Page 1 of 7
AMERICAN HOME ASSURANCE COMPANY, petitioner, vs.
TANTUCO ENTERPRISES, INC., respondent.
FACTS:
Before us is a Petition for Review on Certiorari assailing the
Decision of the Court of Appeals in CA-G.R. CV No. 52221
promulgated on January 14, 1999, which affirmed in toto the
Decision of the Regional Trial Court, Branch 53, Lucena City in Civil
Case No. 92-51 dated October 16, 1995.
Tantuco Enterprises, Inc. is a coconut oil milling and refining
company. It owned two mills (the first oil mill and a new one),
both located at its factory compound at Iyam, Lucena City. The
two oil mills are separately covered by fire insurance policies
issued by American Home Assurance Co.
On Sept. 30, 1991, a fire broke out and gutted and consumed the
new oil mill. American Home rejected the claim for the insurance
proceeds on the ground that no policy was issued by it covering
the burned oil mill. It stated that the new oil mill was under
Building No. 15 while the insurance coverage extended only to the
oil mill under Building No. 5.
A complaint for specific performance and damages was
consequently instituted by the respondent with the RTC, Branch
53 of Lucena City. On October 16, 1995, after trial, the lower court
rendered a Decision finding the petitioner liable on the insurance
policy.
Petitioner assailed this judgment before the Court of Appeals. The
CA on the other hand DISMISSED the petition for lack of merit .
ISSUE:
Whether or not the CA made an erroneous interpretation of the
fire extinguishing warranty policy?
Ruling:
The primary reason advanced by the petitioner in resisting the
claim of the respondent is that the burned oil mill is not covered
by any insurance policy. According to it, the oil mill insured is
specifically described in the policy by its boundaries in the
following manner:
Front: by a driveway thence at 18 meters distance by Bldg. No. 2.
Right: by an open space thence by Bldg. No. 4.
Left: Adjoining thence an imperfect wall by Bldg. No. 4.
Rear: by an open space thence at 8 meters distance.
However, it argues that this specific boundary description clearly
pertains, not to the burned oil mill, but to the other mill. In other
words, the oil mill gutted by fire was not the one described by the
specific boundaries in the contested policy.
In construing the words used descriptive of a building insured, the
greatest liberality is shown by the courts in giving effect to the
insurance. In view of the custom of insurance agents to examine
buildings before writing policies upon them, and since a mistake
as to the identity and character of the building is extremely
unlikely, the courts are inclined to consider the policy of insurance
covers any building which the parties manifestly intended to
insure, however inaccurate the description may be.
Notwithstanding, therefore, the misdescription in the policy, it is
beyond dispute, to our mind, that what the parties manifestly
intended to insure was the new oil mill.
If the parties really intended to protect the first oil mill, then there
is no need to specify it as new. Indeed, it would be absurd to
assume that the respondent would protect its first oil mill for
different amounts and leave uncovered its second one.
In a further attempt to avoid liability, petitioner claims that
respondent forfeited the renewal policy for its failure to pay the
full amount of the premium and breach of the Fire Extinguishing
Appliances Warranty.
The amount of the premium stated on the face of the policy was
P89,770.20. From the admission of respondents own witness, Mr.
Borja, which the petitioner cited, the former only paid it
P75,147.00, leaving a difference of P14,623.20. The deficiency,
petitioner argues, suffices to invalidate the policy, in accordance
with Section 77 of the Insurance Code.[18]
The Court of Appeals refused to consider this contention of the
petitioner. It held that this issue was raised for the first time on
appeal, hence, beyond its jurisdiction to resolve, pursuant to Rule
46, Section 18 of the Rules of Court.[19]
Petitioner, however, contests this finding of the appellate court. It
insists that the issue was raised in paragraph 24 of its Answer, viz.:
24. Plaintiff has not complied with the condition of the policy and
renewal certificate that the renewal premium should be paid on
or before renewal date.
Petitioner adds that the issue was the subject of the cross-
examination of Mr. Borja, who acknowledged that the paid
amount was lacking by P14,623.20 by reason of a discount or
rebate, which rebate under Sec. 361 of the Insurance Code is
illegal.
The argument fails to impress. It is true that the asseverations
petitioner made in paragraph 24 of its Answer ostensibly spoke of
the policys condition for payment of the renewal premium on
time and respondents non-compliance with it. Yet, it did not
contain any specific and definite allegation that respondent did
not pay the premium, or that it did not pay the full amount, or
that it did not pay the amount on time.
