebu, on board the D/B Lucio, for
towage by M/T ANCO:
25,000 cases Pale Pilsen and 350 cases Cerveza
Negra - consignee SMC’s Beer Marketing Division
 (BMD)-Estancia Beer Sales Office, Estancia,
Iloilo
15,000 cases Pale Pilsen and 200 cases Cerveza Negra
- consignee SMC’s BMD-San Jose Beer Sales
Office, San Jose, Antique
September 30, 1979: D/B Lucio was towed by the
M/T ANCO arrived and M/T ANCO left the barge
immediately
The clouds were dark and the waves were big
so SMC’s District Sales Supervisor, Fernando
Macabuag, requested ANCO’s representative to
transfer the barge to a safer place but it refused
so around the midnight, the barge sunk along
with 29,210 cases of Pale Pilsen and 500 cases
of Cerveza Negra totalling to P1,346,197
When SMC claimed against ANCO it stated that they agreed
that it would not be liable for any losses or damages
resulting to the cargoes by reason of fortuitous event
and it was agreed to be insured with FGU for 20,000
cases or P858,500
ANCO filed against FGU
FGU alleged that ANCO and SMC failed to
exercise ordinary diligence or the diligence of a
good father of the family in the care and
supervision of the cargoes
RTC: ANCO liable to SMC and FGU liable for 53% of
the lost cargoes
CA affirmed
ISSUE: W/N FGU should be exempted from liability to ANCO for
the lost cargoes because of a fortuitous event and negligence of
ANCO

HELD: YES. Affirmed with modification. Third-party complainant

is dismissed.
 Art. 1733. Common carriers, from the nature of their business and for
reasons of public policy are bound to observe extraordinary diligence
in the vigilance over the goods and for the safety of the passengers
transported by them, according to all the circumstances of each case.
Such extraordinary diligence in vigilance over the goods is further
expressed in Articles 1734, 1735, and 1745 Nos. 5, 6, and 7 . . .

Art. 1734. Common carriers are responsible for the loss, destruction,
or deterioration of the goods, unless the same is due to any of the
following causes only:

(1) Flood, storm, earthquake, lightning, or other natural

disaster or calamity;

. . .

Art. 1739. In order that the common carrier may be

exempted from responsibility, the natural disaster
must have been the proximate and only cause of the
loss. However, the common carrier must exercise
due diligence to prevent or minimize loss before,
during and after the occurrence of flood, storm, or
other natural disaster in order that the common
carrier may be exempted from liability for the loss,
destruction, or deterioration of the goods . . .
Caso fortuito or force majeure
extraordinary events not foreseeable or
avoidable, events that could not be foreseen, or
which though foreseen, were inevitable
not enough that the event should not have been
foreseen or anticipated, as is commonly believed
 but it must be one impossible to foresee or to
avoid - not in this case
other vessels in the port of San Jose,
Antique, managed to transfer to another
place
To be exempted from responsibility, the natural
disaster should have been the proximate and only
cause of the loss. There must have been no
contributory negligence on the part of the common
carrier.
there was blatant negligence on the part of M/T
ANCO’s crewmembers, first in leaving the
engine-less barge D/B Lucio at the mercy of the
storm without the assistance of the tugboat, and
again in failing to heed the request of SMC’s
representatives to have the barge transferred to
a safer place
When evidence show that the insured’s negligence or
recklessness is so gross as to be sufficient to
constitute a willful act, the insurer must be
exonerated.
ANCO’s employees is of such gross character that it
amounts to a wrongful act which must exonerate
FGU from liability under the insurance contract
both the D/B Lucio and the M/T ANCO were
blatantly negligent

