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

Thus, no vinculum juris whereby the insurer bound itself to indemnify the assured according to law ever resulted
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. It would have been altogether different were it not so stipulated.
Ergo, petitioners had absolute freedom of choice whether or not to be insured by FORTUNE under the terms of its
policy and they freely opted to adhere thereto.
3. Arce v. Capital Insurance & Surety Co., Inc. Digest G.R. No. L-28501 September 30, 1982
Facts: The INSURED (petitioner) was the owner of a residential house in Tondo, Manila, which had been insured
with the COMPANY (respondent) since 1961 under Fire Policy No. 24204. On November 27, 1965, the COMPANY
sent to the INSURED Renewal Certificate No. 47302 to cover the period December 5, 1965 to December 5, 1966.
The COMPANY also requested payment of the corresponding premium.
Anticipating that the premium could not be paid on time, the INSURED, thru his wife, promised to pay it on January
4, 1966. The COMPANY accepted the promise but the premium was not paid on January 4, 1966. On January 8,
1966, the house of the INSURED was totally destroyed by fire.
On January 10, 1966, INSURED's wife presented a claim for indemnity to the COMPANY. She was told that no
indemnity was due because the premium on the policy was not paid. Nonetheless the COMPANY tendered a
check for P300 as financial aid which was received by the INSURED's daughter, Evelina R. Arce. The voucher for
the check which Evelina signed stated that it was "in full settlement (ex gratia) of the fire loss under Claim No. F554 Policy No. F-24202." Thereafter the INSURED and his wife went to the office of the COMPANY to have his
signature on the check Identified preparatory to encashment. At that time the COMPANY reiterated that the check
was given "not as an obligation, but as a concession" because the renewal premium had not been paid, The
INSURED cashed the check but then sued the COMPANY on the policy.
Issue: Whether the insurance policy was valid and binding given that the petitioner insured was not able to pay the
premium.
Ruling: No. The S.C. ruled in favor of the respondent company. Section 72 of the Insurance Act states that: An
insurer is entitled to payment of premium as soon as the thing insured is exposed to the perils insured against,
unless there is clear agreement to grant credit extension for the premium due. No policy issued by an insurance
company is valid and binding unless and until the premium thereof has been paid.
Moreover, the parties in this case had stipulated:
IT IS HEREBY DECLARED AND AGREED that not. withstanding anything to the contrary contained in the within
policy, this insurance will be deemed valid and binding upon the Company only when the premium and
documentary stamps therefor have actually been paid in full and duly acknowledged in an official receipt signed
by an authorized official/representative of the Company."
It is obvious from both the Insurance Act, as amended, and the stipulation of the parties that time is of the essence
in respect of the payment of the insurance premium so that if it is not paid the contract does not take effect unless
there is still another stipulation to the contrary. In the instant case, the INSURED was given a grace period to pay
the premium but the period having expired with no payment made, he cannot insist that the COMPANY is
nonetheless obligated to him.
Prior to the amendment, an insurance contract was effective even if the premium had not been paid so that an
insurer was obligated to pay indemnity in case of loss and correlatively he had also the right to sue for payment of
the premium. But the amendment to Sec. 72 has radically changed the legal regime in that unless the premium is
paid there is no insurance.
Finally, his policy ceased to have effect when he failed to pay the premium.
4. Makati Tuscany Condominium v CA
Facts: In early 1982, American Home Assurance Co. (AHAC), represented by American International Underwriters
(Phils.), Inc., issued in favor of petitioner Makati Tuscany Condominium Corporation (TUSCANY) Insurance Policy
No. AH-CPP-9210452 on the latter's building and premises, for a period beginning 1 March 1982 and ending 1
March 1983, with a total premium of P466,103.05.

The premium was paid on installments on 12 March 1982, 20 May 1982, 21 June 1982 and 16 November 1982, all
of which were accepted by AIU. On 10 February 1983, the policy was renewed and the premiums were paid again
in installments covering the period of 1 March 1983 to 1 March 1984.
All payments were likewise accepted by AIU. On 20 January 1984, the policy was again renewed and AIU issued
to Tuscany Insurance Policy No. AH-CPP-9210651 for the period 1 March 1984 to 1 March 1985.
On this renewed policy, Tuscany made two installment payments, both accepted by AIU, the first on 6 February
1984 for P52,000.00 and the second, on 6 June 1984 for P100,000.00.
Thereafter, Tuscany refused to pay the balance of the premium. Consequently, AIU filed an action to recover the
unpaid balance of P314,103.05 for Insurance Policy No. AH-CPP-9210651.
In its answer with counterclaim, Tuscany admitted the issuance of Insurance Policy No. AH-CPP-9210651.