Likewise, when the issues to be resolved in the trial court were
formulated at the pre-trial proceedings, the question of the
supposed inadequate payment was never raised. Most significant
to point, petitioner fatally neglected to present, during the whole
course of the trial, any witness to testify that respondent indeed
failed to pay the full amount of the premium. The thrust of the
cross-examination of Mr. Borja, on the other hand, was not for
the purpose of proving this fact. Though it briefly touched on the
alleged deficiency, such was made in the course of discussing a
discount or rebate, which the agent apparently gave the
respondent. Certainly, the whole tenor of Mr. Borjas testimony,
both during direct and cross examinations, implicitly assumed a
valid and subsisting insurance policy. It must be remembered that
he was called to the stand basically to demonstrate that an
existing policy issued by the petitioner covers the burned building.
Finally, petitioner contends that respondent violated the express
terms of the Fire Extinguishing Appliances Warranty. The said
warranty provides:
WARRANTED that during the currency of this Policy, Fire
Extinguishing Appliances as mentioned below shall be maintained
in efficient working order on the premises to which insurance
applies:
- PORTABLE EXTINGUISHERS
- INTERNAL HYDRANTS
- EXTERNAL HYDRANTS
- FIRE PUMP
- 24-HOUR SECURITY SERVICES
BREACH of this warranty shall render this policy null and void and
the Company shall no longer be liable for any loss which may
occur.[20]
Petitioner argues that the warranty clearly obligates the insured
to maintain all the appliances specified therein. The breach
occurred when the respondent failed to install internal fire
hydrants inside the burned building as warranted. This fact was
admitted by the oil mills expeller operator, Gerardo Zarsuela.
Again, the argument lacks merit. We agree with the appellate
courts conclusion that the aforementioned warranty did not
require respondent to provide for all the fire extinguishing

appliances enumerated therein. Additionally, we find that neither
did it require that the appliances are restricted to those
mentioned in the warranty. In other words, what the warranty
mandates is that respondent should maintain in efficient working
condition within the premises of the insured property, fire fighting
equipments such as, but not limited to, those identified in the list,
which will serve as the oil mills first line of defense in case any
part of it bursts into flame.
To be sure, respondent was able to comply with the warranty.
Within the vicinity of the new oil mill can be found the following
devices: numerous portable fire extinguishers, two fire hoses,[21]
fire hydrant,[22] and an emergency fire engine.[23] All of these
equipments were in efficient working order when the fire
occurred.
It ought to be remembered that not only are warranties strictly
construed against the insurer, but they should, likewise, by
themselves be reasonably interpreted.[24] That reasonableness is
to be ascertained in light of the factual conditions prevailing in
each case. Here, we find that there is no more need for an
internal hydrant considering that inside the burned building were:
(1) numerous portable fire extinguishers, (2) an emergency fire
engine, and (3) a fire hose which has a connection to one of the
external hydrants.
________________________
The Phil. American Gen. Insurance Co., Inc. vs Court of Appeals
and Felman Shipping Lines
This case deals with the liability, if any, of a shipowner for loss of
cargo due to its failure to observe the extraordinary diligence
required by Art. 1733 of the Civil Code as well as the right of the
insurer to be subrogated to the rights of the insured upon
payment of the insurance claim.
On 6 July 1983 Coca-Cola Bottlers Philippines, Inc., loaded on
board MV Asilda, a vessel owned and operated by respondent
Felman Shipping Lines (FELMAN for brevity), 7,500 cases of 1-liter
Coca-Cola softdrink bottles to be transported from Zamboanga
City to Cebu City for consignee Coca-Cola Bottlers Philippines, Inc.,
Cebu.[1] The shipment was insured with petitioner Philippine
American General Insurance Co., Inc. (PHILAMGEN for brevity),
under Marine Open Policy No. 100367-PAG.
July 7, the vessel sank in Zamboanga del Norte. July 15, cocacola
filed a claim with respondent Felman for recovery of damages.
Felman denied thus prompted cocacola to file an insurance claim
with Philamgen. Philamgen later on claimed its right of
subrogation against Felman which disclaimed any liability for the
loss.
Philamgen alleged that the sinking and loss were due to the
vessel's unseaworthiness, that the vessel was improperly manned
and its officers were grossly negligent. Felman filed a motion to
dismiss saying that there is no right of subrogation in favor of
Philamgen was transmitted by the shipper.