8. 139 SCRA 596

Roque v. Intermediate Appellate Court

G.R. No. L-66935 Nov. 11, 1985
Justice Gutierrez, Jr.
Facts:
Isabela Roque (Roque of Isabela Roque Timber Enterprises) hired the Manila Bay
Lighterage Corp. (Manila
Bay) to load and carry its logs from Palawan to North Harbor, Manila. The logs were
insured with Pioneer Insurance
and Surety Corp. (Pioneer). The logs never reached Manila due to certain
circumstances (as alleged by Roque and
found by the appellate court), such as the fact that the barge was not seaworthy that it
developed a leak, that one
of the hatches were left open causing water to enter, and the absence of the necessary
cover of tarpaulin causing
more water to enter the barge. When Roque demanded payment from Pioneer, but the
latter refused on the
ground that its liability depended upon the “Total Loss by Total Loss of Vessel Only.”
The trial court ruled in favor
of Roque in the civil complaint filed by the latter against Pioneer, but the decision was
reversed by the appellate
court.
Issue:
WON in cases of marine insurance, there is a warranty of seaworthiness by the cargo
owner; WON the
loss of the cargo was due to perils of the sea, not perils of the ship.
Held:
Yes, there is. The liability of the insurance company is governed by law. Section 113 of
the Insurance Code
provides that “
In every marine insurance upon a ship or freight, or freightage, or upon anything which
is the
subject of marine insurance, a warranty is implied that the ship is seaworthy.
” Hence,
there can be no mistaking
the fact that the term "cargo" can be the subject of marine insurance and that once it is
so made, the implied
warranty of seaworthiness immediately attaches to whoever is insuring the cargo
whether he be the shipowner or
not. Moreover, the fact that the unseaworthiness of the ship was unknown to the insured
is immaterial in ordinary
marine insurance and may not be used by him as a defense in order to recover on the
marine insurance policy.
As to the second issue, by applying Sec. 113 of the Insurance Code, there is no doubt
that the term 'perils
of the sea' extends only to losses caused by sea damage, or by the violence of the
elements, and does not embrace
all losses happening at sea; it is said to include only such losses as are of
extraordinary
nature, or
arise from some
overwhelming power
, which cannot be guarded against by the ordinary exertion of human skill and
prudence. t is
also the general rule that everything which happens thru the inherent vice of the thing,
or by the act of the
owners, master or shipper, shall not be reputed a peril, if not otherwise borne in the
policy. It must be considered
to be settled, furthermore, that a loss which, in the ordinary course of events, results
from the natural and
inevitable action of the sea, from the ordinary wear and tear of the ship, or from the
negligent failure of the ship's
owner to provide the vessel with proper equipment to convey the cargo under ordinary
conditions, is not a peril of
the sea. Such a loss is rather due to what has been aptly called the "peril of the ship."
The insurer undertakes to
insure against perils of the sea and similar perils, not against perils of the ship. Neither
barratry can be used as a
ground by Roque. Barratry as defined in American Insurance Law is "any willful
misconduct on the part of master
or crew in pursuance of some unlawful or fraudulent purpose without the consent of the
owners, and to the
prejudice of the owner's interest." Barratry necessarily requires a willful and intentional
act in its commission. No
honest error of judgment or mere negligence, unless criminally gross, can be barratry.
In the case at bar, there is
no finding that the loss was occasioned by the willful or fraudulent acts of the vessel's
crew. There was only simple
negligence or lack of skill.

9.