Tuscany 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 payments covering 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
policy arising 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.
TC dismissed both the complaint and the counterclaim. Both parties appealed to CA which rendered judgment in
favor of AIU and ordered Tuscany to pay the remaining balance. Hence, this case.
Issue: WON 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?
Ruling: No. The court held 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. Certainly, basic principles of equity and
fairness would not allow the insurer to continue collecting and accepting premiums but later denying its liability.
Truly, the judgment of CA was affirmed as it stated that the while the import of Section 77 is that prepayment of
premiums is strictly required as a condition to the validity of the contract, the courts 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, and such an agreement is not contrary to
morals, good customs, public order or public policy.
So is an understanding to allow insured to pay premiums in installments not so proscribed. At the very least, both
parties should be deemed in estoppel to question the arrangement they have voluntarily accepted.
Hence, Tuscany 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.

5. Acme Shoe, Rubber & Plastic Corp. vs CA and Domestic Insurance Company of the Philippines
G.R. No. L-56718; January 17, 1985
Facts: Since 1946, petitioner Acme had been insuring yearly against fire, its building, machines, and merchandise,
with respondent Domestic Insurance (insurer). Acme continued to insure its properties with the insurer in the
amount of P200,000, for the period of May 15, 1962 to May 15, 1963.
On May 14, 1963, a renewal receipt was issued covering May 15, 1963 to May 15, 1964. In January 1964, Acme

paid P3,331.26 as premium which the insurer applied as renewal premium for the period May 1963 to May 1964.
On May 15, 1964, insurer issued a renewal receipt for the renewal premium of P3,331.26 for May 1964-May 1965.
In said renewal receipt, a Receipt of Payment Clause and a Credit Agreement clause were attached as riders.
The Receipt of Payment Clause provides that the insurance will be deemed valid and binding upon the
Company only when the premium and documentary stamps therefor have actually been paid in full and duly
acknowledged in an official receipt signed by an authorized official/representative of the Company
The Credit Agreement provides that The premium corresponding to the first ninety days of the term of this policy
or any renewal thereof is hereby considered paid for the purpose only of making this Policy valid and binding
during said portion of the term. Thereafter, this Policy shall automatically become void and ineffective (without
prejudice to the obligation of the Insured to pay the corresponding short period premium for the said 90 days)
unless prior to the expiration of said period the Insured shall have actually paid to the Company the total premium
and the documentary stamps stipulated in this Policy.
In May 1964, Acme's President signed a promissory note stating that: within 90 days from the effective date of the
policy (May 15, 1964), the premium and documentary stamps amounting to P3,331.26 shall be paid. In case of
failure to do so, the policy shall be automatically cancelled, and Acme shall then be liable to pay only the short
period premium corresponding to 90 days.
A fire destroyed Acme's properties in October 1964, causing Acme to file its insurance claim.
Domestic Insurance disclaimed liability, averring that as of the date of the loss, said properties were not covered by
insurance.
Trial Court ruled in favor of Acme, stating that there was a clear intention on insurer's part to grant Acme a credit
extension for the payment due; and that there would be unjust enrichment on insurer's part if the premium paid is
applied to a policy which was automatically cancelled according to insurer's own theory. CA reversed. Acme's
contention: Insurer accepted the 1-year premium on January 1964 and it had no right to apply it to the payment of
a period of coverage prior thereto when under Republic Act 3540, the policy was void and respondent insurer could
have validly disclaimed liability for loss had one occurred then.
Issue/s: WON an insurance contract existed at the time of the fire, since insurer accepted a 1-year premium in
January 1964.
Held: Appellate Court's ruling sustained. By the express terms of the promissory note, Acme was fully aware that
the policy shall be automatically cancelled on August 13, 1964 (the 90 th day) if the premium was not paid before
said date. Not having paid the premium, and pursuant to RA 3540, the policy was cancelled, hence, there was no
insurance coverage to speak of as of the date of the fire.
Regarding the contention involving RA 3540 which took effect in October 1963, Section 72 of said Act provides:
An insurer is entitled to payment of the premium as soon as the thing insured is exposed to the peril insured
against, unless there is clear agreement to grant the insured credit extension of the premium due. No policy issued
by an insurance company is valid and binding unless and until the premium thereof has been paid.
Since said Act took effect only in October 1963, it could not retroactively affect the policy's renewal in May 1963.
Thus, Acme's premium payment of January 1964 was properly applied to the 1963-1964 premium.
Regarding the Trial Court's opinion of the existence of a clear agreement to grant ACME credit extension for 19641965, such is negated by the promissory note. Indubitably, the credit extension was only for 90 days.