RTC dismissed the complaint of Philamgen. CA set aside the
dismissal and remanded the case to the lower court for trial on
the merits. Felman filed a petition for certiorari but was denied.
RTC rendered judgment in favor of Felman. it ruled that the vessel
was seaworthy when it left the port of Zamboanga as evidenced
by the certificate issued by the Phil. Coast Guard and the ship
owner’s surveyor. Thus, the loss is due to a fortuitous event, in
which, no liability should attach unless there is stipulation or
negligence.
On appeal, CA rendered judgment finding the vessel unseaworthy
for the cargo for being top-heavy and the cocacola bottles were
also improperly stored on deck. Nonetheless, the CA denied the
claim of Philamgen, saying that Philamgen was not properly
subrogated to the rights and interests of the shipper plus the filing
of notice of abandonment had absolved the ship owner from
liability under the limited liability rule.
Page 2 of 7
Issue: whether Philamgen was properly subrogated to the rights
against Felman?
Ruling:
In relation to the question of subrogation, respondent appellate
court found MV Asilda unseaworthy with reference to the cargo
and therefore ruled that there was breach of warranty of
seaworthiness that rendered the assured not entitled to the
payment of is claim under the policy. Hence, when PHILAMGEN
paid the claim of the bottling firm there was in effect a voluntary
payment and no right of subrogation accrued in its favor. In other
words, when PHILAMGEN paid it did so at its own risk.
Generally, in marine insurance policy, the assured impliedly
warrants to the assurer that the vessel is seaworthy and such
warranty is as much a term of the contract as if expressly written
on the face of the policy. However, the implied warranty of
seaworthiness can be excluded by terms in writing in the policy of
the clearest language. The marine policy issued by Philamgen to
cocacola has dispensed that the "seaworthiness of the vessel as
between the assured and the underwriters in hereby admitted."
The result of the admission of seaworthiness by Philamgen may
mean two things: (1) the warranty of seaworthiness is fulfilled and
(2) the risk of unseaworthiness is assumed by the insurance
company. This waiver clause would mean that Philamgen has
accepted the risk of unseaworthiness, therefore Philamgen is
liable.
On the matter of subrogation, it is provided that;
Art. 2207. If the plaintiff's property has been insured, and
he has received indemnity from the insurance company for the
injury or loss arising out of the wrong or breach of contract
complained of, the insurance company shall be subrogated to the
rights of the insured against the wrongdoer or the person who has
violated the contract. If the amount paid by the insurance
company does not fully cover the injury or loss, the aggrieved
party shall be entitled to recover the deficiency from the person
causing the loss or injury.
Pan Malayan Insurance Corp. vs CA: The right of subrogation is
not dependent upon, nor does it grow out of any privity of
contract or upon payment by the insurance company of the
insurance claim. It accrues simply upon payment by the insurance
company of the insurance claim.
Therefore, the payment made by PHILAMGEN to Coca-Cola
Bottlers Philippines, Inc., gave the former the right to bring an
action as subrogee against FELMAN. Having failed to rebut the
presumption of fault, the liability of FELMAN for the loss of the
7,500 cases of 1-liter Coca-Cola soft drink bottles is inevitable.
General Insurance Surety Corp v Ng Hua
Gen. Insurance & Surety Corp v. NG Hua - Misrepresentation
106 PHIL 1117
Facts:
> In 1952, General issued a fire policy to Ng Hua to cover the
contents of the Central Pomade Factory owned by him.
> There was a provision in the policy that should there be any
insurance already effected or to be subsequently procured, the
insured shall give notice to the insurer.
> Ng Hua declared that there was non. The very next day, the
building and the goods stored therein burned.
> Subsequently, the claim of Ng Hua for the proceeds was denied
by General since it discovered that Ng Hua had obtained an
insurance from General Indemnity for the same goods and for the
same period of time.
Issue:
Whether or not General Insurance can refuse to pay the proceeds.
Held:
Yes.

Violation of the statement which is to be considered a warranty
entitles the insurer to rescind the contract of insurance. Such
misrepresentation is fatal.
xxxxxxxxxxxxxxxxxxxxxx
The annotation then, must be deemed to be a warranty that the
property was not insured by any other policy. Violation thereof
entitles the insurer to rescind. (Sec. 69. Insurance Act) Such
misrepresentation is fatal in the light of our views in Santa Ana vs.
Commercial Union Assurance Company, Ltd., 55 Phil., 329. The
materiality of non-disclosure of other insurance policies is not
open to doubt.