Facts:
American International Underwriters issued a policy in favor of Makati Tuscany
Condominium Corporation with a total premium of P466,103.05. The company
issued a replacement policy. Premium was again paid. In 1984, the policy was again
renewed and private respondent issued to petitioner another policy. The petitioner
paid 152,000 pesos then refused to furnish the balance.
The company filed an action to recover the unpaid balance of P314,103.05.
The condominium administration explained that it discontinued the payment of
premiums because the policy did not contain a credit clause in its favor and that the
acceptance of premiums didn’t waive any of the company rights to deny liability on
any claim under the policy arising before such payments or after the expiration of the
credit clause of the policy and prior to premium payment, loss wasn’t covered.
Petitioner sought for a refund. The trial court dismissed the complaint and
counterclaim owing to the argument that payment of the premiums of the policies
were made during the lifetime or term of said policies, so risk attached under the
policies.
The Court of Appeals ordered petitioner to pay the balance of the premiums owing
to the reason that it was part of an indivisible obligation.
Petitioner now asserts that its payment by installment of the premiums for the
insurance policies invalidated them because of the provisions of Sec. 77 of the
Insurance Code disclaiming liability for loss for occurring before payment of
premiums.
Issue: Whether payment by installment of the premiums due on an insurance policy
invalidates the contract of insurance, in view of Sec. 77 of P.D. 612
Held: Judgment affirmed.
Ratio:
Sec. 77. An insurer is entitled to the payment of the premium as soon as the thing is
exposed to the peril insured against. Notwithstanding any agreement to the contrary,
no policy or contract of insurance issued by an insurance company is valid and
binding unless and until the premium thereof has been paid, except in the case of a
life or an industrial life policy whenever the grace period provision applies.
Petitioner concluded that there cannot be a perfected contract of insurance upon
mere partial payment of the premiums because under Sec. 77 of the Insurance
Code, no contract of insurance is valid and binding unless the premium thereof has
been paid, notwithstanding any agreement to the contrary. As a consequence,
petitioner seeks a refund of all premium payments made on the alleged invalid
insurance policies.
We hold that the subject policies are valid even if the premiums were paid on
installments. The records clearly show that petitioner and private respondent
intended subject insurance policies to be binding and effective notwithstanding the
staggered payment of the premiums. The initial insurance contract entered into in
1982 was renewed in 1983, then in 1984. In those three (3) years, the insurer
accepted all the installment payments. Such acceptance of payments speaks loudly
of the insurer’s intention to honor the policies it issued to petitioner.
Quoting the CA decision:
“While the import of Section 77 is that prepayment of premiums is strictly required as
a condition to the validity of the contract, we are not prepared to rule that the request
to make installment payments duly approved by the insurer, would prevent the entire
contract of insurance from going into effect despite payment and acceptance of the
initial premium or first installment. Section 78 of the Insurance Code in effect allows
waiver by the insurer of the condition of prepayment by making an acknowledgment
in the insurance policy of receipt of premium as conclusive evidence of payment so
far as to make the policy binding despite the fact that premium is actually
unpaid. Section 77 merely precludes the parties from stipulating that the policy is
valid even if premiums are not paid, but does not expressly prohibit an agreement
granting credit extension. So is an understanding to allow insured to pay premiums
in installments not so proscribed.
The reliance by petitioner on Arce vs. Capital Surety and Insurance Co. is unavailing
because the facts therein are substantially different from those in the case at bar. In
Arce, no payment was made by the insured at all despite the grace period given.
Here, petitioner paid the initial installment and thereafter made staggered payments
resulting in full payment of the 1982 and 1983 insurance policies. For the 1984
policy, petitioner paid two (2) installments although it refused to pay the balance.
It appearing from the peculiar circumstances that the parties actually intended to
make three (3) insurance contracts valid, effective and binding, petitioner may not be
allowed to renege on its obligation to pay the balance of the premium after the
expiration of the whole term. Moreover, as correctly observed by the appellate court,
where the risk is entire and the contract is indivisible, the insured is not entitled to a
refund of the premiums paid if the insurer was exposed to the risk insured for any
period, however brief or momentary

10.

Tibay v CA G.R. No. 119655. May 24, 1996 J. Bellosillo:

Facts: Fortune Life issued a fire insurance Policy to Tibay on her two-storey
residential building at Zobel Street, Makati City. The insurance was for P600,000.00
covering the period from January 23, 1987 to January 23, 1988. On January 23
1987, Tibay only paid P600.00 of 3,000 peso premium and left a balance. The
insured building was completely destroyed by fire. Tibay then paid the balance. On
the same day, she filed a claim on the policy. Her claim was accordingly referred to
the adjuster, Goodwill, which immediately wrote Violeta requesting her tofurnish it
with the necessary documents for the investigation and processing of her claim.
Petitioner complied, and she signed a non-waiver agreement. Fortune denied the
claim for violation of the Insurance Code. Tibay sued for damages in the amount of
P600,000.00 representing the total coverage of the policy. The trial court ruled for
petitioners and made fortune liable for the total value of the insured building and
personal properties. The Court of Appeals reversed the court by removing liability
from Fortune after returning the premium. Hence this petition for review. The
petitioner contended that Fortune remained liable under the subject fire insurance
policy in spite of the failure of petitioners to pay their premium in full.
Issue: May a fire insurance policy be valid, binding and enforceable upon mere
partial payment of premium?
Held: No. Petition dismissed.
Ratio: The pertinent provisions read: 2. This policy including any renewal thereof
and/or any endorsement thereon is not in force until the premium has been fully paid
to and duly receipted by the Company in the manner provided herein. 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 a receipt
signed by any authorized official of the company Where the premium has only been
partially paid and the balance paid only after the peril insured against has occurred,
the insurance contract did not take effect and the insured cannot collect at all on the
policy. The Insurance Code which says that no policy or contract of insurance issued
by an insurance company is valid and binding unless and until the premium has
been paid. What does “unless and until the premium thereof has been paid” mean?
Escosura v. San Miguel- the legislative practice was to interpret “with pay” in
accordance to the intention of distinguishbetween full and partial payment, where
the modifying term is used. Petitioners used Philippine Phoenix v. Woodworks,
where partial payment of the premium made the policy effective during the whole
period of the policy. The SC didn’t consider the 1967 Phoenix case as persuasive
due to the different factual scenario. In Makati Tuscany v CA, the parties mutually
agreed that the premiums could be paid in installments, hence, this Court refused to
invalidate the insurance policy. Nothing in Article 77 of the Code suggested that the
parties may not agree to allow payment of the premiums in installment, or to
consider the contract as valid and binding upon payment of the first premium.
Phoenix and Tuscany demonstrated the waiver of prepayment in full by the insurer.
In this case however, there was no waiver. There was a stipulation that the policy
wasn’t in force until the premium has been fully paid and receipted. There was no
juridical tie of indemnification from the fractional payment of premium. The insurance
contract itself expressly provided that the policy would be effective only when the
premium was paid in full. 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 the
manner prescribed in the policy as intended by the parties the policy is ineffective.
Partial payment even when accepted as a partial payment will not keep the policy
alive. South Sea v CA stipulated 2 exceptions to the requirement of payment of the
entire premium as a prerequisite to the validity of the insurance contract. These are
when in case the insurance coverage relates to life or insurance when a grace
period applies, and when the insurer makes a written acknowledgment of the receipt
of premium to be conclusive evidence of payment. Hence, in the absence of clear
waiver of prepayment in full by the insurer, the insured cannot collect on the
proceeds of the policy. “The terms of the insurance policy constitute the measure of
the insurer’s liability. In the absence of statutory prohibition to the contrary,
insurance companies have the same rights as individuals to limit their liability and to
impose whatever conditions they deem best upon their obligations not inconsistent
with public policy.” Dissent: J. Vitug “All the calculations of the company are based
on the hypothesis of prompt payments. They not only calculate on the receipt of the
premiums when due, but on the compounding interest upon them. It is on this basis
that they are enabled to offer assurance at the favorable rates they do.” The failure
of appellants to fully pay their premium prevented the contract of insurance from
becoming binding an Fortune. This series of acts is tainted with misrepresentation
and violates the uberrimae fidae principle of insurance contracts. Tibay had entered
into a “Non-Waiver Agreement” with the adjuster which permitted Fortune to claim
non-payment of premium as a defense. The law neither requires, nor measures the
strength of the vinculum juris by any specific amount of premium payment. Payment
on the premium, partly or in full, is made by the insured which the insurer accepts. In
fine, it is either that a juridical tie exists (by such payment) or that it is not extant at
all (by an absence thereof). Once the juridical relation comes into being, the full
efficacy follows. This is a partially performed contract. The non-payment of the
balance shouldn’t result in an automatic cancellation of the contract; otherwise, the
right to decide the effectivity of the contract would become potestative. Instead, the
parties should be able to demand from each other the performance of whatever
obligations they had assumed or, if desired, sue timely for the rescission of the
contract. In the meanwhile, the contract endures, and an occurrence of the risk
insured riggers the insurer’s liability. Also, legal compensation arises where insurer’s
liability to the insured would simply be reduced by the balance of the premium. It
must here be noted that the insured had made, and the insurer had accepted partial
premium payment on the policy weeks before the risk insured against took place. An
insurance is an aleatory contract effective upon its perfection although the
occurrence of a condition or event may later dictate the demandability of certain
obligations. Fortune’s stipulation that insurance shall not “be . . . in force until the
premium has been fully paid,” and that it “shall be deemed effective, valid and
binding upon the company only when the premiums therefor have actually been paid
in full and duly acknowledged,” override the efficaciousness of the insurance
contract despite the payment and acceptance. Article 78 of the Insurance Code “An
acknowledgment in a policy or contract of insurance of the receipt of premium is
conclusive evidence of its payment, so far as to make the policy binding,
notwithstanding any stipulation therein that it shall not be binding until the premium
is actually paid“ Even if a portion was paid in the premium, the insurance coverage
becomes effective and binding, any stipulation in the policy to the contrary
notwithstanding.