TIBAY v.

CA (FORTUNE LIFE & GENERAL INSURANCE)

257 SCRA 126
BELLOSILLO; May 24, 1996

Facts: On 22 January 1987 Fortune Life and General Insurance Co., Inc. (FORTUNE) issued Fire Insurance
Policy No. 136171 in favor of Violeta R. Tibay and/or Nicolas Roraldo on their two-storey residential
building located at 5855 Zobel Street, Makati City, together with all their personal effects therein. The
insurance was for P600,000 covering the period from 23 January 1987 to 23 January 1988. On 23 January
1987, of the total premium of P2,983.50, Violeta Tibay only paid P600 thus leaving a considerable
balance unpaid.

On 8 March 1987 the insured building was completely destroyed by fire. Two days later, Violeta
Tibay paid the balance of the premium. On the same day, she filed with FORTUNE a claim on the fire
insurance policy. Her claim was accordingly referred to its adjuster, Goodwill Adjustment Services, Inc.
(GASI), which immediately wrote Violeta requesting her to furnish it with the necessary documents for
the investigation and processing of her claim. Petitioner forthwith complied. On 28 March 1987 she
signed a nonwaiver agreement with GASI to the effect that any action taken by the companies shall not
be, or be claimed to be, an admission of liability.

FORTUNE denied the claim of Violeta for violation of Policy Condition No. 2 ♪ and of Sec. 77 of the
Insurance Code. Efforts to settle the case before the Insurance Commission proved futile. On 3 March
1988 Violeta and the other petitioners sued FORTUNE for damages in the amount of P600,000
representing the total coverage of the fire insurance policy plus 12% interest per annum, P100,000
moral damages, and attorney's fees equivalent to 20% of the total claim. The trial court ruled for
petitioners. CA reversed.

ISSUE:
WON a fire insurance policy is valid, binding and enforceable upon mere partial payment of premium

HELD:
NO. Where the insurer and the insured expressly stipulated that the policy is not in force until the
premium has been fully paid the payment of partial premium by the assured in this particular instance
should not be considered the payment required by the law and the stipulation of the parties. Rather, it
must be taken in the concept of a deposit to be held in trust by the insurer until such time that the full
amount has been tendered and duly receipted for.
Reasoning

- As expressly agreed upon in the contract, 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.

- Indeed, and far more importantly, the cardinal polestar in the construction of an insurance contract is
the intention of the parties as expressed in the policy. Courts have no other function but to enforce the
same. The rule that contracts of insurance will be construed in favor of the insured and most strongly
against the insurer should not be permitted to have the effect of making a plain agreement ambiguous
and then construe it in favor of the insured. 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 even for such fractional part of the year as the part
payment bears to the whole payment.

Disposition Petition is DENIED. Decision of the CA is AFFIRMED.

PHILIPPINE PHOENIX SURETY & INSURANCE, INC. vs.WOODWORKS, INC.

G.R. No. L-22684, 31 August 1967

FACTS:

Plaintiff Philippine Phoenix Surety issued to defendant companya fire insurance policy for the amount of
P300,000.00. The defendant was obligated to pay P6,051.95 as premium of the said policy. However, the
defendant was only able to payP3,000.00. Despite several demands made by the plaintiff on the
defendant to pay the amount of P3,522.09, the latter failed to pay.

ISSUE: Whether or not the insurance company has the right to demand the balance of the premium

HELD:YES. There is, consequently, no doubt at all that, as between the insurer and the insured, there was
not only a perfected contract of insurance but a partially performed one as far as the payment of the
agreed premium was concerned. Thereafter the obligation of the insurer to pay the insured the amount
for which the policy was issued in case the conditions therefore had been complied with, arose and
became binding upon it, while the obligation of the insured to pay the remainder of the total amount of
the premium due became demandable.

As the contract had become perfected, the parties could demand from each other the performance of
whatever obligations they had assumed. In the case of the insurer, it is obvious that it had the right to
demand from the insured the completion of the payment of the premium due or sue for the rescission of
the contract. As it chose to demand specific performance of the insured’s obligation to pay the balance
of the premium, the latter’s duty to pay is indeed indubitable.