Furthermore, even if the annotations were overlooked, the
defendant insurer would still be free from liability because there
is no question that the policy issued by General Indemnity had not
been stated in nor endorsed on Policy No. 471 of defendant. And
as stipulated in the above-quoted provisions of such policy "all
benefit under this policy shall be forfeited."2
To avoid the dissastrous effect of the misrepresentation or
concealment of the other insurance policy, Ng Hua alleges "actual
knowledge" on the part of General insurance of the fact that he
had taken out additional insurance with General Indemnity. He
does not say when such knowledge was acquired or imparted. If
General Insurance know before issuing its policy or before the
fire, such knowledge might overcome the insurer's defense.3
However, the Court of Appeals found no evidence of such
knowledge. We have read the pages of the stenographic notes
cited by Ng Hua and we all gather is evidence of the existence of
the Insurance General Indemnity Company. As to knowledge of
General Insurance before issuance of its policy or the fire, there
was none.
Indeed, this concealment and violation was expressly set up as a
special defense in the answer. Yet plaintiff did not, in avoidance,
reply nor assert such knowledge. And it is doubtful whether the
evidence on the point would be admissible under the pleadings.
(See Rule 11, sec. 1.)
All the above considerations lead to the conclusion that the
defendant insurer successfully established its defense of warranty
breach or concealment of the other insurance and/or violation of
the provision of the policy above-mentioned.
Having reached the conclusion, we deem it unnecessary to discuss
the other defenses.
Wherefore, the judgment under review will be revoked, and the
defendant insurer (herein petitioner) acquitted from all the
liability under the policy. Costs against respondent. So ordered.
Qua chee gan v Law Union and Rock Insurance Co.
Qua Chee Gan v. Law Union Rock - Breach of Warranty
98 PHIL 85
Facts:
> Qua Chee Gan, a merchant, owned 4 warehouses in Albay
which were used for the storage or copra and hemp in which the
appelle deals with exclusively.
> The warehouses together with the contents were insured with
Law Union since 1937 and the loss made payable to PNB as
mortgagee of the hemp and copra.
> A fire of undetermined cause broke out in July 21, 1940 and
lasted for almost 1 whole week.
> Bodegas 1, 3, and 4 including the merchandise stored were
destroyed completely.
> Insured then informed insurer of the unfortunate event and
submitted the corresponding fire claims, which were later
reduced to P370T.
> Insurer refused to pay claiming violations of the warranties and
conditions, filing of fraudulent claims and that the fire had been
deliberately caused by the insured.
Page 3 of 7
> Insured filed an action before CFI which rendered a decision in
favor of the insured.
Issues and Resolutions:
(1) Whether or not the policies should be avoided for the reason
that there was a breach of warranty.
Under the Memorandum of Warranty, there should be no less
than 1 hydrant for each 150 feet of external wall measurements
of the compound, and since bodegas insured had an external wall
per meter of 1640 feet, the insured should have 11 hydrants in
the compound. But he only had 2.
Even so, the insurer is barred by estoppel to claim violation of the
fire hydrants warranty, because knowing that the number of
hydrants it demanded never existed from the very beginning,
appellant nevertheless issued the policies subject to such
warranty and received the corresponding premiums. The
insurance company was aware, even before the policies were
issued, that in the premises there were only 2 hydrants and 2
others were owned by the Municipality, contrary to the
requirements of the warranties in question.
It should be close to conniving at fraud upon the insured to allow
the insurer to claim now as void the policies it issued to the
insured, without warning him of the fatal defect, of which the
insurer was informed, and after it had misled the insured into
believing that the policies were effective.
Accdg to American Jurisprudence: It is a well-settled rule that the
insurer at the time of the issuance of a policy has the knowledge
of existing facts, which if insisted on, would invalidate the
contract from its very inception, such knowledge constitutes a
waiver of conditions in the contract inconsistent with known
facts, and the insurer is stopped thereafter from asserting the
breach of such conditions. The reason for the rule is: To allow a
company to accept one’s money for a policy of insurance which it
knows to be void and of no effect, though it knows as it must that
the insured believes it to be valid and binding is so contrary to the
dictates of honesty and fair dealing, as so closely related to
positive fraud, as to be abhorrent to fair-minded men. It would
be to allow the company to treat the policy as valid long enough
to get the premium on it, and leave it at liberty to repudiate it the
next moment.