As to the claim that the insurer would unjustly enrich itself if it were to be allowed to apply the one-year premium it
received to a past period when the policy was void and the insurer had incurred no risk, such is flawed for the
reason already stated that Renewal Receipt for 1963-1964 had been issued on May 14,1963 before R.A. No. 3540
was implemented on October 1963. What became automatically cancelled by R.A. No.3540 was the 1964-1965
policy for ACME's failure to pay the premium within the 90-day extension granted, and in accordance with the
express terms of the Promissory Note that it had signed.
7. GSIS vs. PRUDENTIAL GUARANTEE AND ASSURANCE, INC., DEVELOPMENT BANK OF THE
PHILIPPINES & LAND BANK OF THE PHILIPPINES
G.R. No. 165585
November 20, 2013
DOCTRINE: 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, and such 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
pay premiums in installments not so proscribed. At the very least, both parties should be deemed in estoppel to
question the arrangement they have voluntarily accepted.
FACTS: Sometime in March 1999, the National Electrification Administration (NEA) entered into a Memorandum of
Agreement (MOA) with GSIS insuring all real and personal properties mortgaged to it by electrical cooperatives
under an Industrial All Risks Policy (IAR policy). The total sum insured under the IAR policy was
P16,731,141,166.80, out of which, 95% or P15,894,584,108.40 was reinsured by GSIS with PGAI for a period of
one year or from March 5, 1999 to March 5, 2000. As reflected in Reinsurance Request Note No. 99-150
(reinsurance cover) and the Reinsurance Binder dated April 21, 1999 (reinsurance binder), GSIS agreed to pay
PGAI reinsurance premiums in the amount of P32,885,894.52 per quarter or a total of P131,543,578.08. While
GSIS remitted to PGAI the reinsurance premiums for the first three quarters, it, however, failed to pay the fourth
and last reinsurance premium due on December 5, 1999 despite demands. This prompted PGAI to file, on
November 15, 2001, a Complaint for sum of money (complaint) against GSIS before the RTC.
PGAI alleged, in its complaint, among others that: xxx (b) the first three reinsurance premiums were paid to PGAI
by GSIS and, in the same vein, NEA paid the first three reinsurance premiums due to GSIS; (c) GSIS failed to pay
PGAI the fourth and last reinsurance premium due on December 5, 1999 xxx
GSIS admitted that: xxx (b) it remitted to PGAI the first three reinsurance premiums which were paid by NEA; and
(c) it failed to remit the fourth and last reinsurance premium to PGAI. It, however, denied, inter alia, that: (a) it had
acknowledged its obligation to pay the last quarters reinsurance premium to PGAI xxx
On January 11, 2002, the RTC observed that the admissions of GSIS that it paid the first three quarterly
reinsurance premiums to PGAI affirmed the validity of the contract of reinsurance between them. As such, GSIS
cannot now renege on its obligation to remit the last and remaining quarterly reinsurance premium. It further
pointed out that while it is true that the payment of the premium is a requisite for the validity of an insurance
contract as provided under Section 77 of Presidential Decree No. (PD) 612, otherwise known as "The Insurance
Code," it was held in Makati Tuscany Condominium Corp. v. CA that insurance policies are valid even if the
premiums were paid in installments, as in this case. Thus, in view of the foregoing, the RTC ordered GSIS to pay
PGAI the last quarter reinsurance premium.
CA sustained RTCs order with modification and GSIS motion for reconsideration.
ISSUE: WON PGAI has a right to be paid by GSIS the amount of the fourth and last reinsurance premium
RULING: YES. GSIS affirmative defense that the non-payment of the last reinsurance premium merely rendered
the contract ineffective pursuant to Section 77 of PD 612 no longer involves any factual issue, but stands solely as
a mere question of law in the light of the foregoing admissions hence allowing for a judgment on the pleadings.
Besides, in the case of Makati Tuscany, the Court already ruled that the non-payment of subsequent installment
premiums would not prevent the insurance contract from taking effect; that the parties intended to make the
insurance contract valid and binding is evinced from the fact that the insured paid and the insurer received
several reinsurance premiums due thereon, although the former refused to pay the remaining balance, viz:
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 insurers 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 paid on installments, and later deny liability on the lame excuse that the premiums were
not prepaid in full.
We therefore sustain the Court of Appeals. We quote with approval the well-reasoned findings and conclusion of
the appellate court contained 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 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, and such 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 pay premiums in installments not so proscribed. At the very least, both parties
should be deemed in estoppel to question the arrangement they have voluntarily accepted.
[I]n the case before Us, 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 of the third policy (No. AH-CPP-9210651) in March 1985.
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.