Wherefore, the appealed decision being in accordance with law and the evidence, the same is hereby
affirmed, with cost.
Philippine Phoenix Surety & Insurance Company vs. Woodworks Inc. [GR L-25317, 6 August 1979]
First Division, Melencio-Herrera (J): 4 concur, 1 abroad.

Facts: On 21 July 1960, upon Woodworks Inc.'s application, Philippine Phoenix Surety & Insurance
Company (Phoenix) issued in its favor Fire Insurance Policy 9749 for P500,000.00 whereby Phoenix
insured Woodworks Inc.'s building, machinery and equipment for a term of one year from 21 July 1960
to 21 July 1961 against loss by fire. The premium and other charges including the margin fee surcharge of
P590.76 and the documentary stamps in the amount of P156.60 affixed on the Policy, amounted to
P10,593.36. Woodworks Inc. did not pay the premium stipulated in the Policy when it was issued nor at
any time thereafter.
On 19 April 1961, or before the expiration of the one-year term, Phoenix notified Woodworks
Inc., through its Indorsement F-6963/61, of the cancellation of the Policy allegedly upon request of
Woodworks Inc. The latter has denied having made such a request. In said Indorsement, Phoenix
credited Woodworks Inc. 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 from 21 July 1960 to 18 April 1961 or, say 271
days.
On 6 July 1961, Phoenix demanded in writing for the payment of said amount. Woodworks Inc.,
through counsel, disclaimed any liability in its reply-letter of 15 August 1961, 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."
On 30 January 1962, Phoenix commenced action in the Court of First Instance of Manila, Branch
IV (Civil Case 49468), to recover the amount of P7,483.11 as "earned premium." Woodworks Inc.
controverted basically on the theory that its failure "to pay the premium after the issuance of the policy
put an end to the insurance contract and rendered the policy unenforceable."
On 13 September 1962, judgment was rendered in Phoenix's favor "ordering Woodworks Inc. to
pay Phoenix the sum of P7,483.11, with interest thereon at the rate of 6% per annum from 30 January
1962, until the principal shall have been fully paid, plus the sum of P700.00 as attorney's fees of the
Phoenix, and the costs of the suit." From this adverse Decision, Woodworks Inc. appealed to the Court of
Appeals which certified the case to the Supreme Court on a question of law.

Issue: Whether the Fire Insurance Policy was a binding contract even if the premium stated in the policy
has not been paid.

Held: 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". "The premium must be paid at the time and in the way and manner specified in the policy
and, if not so paid, the policy will lapse and be forfeited by its own terms."

The Policy provides for pre-payment of premium. Accordingly, "when the policy is tendered the
insured must pay the premium unless credit is given or there is a waiver, or some agreement obviating
the necessity for prepayment." To constitute an extension of credit there must be a clear and express
agreement therefor. From the Policy provisions, there was no clear agreement that a credit extension
was accorded Woodworks Inc.

UCPB General Insurance Co., Inc.-vs- Masagana Telemart, inc.

G.R. No. 137172, 04 April 2001

FACTS:

Plaintiff [herein Respondent] obtained from defendant [herein Petitioner] five (5) insurance policies on
its properties. All five (5) policies reflect on their face the effectivity term: "from 4:00 P.M. of 22 May
1991 to 4:00 P.M. of 22 May 1992." On June 13, 1992, plaintiffs properties were razed by fire. On July 13,
1992, plaintiff tendered, and defendant accepted, five (5) Equitable Bank Manager's Checks as renewal
premium payments for which Official Receipt Direct Premium was issued by defendant. Masagana made
its formal demand for indemnification for the burned insured properties. On the same day, defendant
returned the five (5) manager's checks stating in its letter) that it was rejecting Masagana's claim on the
following grounds:

"a) Said policies expired last May 22, 1992 and were not renewed for another term;

b) Defendant had put plaintiff and its alleged broker on notice of non-renewal earlier; and

c) The properties covered by the said policies were burned in a fire that took place last June 13, 1992, or
before tender of premium payment."

ISSUE: Whether Section 77 of the Insurance Code of 1978 (P.D. No. 1460) 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: Section 77 of the Insurance Code of 1978 provides:

SECTION 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.

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. So is an understanding to allow
insured to pay premiums in installments not so prescribed. At the very least, both parties should be
deemed in estoppel to question the arrangement they have voluntarily accepted.