Moreover, taking into account the well-known rule that
ambiguities or obscurities must strictly be interpreted against the
party that cause them, the memorandum of warranty invoked by
the insurer bars the latter from questioning the existence of the
appliances called for, since its initial expression “the undernoted
appliances for the extinction of fire being kept on the premises
insured hereby..” admits of the interpretation as an admission of
the existence of such appliances which insurer cannot now
contradict, should the parole evidence apply.
(2) Whether or not the insured violated the hemp warranty
provision against the storage of gasoline since insured admitted
there were 36 cans of gasoline in Bodega 2 which was a separate
structure and not affected by the fire.
It is well to note that gasoline is not specifically mentioned among
the prohibited articles listed in the so-called hemp warranty. The
clause relied upon by the insurer speaks of “oils”. Ordinarily, oils
mean lubricants and not gasoline or kerosene. Here again, by
reason of the exclusive control of the insurance company over the
terms of the contract, the ambiguity must be held strictly against
the insurer and liberally in favor of the insured, specially to avoid
a forfeiture.

Furthermore, the gasoline kept was only incidental to the
insured’s business. It is a well settled rule that keeping of
inflammable oils in the premises though prohibited by the policy
does NOT void it if such keeping is incidental to the business.
Also, the hemp warranty forbade the storage only in the building
to which the insurance applies, and/or in any building
communicating therewith; and it is undisputed that no gasoline
was stored in the burnt bodegas and that Bodega No. 2 which was
where the gasoline was found stood isolated from the other
bodegas.
PREMIUM
Gaisano v Development Insurance
Jaime T. Gaisano Vs. Development Insurance and Surety
Corporation
G.R. No. 190702
February 27, 2017
Facts:
Petitioner was the registered owner of a 1992 Mitsubishi Montero
with plate number GTJ-777 (vehicle), while respondent is a
domestic corporation engaged in the insurance business. On
September 27, 1996, respondent issued a comprehensive
commercial vehicle policy to petitioner in the amount of
Pl,500,000.00 over the vehicle for a period of one year
commencing on September 27, 1996 up to September 27, 1997.
Respondent also issued two other commercial vehicle policies to
petitioner covering two other motor vehicles for the same period.
To collect the premiums and other charges on the policies,
respondent's agent, Trans-Pacific Underwriters Agency (Trans-
Pacific), issued a statement of account to petitioner's company,
Noah's Ark
Merchandising (Noah's Ark). Noah's Ark immediately processed
the payments and issued a Far East Bank check dated September
27, 1996 payable to Trans-Pacific on the same day. The check
bearing the amount of Pl40,893.50 represents payment for the
three insurance policies, with P55,620.60 for the premium and
other charges over the vehicle. However, nobody from Trans-
Pacific picked up the check that day (September 27) because its
president and general manager, Rolando Herradura, was
celebrating his birthday. Trans-Pacific informed Noah's Ark that its
messenger would get the check the next day, September 28. In
the evening of September 27, 1996, while under the official
custody of Noah's Ark marketing manager Achilles Pacquing
(Pacquing) as a service company vehicle, the vehicle was stolen in
the vicinity of SM Megamall at Ortigas, Mandaluyong City.
Pacquing reported the loss to the Philippine National Police Traffic
Management Command at Camp Crame in Quezon City. Despite
search and retrieval efforts, the vehicle was not recovered.
Oblivious of the incident, Trans-Pacific picked up the check the
next day, September 28. It issued an official receipt numbered
124713 dated September 28, 1996, acknowledging the receipt of
P55,620.60 for the premium and other charges over the vehicle.
The check issued to Trans Pacific for Pl40,893.50 was deposited
with Metrobank for encashment on October 1, 1996.
Issue:
Whether there is a binding insurance contract between petitioner
and respondent.
Ruling:
The court deny the petition. Insurance is a contract whereby one
undertakes for a consideration to indemnify another against loss,
damage or liability arising from an unknown or contingent event.
Just like any other contract, it requires a cause or consideration.
The consideration is the premium, which must be paid at the time
and in the way and manner specified in the policy. If not so paid,
the policy will lapse and be forfeited by its own terms. The law,
however, limits the parties' autonomy as to when payment of
premium may be made for the contract to take effect. The
general rule in insurance laws is that unless the premium is paid,
the insurance policy is not valid and binding.
Page 4 of 7
Section 77 of the Insurance Code, applicable at the time of the
issuance of the policy, provides: Sec. 77. An insurer is entitled to
payment of the premium as soon as the thing insured is exposed
to the peril insured against. Notwithstanding any agreement to
the contrary, no policy or contract of insurance issued by an
insurance company is valid and binding unless and until the
premium thereof has been paid, except in the case of a life or an
industrial life policy whenever the grace period provision applies.
UCPB General Insurance v Masagana
UCPB v Masagana G.R. No. 137172. April 4, 2001
C.J. Davide
Facts:
In our decision of 15 June 1999 in this case, we reversed and set
aside the assailed decision[1] of the Court of Appeals, which
affirmed with modification the judgment of the trial court (a)
allowing Respondent to consign the sum of P225,753.95 as full
payment of the premiums for the renewal of the five insurance
policies on Respondent’s properties; (b) declaring the
replacement-renewal policies effective and binding from 22 May
1992 until 22 May 1993; and (c) ordering Petitioner to pay
Respondent P18,645,000.00 as indemnity for the burned
properties covered by the renewal-replacement policies. The
modification consisted in the (1) deletion of the trial court’s
declaration that three of the policies were in force from August
1991 to August 1992; and (2) reduction of the award of the
attorney’s fees from 25% to 10% of the total amount due the
Respondent.
Masagana obtained from UCPB five (5) insurance policies on its
Manila properties.
The policies were effective from May 22, 1991 to May 22, 1992.
On June 13, 1992, Masagana’s properties were razed by fire. On
July 13, 1992, plaintiff tendered five checks for P225,753.45 as
renewal premium payments. A receipt was issued. On July 14,
1992, Masagana made its formal demand for indemnification for
the burned insured properties. UCPB then rejected Masagana’s
claims under the argument that the fire took place before the
tender of payment.
Hence Masagana filed this case.
The Court of Appeals disagreed with UCPB’s argument that
Masagana’s tender of payment of the premiums on 13 July 1992
did not result in the renewal of the policies, having been made
beyond the effective date of renewal as provided under Policy
Condition No. 26, which states:
26. Renewal Clause. -- Unless the company at least forty five days
in advance of the end of the policy period mails or delivers to the
assured at the address shown in the policy notice of its intention
not to renew the policy or to condition its renewal upon reduction
of limits or elimination of coverages, the assured shall be entitled
to renew the policy upon payment of the premium due on the
effective date of renewal.
Both the Court of Appeals and the trial court found that sufficient
proof exists that Masagana, which had procured insurance
coverage from UCPB for a number of years, had been granted a
60 to 90-day credit term for the renewal of the policies. Such a
practice had existed up to the time the claims were filed. Most of
the premiums have been paid for more than 60 days after the
issuance. Also, no timely notice of non-renewal was made by
UCPB.
The Supreme Court ruled against UCPB in the first case on the
issue of whether the fire insurance policies issued by petitioner to
the respondent covering the period from May 22, 1991 to May 22,
1992 had been extended or renewed by an implied credit
arrangement though actual payment of premium was tendered
on a later date and after the occurrence of the risk insured
against.
UCPB filed a motion for reconsideration.
The Supreme Court, upon observing the facts, affirmed that there
was no valid notice of non-renewal of the policies in question, as
there is no proof at all that the notice sent by ordinary mail was
received by Masagana. Also, the premiums were paid within the
grace period.
Issue: Whether Section 77 of the Insurance Code of 1978 must be
strictly applied to Petitioner’s advantage despite its practice of
granting a 60- to 90-day credit term for the payment of
premiums.
Held: No. Petition denied.

Ratio:
Section 77 of the Insurance Code provides: No policy or contract
of insurance issued by an insurance company is valid and binding
unless and until the premium thereof has been paid…
An exception to this section is Section 78 which provides: Any
acknowledgment in a policy or contract of insurance of the receipt
of premium is conclusive evidence of its payment, so far as to
make the policy binding, notwithstanding any stipulation therein
that it shall not be binding until premium is actually paid.
Makati Tuscany v Court of Appeals- Section 77 may not apply if
the parties have agreed to the payment in installments of the
premium and partial payment has been made at the time of loss.
Section 78 allows waiver by the insurer of the condition of
prepayment and makes the policy binding despite the fact that
premium is actually unpaid. Section 77 does not expressly
prohibit an agreement granting credit extension. At the very least,
both parties should be deemed in estoppel to question the
arrangement they have voluntarily accepted.
The Tuscany case has provided another exception to Section 77
that the insurer may grant credit extension for the payment of the
premium. If the insurer has granted the insured a credit term for
the payment of the premium and loss occurs before the
expiration of the term, recovery on the policy should be allowed
even though the premium is paid after the loss but within the
credit term.
Moreover, there is nothing in Section 77 which prohibits the
parties in an insurance contract to provide a credit term within
which to pay the premiums. That agreement is not against the
law, morals, good customs, public order or public policy. The
agreement binds the parties.
It would be unjust if recovery on the policy would not be
permitted against Petitioner, which had consistently granted a 60-
to 90-day credit term for the payment of premiums. Estoppel
bars it from taking refuge since Masagana relied in good faith on
such practice. Estoppel then is the fifth exception.
Makati Tuscany Condo v CA
Makati Tuscany v CA G.R. No. 95546 November 6, 1992
J. Bellosillo
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
Page 5 of 7
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
Capital Insurance Surety v CA
CAPITAL INSURANCE VS. PLASTIC ERA, CO.
Posted on September 9, 2015
G.R.No. L-22375 July 18, 1975
Lessons Applicable: Estoppel and credit extension (Insurance)
Laws Applicable: Article 1249 of the New Civil Code
FACTS:
December 17, 1960: Capital Insurance & Surety Co., Inc. delivered
to the respondent Plastic Era Manufacturing Co., Inc. its open Fire
Policy insuring its building, equipments, raw materials, products
andaccessories located at Sheridan Street, Mandaluyong, Rizal
between December 15, 1960 1 pm – December 15, 1961 1 pm up
to P100,000 but Plastic Era did not pay the premium
January 8, 1961: Plastic Era delivered to Capital Insurance its
partialpayment through check P1,000 postdated January 16, 1961
February 20, 1961: Capital Insurance tried to deposit the check
but it was dishonored due to lack of funds. According to the
records, on January 19, 1961 Plastic Era has had a bank balance of
P1,193.41
January 18, 1961: Plastic Era’s properties were destroyed by fire
amounting to a loss of P283,875. The property was also insured
to Philamgen Insurance Company for P200K.
Capital Insurance refused Plastic Era’s claim for failing to pay
theinsurance premium
CFI: favored Capital Insurance
CA: affirmed

ISSUE: W/N there was a valid insurance contract because there
was an extention of credit despite failing to encash the check
payment
HELD: YES. Affirmed
Article 1249 of the New Civil Code
The delivery of promissory notes payable to order, or bills of
exchange or other mercantile documents shall produce the effect
ofpayment only when they have been cashed, or when through
the fault of the creditor they have been impaired
Capital Insurance accepted the promise of Plastic Era to pay
theinsurance premium within 30 days from the effective date of
policy. Considering that the insurance policy is silent as to the
mode of payment, Capital Insurance is deemed to have accepted
the promissory note in payment of the premium. This rendered
the policy immediately operative on the date it was delivered.
By accepting its promise to pay the insurance premium within
thirty (30) days from the effectivity date of the policy —
December 17, 1960 Capital Insurance had in effect extended
credit to Plastic Era.
Where credit is given by an insurance company for the payment
of the premium it has no right to cancel the policy for
nonpayment except by putting the insured in default and giving
him personal notice
Having held the check for such an unreasonable period of time,
Capital Insurance was estopped from claiming a forfeiture of its
policy for non-payment even if the check had been dishonored
later.
Philippine Phoenix Surety v Woodworks Inc.
PHILIPPINE PHOENIX SURETY & INSURANCE COMPANY, vs.
WOODWORKS, INC. G.R. No. L-25317 August 6, 1979
Posted on September 9, 2015
PHILIPPINE PHOENIX SURETY & INSURANCE COMPANY, vs.
WOODWORKS, INC.
G.R. No. L-25317 August 6, 1979
FIRST DIVISION
MELENCIO-HERRERA, J.:
FACTS:
Upon WOODWORKS’s application, PHIL. PHOENIX issued in its
favor a fire insurance policy whereby PHIL. PHOENIX insured
WOODWORKS’ building, machinery and equipment for a term of
one year from against loss by fire. The premium and other charges
amounted to P10,593.36.
It is undisputed that WOODWORKS did not pay the premium
stipulated in the Policy when it was issued nor at any time
thereafter.
Before the expiration of the one-year term, PHIL. PHOENIX
notified WOODWORKS of the cancellation of the Policy allegedly
upon request of WOODWORKS. The latter has denied having
made such a request. PHIL. PHOENIX credited WOODWORKS with
the amount of P3,110.25 for the unexpired period of 94 days, and
claimed the balance of P7,483.11 representing , earned premium.
Thereafter, PHIL. PHOENIX demanded in writing for the payment
of said amount.
WOODWORKS disclaimed any liability contending, in essence, that
it need not pay premium “because the Insurer did not stand liable
for any indemnity during the period the premiums were not
paid.”
For this reason, PHIL. PHOENIX commenced action in the CFI of
Manila. Judgment was rendered in PHIL. PHOENIX’s favor . From
this adverse Decision, WOODWORKS appealed to the Court of
Appeals which certified the case to SC on a question of law.
ISSUE:
May the insurer collect the earned premiums?
HELD:
NO. The Courts findings are buttressed by Section 77 of the
Insurance Code (Presidential Decree No. 612, promulgated on
December 18, 1974), which now provides that “no contract of
insurance issued by an insurance company is valid and binding
unless and until the premium thereof has been paid,
notwithstanding any agreement to the contrary.”
Page 6 of 7
Since the premium had not been paid, the policy must be deemed
to have lapsed.
The non-payment of premiums does not merely suspend but put,
an end to an insurance contract, since the time of the payment is
peculiarly of the essence of the contract.
In fact, if the peril insured against had occurred, PHIL. PHOENIX,
as insurer, would have had a valid defense against recovery under
the Policy it had issued. Explicit in the Policy itself is PHIL.
PHOENIX’s agreement to indemnify WOODWORKS for loss by fire
only “after payment of premium,” Compliance by the insured
with the terms of the contract is a condition precedent to the
right of recovery.
The burden is on an insured to keep a policy in force by the
payment of premiums, rather than on the insurer to exert every
effort to prevent the insured from allowing a policy to elapse
through a failure to make premium payments. The continuance of
the insurer’s obligation is conditional upon the payment of
premiums, so that no recovery can be had upon a lapsed policy,
the contractual relation between the parties having ceased.
Moreover, “an insurer cannot treat a contract as valid for the
purpose of collecting premiums and invalid for the purpose of
indemnity.”
DISPOSITION:
The judgment appealed from was reversed, and PHIL. PHOENIX’s
complaint dismissed.
From LAW I.Q. for Law Students
Sps Tibay v CA fortune Life.
Tibay v. CA Digest
Tibay, et. al v Court of Appeals
GR No. 119655, 24 May 1996
Bellosillo, [J.]
Facts:
1. In January 22 1987, the Petitioner Violeta Tibay (and Nicolas
Roralso) obtained a fire insurance policy for their 2-storey from
the Private Respondent Fortune Life Insurance Co. The said policy
covers the period from January 23, 1987 until January 23, 1988 or
one year for P600, 000 and at the agreed premium of P2, 983.50.
On January 23 or the next day, petitioner made a partial payment
of the premium with P600.
2. Unfortunately, on March 8 1987, the said building was
burned to the ground. It was only two days after the fire that
Petitioner Violeta advanced the full payment of the policy
premium which was accepted by the insurer. On this same day,
petitioner likewise filed the claim that was then referred to the
insurer's adjuster. Investigation of the cause of fire commenced
and the petitioner submitted the required proof of loss.
3. Despite that, the private respondent Fortune refused to pay
the insurance claim saying it as not liable due to the non-payment
by petitioner of the full amount of the premium as stated in the
policy.
4. The petitioner then brought the matter to the Insurance
Commission but nothing good came out. Hence this case filed.
5. The trial court rule in favor of the petitioner. Upon appeal,
the Court of Appeals reversed the lower court's decision and held
that Fortune is not liable but ordered it to return the premium
paid with interest to the petitioner. Hence, this petition for
review.
Issue: W/N the partial payment of the premium rendered the
insurance policy ineffective?
YES.
1. Insurance is a contract whereby one undertakes for a
consideration to indemnify another against loss, damage or
liability arising from an unknown or contingent event. The
consideration is the premium, which must be paid at the time,
way and manner as stated in the policy, and if not so paid as in
 Page 7 of 7

this case, the policy is therefore forfeited by its own terms. In this
case, the policy taken out by the petitioner provides for payment
of premium in full. Since the petitioner only made partial payment
with the remaining balance paid only after the fire or peril insured
against has occurred, the insurance contract therefore did not
take effect barring the insured from claiming or collecting from
the loss of her building.

2. Under Section 77 of the Insurance Code (Philippine), it

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

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